Stabilizing and Rebuilding Iraq: Conditions in Iraq Are Conducive to Fraud, Waste, and Abuse
Published: 2007-04-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony discusses some of the systemic conditions in Iraq that contribute to the fraud, waste, or abuse of U.S.-provided funds. Since 2003, DOD has reported total costs of about $257.5 billion for military operations in Iraq; these have increased from about $38.8 billion in fiscal year 2003 to about $83.4 billion in fiscal year 2006. The largest increase has been in operation and maintenance expenses, including items such as support for housing, food, and services; the repair of equipment; and transportation of people, supplies and equipment. Many of the operation and maintenance expenses are for services. Other U.S. government agencies had reported obligations of $29 billion for Iraqi reconstruction and stabilization, as of October 2006. These funds have been used for, among other things, infrastructure repair of the electricity, oil, water, and health sectors; training and equipping of the Iraqi security forces; and administrative expenses. Specifically, the testimony focuses on (1) security, (2) management and reporting of the program to train and equip Iraqi security forces, (3) contracting and contract management activities, and (4) Iraqi capacity and commitment to manage and fund reconstruction and security efforts.
section_title: What GAO Found
paragraphs: Despite U.S. and Iraqi efforts to shift a greater share of the country's defense on Iraqi forces, the security situation continues to deteriorate. Poor security conditions have hindered the management of the more than $29 billion that has been obligated for reconstruction and stabilization efforts since 2003. Although the State Department has reported that the number of Iraqi army and police forces that has been trained and equipped has increased from about 174,000 in July 2005 to about 323,000 in December 2006, overall security conditions in Iraq have deteriorated and grown more complex. These conditions have hindered efforts to engage with Iraqi partners and demonstrate the difficulty in making political and economic progress in the absence of adequate security conditions. GAO's ongoing work has identified weaknesses in the $15.4 billion program to support the development and sustainment of Iraqi security forces. Sectarian divisions have eroded the dependability of many Iraqi units, and a number of Iraqi units have refused to serve outside the areas where they were recruited. Corruption and infiltration by militias and others loyal to parties other than the Iraqi government have resulted in the Iraqi security forces being part of the problem in many areas instead of the solution. While unit-level transition readiness assessments (TRA) provide important information on Iraqi security force capabilities, the aggregate reports DOD provides to Congress based on these assessments do not provide adequate information to judge the capabilities of Iraqi forces. The DOD reports do not detail the adequacy of Iraqi security forces' manpower, equipment, logistical support, or training and may overstate the number of forces on duty. Congress will need additional information found in the TRAs to assess DOD's supplemental request for funds to train and equip Iraqi security forces. DOD's heavy reliance on contractors in Iraq, its long-standing contract and contract management problems, and poor security conditions provide opportunities for fraud, waste, and abuse. First, military commanders and senior DOD leaders do not have visibility over the total number of contractors who are supporting deployed forces in Iraq. As we have noted in the past, this limited visibility can unnecessarily increase costs to the government. Second, DOD lacks clear and comprehensive guidance and leadership for managing and overseeing contractors. In October 2005, DOD issued, for the first time, department-wide guidance on the use of contractors that support deployed forces. Although this guidance is a good first step, it does not address a number of problems we have repeatedly raised. Third, key contracting issues have prevented DOD from achieving successful acquisition outcomes. There has been an absence of well-defined requirements, and DOD has often entered into contract arrangements on reconstruction efforts and into contracts to support deployed forces that have posed additional risk to the government. Further, a lack of training hinders the ability of military commanders to adequately plan for the use of contractor support and inhibits the ability of contract oversight personnel to manage and oversee contracts and contractors in Iraq. Iraqi capacity and commitment to manage and fund reconstruction and security efforts remains limited. Key ministries face challenges in staffing a competent and non-partisan civil service, fighting corruption, and using modern technology. The inability of the Iraqi government to spend its 2006 capital budget also increases the uncertainty that it can sustain the rebuilding effort.

section_title: Letter
paragraphs: I appreciate the opportunity to discuss some of the systemic conditions in  Iraq that contribute to the fraud, waste, or abuse of U.S.-provided funds.  Since 2003, DOD has reported total costs of about $257.5 billion for  military operations in Iraq; these have increased from about $38.8 billion in  fiscal year 2003 to about $83.4 billion in fiscal year 2006. The largest  increase has been in operation and maintenance expenses, including items  such as support for housing, food, and services; the repair of equipment;  and transportation of people, supplies and equipment. Many of the  operation and maintenance expenses are for services. Other U.S.  government agencies had reported obligations of $29 billion for Iraqi  reconstruction and stabilization, as of October 2006. These funds have  been used for, among other things, infrastructure repair of the electricity,  oil, water, and health sectors; training and equipping of the Iraqi security  forces; and administrative expenses.
My testimony today will focus on (1) security, (2) management and  reporting of the program to train and equip Iraqi security forces, (3)  contracting and contract management activities, and (4) Iraqi capacity and  commitment to manage and fund reconstruction and security efforts.
In preparing this testimony, we relied on previously issued GAO reports  and testimonies on the security situation in Iraq, the training and  equipping of Iraqi security forces, capacity of key Iraqi ministries, the  management of contracts and contractors used to support deployed  forces, and issues related to the reconstruction of Iraq. We performed our  work in accordance with generally accepted government auditing  standards.
subsections: section_title: Transferring Additional Security Responsibilities to the Iraqi Government Has Not Improved the Security Situation
paragraphs: Despite U.S. and Iraqi efforts to shift a greater share of the country’s  defense to the Iraqi security forces, the security situation continues to  deteriorate, impeding management of the more than $29 billion obligated  for reconstruction and stabilization efforts. The desired end-state for U.S.- stabilization operations in Iraq is 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 end-state, the United States is,  among other things, (1) training and equipping Iraqi security forces that  will be capable of leading counterinsurgency operations, and (2)  transferring security responsibilities to Iraqi forces and the Iraqi  government as capabilities improve. In October 2003, the multinational  force outlined a multistep plan for transferring security missions to Iraqi  security forces. The security transition plan had the objective of  neutralizing Iraq’s insurgency while developing Iraqi forces capable of  securing their country, allowing a gradual decrease in the number of  coalition forces.
From the fall of 2003 through April 2006, MNF-I revised its security  transition plan several times because the Iraqi government and security  forces proved incapable of assuming security responsibilities within the  time frames envisioned by the plans. For example, in April 2004, Iraqi  police and military units performed poorly during an escalation of  insurgent attacks against the coalition. Many Iraqi security forces around  the country collapsed, with some units abandoning their posts and  responsibilities and in some cases assisting the insurgency.
State and DOD have reported some progress in implementing the security  transition plan. The State Department has reported that the number of  army and police forces that have been trained and equipped increased  from about 174,000 in July 2005 to about 323,000 in December 2006. DOD  and State also have reported progress in transferring security  responsibilities to Iraqi army units and provincial governments. The  number of Iraqi army battalions in the lead for counterinsurgency  operations increased from 21 in March 2005 to 89 in October 2006. In  addition, 7 Iraqi army division headquarters and 30 brigade headquarters  had assumed the lead by December 2006. Moreover, by mid-December  2006, three provincial governments—Muthanna, Dhi Qar, and Najaf—had  taken over security responsibilities for their provinces.
However, the reported progress in transferring securing responsibilities to  Iraq has not led to improved security conditions (see fig.1). Since June  2003, overall security conditions in Iraq have deteriorated and grown more  complex, as evidenced by the increased numbers of attacks and the Sunni- Shi’a sectarian strife that followed the February 2006 bombing of the  Golden Mosque in Samarra. Enemy-initiated attacks against the coalition  and its Iraqi partners continued to increase through October 2006 and  remain high. The average total attacks per day has increased, rising from  about 70 per day in January 2006 to a record high of about 180 per day in  October 2006. These attacks have increased around major religious and  political events, including Ramadan and the elections. Coalition forces are  still the primary target of attacks, but the number of attacks on Iraqi  security forces and civilians also has increased since 2003. In October  2006, the State Department reported that the recent increase in violence  has hindered efforts to engage with Iraqi partners and illustrates the  difficulty in making political and economic progress in the absence of  adequate security conditions.
Sectarian and militia influences in the Iraqi security forces contribute to  the higher levels of violence. According to portions of the January 2007  National Intelligence Estimate on Iraq that were declassified, sectarian  divisions have eroded the dependability of many Iraqi units, and a number  of Iraqi units have refused to serve outside the areas where they were  recruited. According to an August 2006 DOD report, sectarian lines among  the Iraqi security forces are drawn geographically, with Sunni, Shi’a, or  Kurdish soldiers serving primarily in units located in areas familiar to their  group. Further, according to the report, commanders at the battalion level  tend to command only soldiers of their own sectarian or regional  background. Moreover, in November 2006, the State Department reported  that corruption and infiltration by militias and others loyal to parties other  than the Iraqi government have resulted in the Iraqi security forces being  part of the problem in many areas instead of the solution.
Because of the poor security conditions, the United States has not been  able to draw down the number of U.S. forces in Iraq as early as planned.  For example, after the increase in violence and collapse of the Iraqi  security forces during the spring of 2004, DOD decided to maintain a force  level of about 138,000 troops until at least the end of 2005, rather than  reducing the number of troops to 105,000 by May 2004, as had been  announced the prior fall. DOD reversed a decision to significantly reduce  the U.S. force level during the spring of 2006 because Iraqi and coalition  forces could not contain the rapidly escalating violence that occurred in  the summer of 2006.
section_title: DOD Faces Weaknesses in the Program to Develop Iraqi Security Forces
paragraphs: Our work has identified weaknesses in the $15.4 billion program to  develop Iraqi security forces. Although unit-level transition readiness  assessments provide detailed information on Iraqi security force  capabilities, the aggregate reports that DOD and State provide to Congress  do not provide the information needed to determine the complete  capabilities of the forces. Consequently, Congress will need additional  information to assess the department’s supplemental request for $3.8  billion to train and equip Iraqi security forces. GAO has made repeated  attempts, without success, to obtain U.S. assessments of Iraqi forces.  These data are essential for Congress to make an independent assessment  of Iraqi forces’ capabilities, needs, and results. Moreover, DOD may be  unable to fully account for weapons received by the Iraqi security forces  and has yet to clarify which accountability requirements it chose to apply  to the program.
MNF-I uses the TRA system to determine when units of the Iraqi security  forces are capable of assuming the lead for counterinsurgency operations  in specific geographic areas. The TRA is a joint assessment, prepared  monthly by the unit’s coalition commander and Iraqi commander.  According to MNF-I guidance, the purpose of the TRA system is to provide  commanders with a method to consistently evaluate units; it also helps to  identify factors hindering unit progress, determine resource shortfalls, and  make resource allocation decisions. Iraqi army TRA reports contain  capabilities ratings in the areas of personnel, command and control,  equipment, sustainment/logistics, training, and leadership. Commanders  use the TRA results and their professional judgment to determine a unit’s  overall readiness level. Each Iraqi army unit is assigned a readiness level  of 1 through 4, with 1 the highest level a unit can achieve.
DOD and State reports provide some information on the development of  Iraqi security forces, but they do not provide detailed information on the  specific capabilities that affect the readiness levels of individual units. For  example, DOD and State provide Congress with weekly and quarterly  reports on the progress made in developing capable Iraqi security forces  and transferring security responsibilities to the Iraqi army and the Iraqi  government. This information is provided in two key areas: (1) the number  of trained and equipped forces, and (2) the number of Iraqi army units and  provincial governments that have assumed responsibility for security of  specific geographic areas.
The State Department reports that the number of trained and equipped  Iraqi security forces has increased from about 174,000 in July 2005 to  about 323,000 in December 2006. However, these numbers do not provide  a complete picture of the Iraqi security forces’ capabilities in part because  they may overstate the number of forces on duty. For example, Ministry of  Interior data include police who are absent without leave, but Ministry of  Defense data exclude absent personnel. In addition, poor reporting by the  Ministry of Interior makes it difficult to determine how many of the  coalition-trained police the ministry still employs or what percentage of  the 180,000 police believed to be on the payroll are coalition trained and  equipped. Moreover, the numbers do not give detailed information on the  status of equipment, personnel, training, or leadership.
We previously reported that we were working with DOD to obtain the unit- level TRA reports because they would be useful in more fully informing  Congress about the capabilities and needs of Iraq’s security forces and in  indicating how accurately DOD reports reflect the forces’ capabilities.  According to MNF-I’s Deputy Chief of Staff for Strategic Effects, the best  measure of the capabilities of Iraqi units and improvements in the security  situation comes from commanders on the ground at the lowest level.  Although unit-level TRA reports provide more detailed information on  Iraqi security forces’ capabilities, DOD had not provided GAO with these  unit-level reports as of February 2007. DOD routinely provides GAO access  to the readiness levels of U.S. forces.
Additionally, DOD and MNF-I may be unable to fully account for weapons  issued to the Iraqi security forces, and DOD has not yet clarified what  accountability requirements apply to the program. According to our  preliminary analysis, as of January 2007, DOD and MNF-I may not be able  to account for Iraqi security forces’ receipt of about 90,000 rifles and  80,000 pistols that were reported as issued before early October 2005.  Additionally, it is unclear at this time what accountability measures DOD  has chosen to apply to the train-and-equip program for Iraq. As part of our  ongoing work, we have asked DOD to clarify whether MNF-I and Multi- National Security Transition Command-Iraq (MNSTC-I) must follow  accountability measures specified in DOD regulations, or whether DOD  has established other accountability measures. For example, DOD officials  expressed differing opinions on whether the DOD regulation on the Small  Arms Serialization Program, which requires the entry of small arms serial  numbers into a DOD-maintained registry, applies to U.S.-funded equipment  procured for Iraqi security forces. While it is unclear which regulations  DOD has chosen to apply, beginning in 2004, MNF-I established  requirements to control and account for equipment issued to the Iraqi  security forces by issuing a series of orders that outline procedures for its  subordinate commands. Although MNF-I took initial steps to establish  property accountability procedures, according to MNF-I officials  limitations such as the initial lack of a fully operational equipment  distribution network, staffing weaknesses, and the operational demands of  equipping the Iraqi forces during war hindered its ability to fully execute  critical tasks outlined in the property accountability orders.
section_title: DOD Faces Challenges in Managing Contracts and Contractors in Iraq that Could Lead to Fraud, Waste, and Abuse
paragraphs: While DOD relies heavily on contractors for reconstruction projects and  support to its forces in Iraq, it faces several management and oversight  challenges. First, military commanders and senior DOD officials do not  have visibility over contractors, which prevents DOD from knowing the  extent to which it is relying on contractors for support in Iraq. Second,  DOD lacks clear and comprehensive guidance and leadership for  managing and overseeing contractors. Third, key contracting issues— including unclear requirements and not reaching agreement on key terms  and conditions in a timely manner—have prevented DOD from achieving  successful acquisition outcomes. Fourth, DOD does not have a sufficient  number of oversight personnel to ensure that the contracts that are in  place are carried out efficiently and according to the contract  requirements. Finally, military commanders and contract oversight  personnel do not receive sufficient training to effectively manage  contracts and contractors in Iraq.
subsections: section_title: Military Commanders and Senior DOD Leaders Need to Have Visibility Over the Contractors That Support Them
paragraphs: DOD continues to lack the capability to provide senior leaders and military  commanders with information on the totality of contractor support to  deployed forces. Without such visibility, senior leaders and military  commanders cannot develop a complete picture of the extent to which  they rely on contractors to support their operations. We first reported the  need for better visibility in 2002 during a review of the costs associated  with U.S. operations in the Balkans. At that time, we reported that DOD  was unaware of (1) the number of contractors operating in the Balkans,  (2) the tasks those contractors were contracted to do, and (3) the  government’s obligations to those contractors under the contracts. We  noted a similar situation in 2003 in our report on DOD’s use of contractors  to support deployed forces in Southwest Asia and Kosovo. At that time,  we reported that, although most contract oversight personnel had visibility  over the individual contracts for which they were directly responsible,  visibility of all contractor support at a specific location was practically  nonexistent at the combatant commands, component commands, and  deployed locations we visited. As a result, commanders at deployed  locations had limited visibility and understanding of all contractor activity  supporting their operations and frequently had no easy way to get answers  to questions about contractor support. This lack of visibility inhibited the  ability of commanders to resolve issues associated with contractor  support such as force protection issues and the provision of support to the  contractor personnel.
Most recently, in our December 2006 review of DOD’s use of contractors  in Iraq, we found that DOD’s limited visibility unnecessarily increased  contracting costs to the government and introduced unnecessary risk.  Without visibility over where contractors are deployed and what  government support they are entitled to, costs to the government may  increase. For example, at a contractor accountability task force meeting  we attended in 2006, an Army Material Command official stated that an  Army official estimated that about $43 million is lost each year on free  meals provided to contractor employees at deployed locations who also  receive a per diem food allowance. Also, when senior military leaders  began to develop a base consolidation plan, officials were unable to  determine how many contractors were deployed and therefore ran the risk  of over- or under-building the capacity of the consolidated bases. DOD’s  October 2005 guidance on contractor support to deployed forces included  a requirement that the department develop or designate a joint database to  maintain by-name accountability of contractors deploying with the force  and a summary of the services or capabilities they provide. The Army has  taken the lead in this effort, and DOD recently designated a database  intended to provide improved visibility over contractors deployed to  support the military in Iraq, Afghanistan, and elsewhere.
DOD provided additional information after we briefed the House  Appropriations Committee’s Subcommittee on Defense. According to  DOD, in January 2007, the department designated the Army’s  Synchronized Predeployment & Operational Tracker (SPOT) as the  department-wide database to maintain by-name accountability of all  contractors deploying with the force. According to DOD the SPOT  database includes approximately 50,000 contractor names.  Additionally in  December 2006, the Defense Federal Acquisition Regulation Supplement  was amended to require the use of the SPOT database by contractors  supporting deployed forces.
section_title: DOD Needs Clear and Comprehensive Guidance and Leadership to Manage and Oversee Contractors
paragraphs: Since the mid-1990s, our reports have highlighted the need for clear and  comprehensive guidance for managing and overseeing the use of  contractors who support deployed forces. For example, in assessing the  Logistics Civil Augmentation Program (LOGCAP) implementation during  the Bosnian peacekeeping mission in 1997, we identified weaknesses in  the available doctrine on how to manage contractor resources, including  how to integrate contractors with military units and what type of  management and oversight structure to establish. We identified similar  weaknesses when we began reviewing DOD’s use of contractors in Iraq.  For example, in 2003, we reported that guidance and other oversight  mechanisms varied widely at the DOD, combatant-command, and service  levels, making it difficult to manage contractors effectively.
Similarly, in our 2005 report on private security contractors in Iraq, we  noted that DOD had not issued any guidance to units deploying to Iraq on  how to work with or coordinate efforts with private security contractors.  Our prior work has shown that it is important for organizations to provide  clear and complete guidance to those involved in program  implementation. In our view, establishing baseline policies for managing  and overseeing contractors would help ensure the efficient use of  contractors in places such as Iraq. DOD took a noteworthy step to address  some of these issues when it issued new guidance in 2005 on the use of  contractors who support deployed forces. However, as our December 2006  report made clear, DOD’s guidance does not address a number of  problems we have repeatedly raised—such as the need to provide  adequate contract oversight personnel, to collect and share lessons  learned on the use of contractors supporting deployed forces, or to  provide DOD commanders and contract oversight personnel with training  on the use of contractors overseas before deployment. After our January  30, 2007 briefing to the House Appropriations Committee’s Subcommittee  on Defense, DOD provided additional information on a new publication it  was developing. The department noted that it was developing a joint  publication entitled “Contracting and Contractor Management in Joint  Operations,” which it expects to be distributed in May 2007.
In addition to the lack of clear and comprehensive guidance for managing  contract personnel, we have issued several reports highlighting the need  for DOD components to comply with departmental guidance on the use of  contractors. For example, in our June 2003 report, we noted that DOD  components were not complying with a long-standing requirement to  identify essential services provided by contractors and develop backup  plans to ensure the continuation of those services during contingency  operations should contractors become unavailable to provide those  essential services. We believe that risk is inherent when relying on  contractors to support deployed forces, and without a clear understanding  of the potential consequences of not having the essential service available,  the risks associated with the mission increase.
In other reports, we highlighted our concerns over DOD’s planning for the  use of contractor support in Iraq—including the need to comply with  guidance to identify operational requirements early in the planning  process. When contractors are involved in planning efforts early and given  adequate time to plan and prepare to accomplish their assigned missions,  the quality of the contractor’s services improves and contract costs may be  lowered. DOD’s October 2005 guidance on the use of contractor support to  deployed forces went a long way to consolidate existing policy and  provide guidance on a wide range of contractor issues. However, as of  December 2006, we found little evidence that DOD components were  implementing that guidance, in part because no individual within DOD was  responsible for reviewing DOD and service efforts to ensure that the  guidance was being consistently implemented.
We have made a number of recommendations for DOD to take steps to  establish clear leadership and accountability for contractor support issues.  For example, in our 2005 report on LOGCAP, we recommended that DOD  designate a LOGCAP coordinator with the authority to participate in  deliberations and advocate for the most effective and efficient use of the  LOGCAP contract. Similarly, in our second comprehensive review of  contractors on the battlefield in 2006, we recommended that DOD appoint  a focal point within the Office of the Under Secretary of Defense for  Acquisition, Technology, and Logistics—at a sufficiently senior level and  with the appropriate resources—to lead DOD’s efforts to improve its  contract management and oversight. DOD generally agreed with these  recommendations. In October 2006, DOD established the office of the  Assistant Deputy Under Secretary of Defense for Program Support to  serve as the office of primary responsibility for contractor support issues.  However, as we noted in our December 2006 report, it is not clear to what  extent this office would serve as the focal point dedicated to leading  DOD’s efforts to improve its contract management and oversight.
section_title: DOD Needs to Address Key Contracting Issues to Promote Successful Acquisition Outcomes
paragraphs: DOD needs to address long-standing contracting issues related to  acquisition outcomes. Two of the key factors that promote successful  acquisition outcomes are (1) clearly defined requirements and (2) timely  agreement on a contract’s key terms and conditions, such as the scope and  cost. The absence of well-defined requirements and clearly understood  objectives complicates efforts to hold DOD and contractors accountable  for poor acquisition outcomes.
Further, in Iraq, DOD’s contracts were often cost- reimbursable contracts,  which allow the contractor to be reimbursed for reasonable, allowable,  and allocable costs to the extent prescribed in the contracts. When cost- reimbursable contracts such as those used in the reconstruction of Iraq  and the support contracts for deployed forces (e.g. LOGCAP) are not  effectively managed and given sufficient oversight, the government’s risk  is likely to increase. For example, we have reported that poorly written  statements of work, which included vague or ill-defined requirements, can  lead the contractor to take excessive steps to ensure customer satisfaction  and result in additional costs to the government. Similarly, we have  reported that contract customers need to conduct periodic reviews of  services provided under cost-reimbursable contracts to ensure that  services provided are supplied at an appropriate level. Without such a  review, the government is at risk of paying for services it no longer needs.  For example, the command in Iraq lowered the cost of the LOGCAP  contract by $108 million dollars by reducing services and eliminating  unneeded dining facilities and laundries.
A prerequisite to achieving good acquisition outcomes is a match between  well-defined requirements and available resources. U.S. reconstruction  goals were based on assumptions about the money and time needed,  which have proven unfounded. U.S. funding was not meant to rebuild  Iraq’s entire infrastructure but rather to lay the groundwork for a longer- term reconstruction effort that anticipated significant assistance from  international donors.
To provide that foundation, the Coalition Provisional Authority (CPA)  allocated $18.4 billion in fiscal year 2004 reconstruction funds among  various projects in each reconstruction sector, such as oil, electricity, and  water and sanitation. Almost immediately after the CPA dissolved, the  Department of State reprioritized funding for projects that would not  begin until mid to late 2005 and used those funds to target high-impact  projects. By July 2005, the State Department had conducted a series of  funding reallocations to address new priorities, including increasing  support for security and law enforcement efforts and oil infrastructure  enhancements. One of the consequences of these reallocations was to  reduce funding for the water and sanitation sector by about 44 percent,  from $4.6 billion to $2.6 billion. One reallocation of $1.9 billion in  September 2004 led the Project and Contracting Office to cancel some  projects, most of which were planned to start in mid-2005. Changes, even  those made for good reasons, make it more difficult to manage individual  projects to successful outcomes.
Further, such changes invariably have a cascading effect on individual  contracts. To produce desired outcomes within available funding and  required time frames, DOD and its contractors need to have a clear  understanding of reconstruction objectives and how they translate into the  terms and conditions of a contract: what goods or services are needed,  when they are needed, the level of performance or quality desired, and  what the cost will be. When such requirements were not clear, DOD often  entered into contract arrangements on reconstruction efforts that posed  additional risks, such as authorizing contractors to begin work before key  terms, conditions such as the work to be performed, and projected costs  were fully defined. For example, we found that, as of March 2004, about  $1.8 billion had been obligated on reconstruction contract actions without  DOD and the contractors reaching an agreement on the final scope and  cost of the work.
In September 2006, we issued a report on how DOD addressed issues  raised by the Defense Contract Audit Agency (DCAA) in its audits of Iraq- related contract costs. We noted that, in cases where DOD authorized  contractors to begin work before reaching agreement on the scope or  price, DOD contracting officials were less likely to remove costs from a  contractor’s proposal when DCAA raised questions about them if the  contractor had already incurred those costs. For example, of the 18 audit  reports we reviewed, DCAA issued 11 reports on contract actions where  more than 180 days had elapsed between the beginning of the period of  performance to final negotiations. For nine of these audits, the period of  performance DOD initially authorized for each contract action concluded  before final negotiations took place. In one case, DCAA questioned $84  million in its audit of a task order proposal for an oil mission. In this case,  the contractor did not submit a proposal to DOD until a year after the  work was authorized, and DOD and the contractor did not negotiate the  final terms of the task order until more than a year after the contractor had  completed the work. In the final negotiation documentation, the DOD  contracting official stated that the payment of incurred costs is required  for cost-type contracts, if there are no unusual circumstances. In contrast,  in the few audit reports we reviewed in which the government negotiated  the terms before starting work, we found that the portion of questioned  costs removed from the proposal was substantial.
section_title: DOD Needs Sufficient Contract Oversight Personnel to Ensure that Contract Requirements Are Met Effectively and Efficiently
paragraphs: An unstable contracting environment—when contract requirements are in  a state of flux—requires greater attention to oversight, which in turn relies  on a capable government workforce. Having personnel who are trained to  conduct oversight and held accountable for their oversight responsibilities  is essential for effective oversight of contractors. If surveillance is not  conducted, not sufficient, or not well documented, DOD is at risk of being  unable to identify and correct poor contractor performance in a timely  manner and potentially paying too much for the services it receives.
On multiple occasions, we and others have reported on deficiencies in  DOD’s oversight. For example, our June 2004 report found that early  contract administration challenges were caused, in part, by the lack of  personnel. In addition, the Special Inspector General noted that, with  regard to the CPA, gaps existed in the experience levels of those hired and  the quality and depth of their experiences relative to their assigned jobs.  Similarly, in 2004, an interagency assessment team found that the number  of contracting personnel was insufficient to handle the increased  workload. In part, the CPA’s decision to award seven contracts in early  2004 to help better coordinate and manage the fiscal year 2004  reconstruction efforts recognized this shortfall. As a result, DOD is in the  position of relying on contractors to help manage and oversee the work of  other contractors.
More recently, in December 2006, we reported that DOD does not have  sufficient numbers of contractor oversight personnel at deployed  locations, which limits its ability to obtain a reasonable assurance that  contractors are meeting contract requirements efficiently and effectively.  Although we could find no DOD guidelines on the appropriate number of  personnel needed to oversee and manage DOD contracts at a deployed  location, several contract oversight personnel stated that DOD does not  have adequate personnel at deployed locations to effectively oversee and  manage contractors. For example, an Army official acknowledged that the  Army is struggling to find the capacity and expertise to provide the  contracting support needed in Iraq. In addition, officials responsible for  contracting with MNF-I stated that they did not have enough contract  oversight personnel and quality assurance representatives to allow MNF-I  to reduce the Army’s use of the LOGCAP contract by awarding more  sustainment contracts for base operations support in Iraq. Furthermore, a  LOGCAP program official noted that, if adequate staffing had been in  place, the Army could have realized substantial savings on the LOGCAP  contract through more effective reviews of new requirements. Finally, the  contracting officer’s representative for an intelligence support contract in  Iraq stated that he was also unable to visit all of the locations that he was  responsible for overseeing. At the locations he did visit, he was able to  work with the contractor to improve the project’s efficiency. However,  because he was not able to visit all of the locations at which the contractor  provided services in Iraq, he was unable to duplicate those efficiencies at  all the locations in Iraq where the contractor provided support.
The inability of contract oversight personnel to visit all the locations they  are responsible for can also create problems for units that face difficulties  resolving contractor performance issues at those locations. For example,  officials from a brigade support battalion stated that they had several  concerns with the performance of a contractor that provided maintenance  for the brigade’s mine-clearing equipment. These concerns included delays  in obtaining spare parts and a disagreement over the contractor’s  obligation to provide support in more austere locations in Iraq. According  to the officials, their efforts to resolve these problems in a timely manner  were hindered because the contracting officer’s representative was  located in Baghdad while the unit was stationed in western Iraq. In other  instances, some contract oversight personnel may not even reside within  the theater of operations. For example, we found the Defense Contract  Management Agency’s (DCMA) legal personnel responsible for LOGCAP in  Iraq were stationed in Germany, while other LOGCAP contract oversight  personnel were stationed in the United States. According to a senior  DCMA official in Iraq, relying on support from contract oversight  personnel outside the theater of operations makes resolving contractor  performance issues more difficult for military commanders in Iraq, who  are operating under the demands and higher operational tempo of a  contingency operation in a deployed location.
section_title: Better Training of Military Commanders and Contract Oversight Personnel Is Essential
paragraphs: Since the mid-1990s, our work has shown the need for better pre- deployment training for military commanders and contract oversight  personnel on the use of contractor support. Training is essential for  military commanders because of their responsibility for identifying and  validating requirements to be addressed by the contractor. In addition,  commanders are responsible for evaluating the contractor’s performance  and ensuring the contract is used economically and efficiently. Similarly,  training is essential for DOD contract oversight personnel who monitor the  contractor’s performance for the contracting officer.
As we reported in 2003, military commanders and contract management  and oversight personnel we met in the Balkans and throughout Southwest  Asia frequently cited the need for better preparatory training.  Additionally, in our 2004 review of logistics support contracts, we reported  that many individuals using logistics support contracts such as LOGCAP  were unaware that they had any contract management or oversight roles.  Army customers stated that they knew nothing about LOGCAP before  their deployment and that they had received no pre-deployment training  regarding their roles and responsibilities in ensuring that the contract was  used economically and efficiently. In our December 2006 report, we noted  that many officials responsible for contract management and oversight in  Iraq stated that they received little or no training on the use of contractors  prior to their deployment, which led to confusion over their roles and  responsibilities. For example, in several instances, military commanders  attempted to direct (or ran the risk of directing) a contractor to perform  work outside the contract’s scope, even though commanders are not  authorized to do so. Such cases can result in increased costs to the  government.
Over the years, we have made several recommendations to DOD intended  to strengthen this training. Some of our recommendations were aimed at  improving the training of military personnel on the use of contractor  support at deployed locations, while others focused on training regarding  specific contracts, such as LOGCAP. Our recommendations have sought to  ensure that military personnel deploying overseas have a clear  understanding of the role of contractors and the support the military  provides to them. DOD has agreed with most of our recommendations.  However, we continue to find little evidence that DOD has improved  training for military personnel on the use of contractors prior to their  deployment.
DOD provided additional information after we briefed the House  Appropriations Committee’s Subcommittee on Defense. DOD advised us  that they had established a contingency contracting training program at  the Defense Acquisition University.  While this is a good first step, we  would note that according to the course description, the course is  intended for contracting professionals.  As we noted, we believe that there  is a need to provide training for those personnel who are not contracting  professionals such as commanders and others who are likely to work with  contractor employees on a daily bases, but are not contracting  professionals.
section_title: The Iraqi Government Currently Lacks the Capacity to Sustain and Continue Reconstruction and Security Efforts
paragraphs: Since 2003, the United States has obligated about $29 billion to help Iraq  rebuild its infrastructure and develop Iraqi security forces to stabilize the  country. However, key goals have not been met and the Iraqi government  has not sustained these efforts, in part because of the lack of management  and human resource skills in Iraq’s key ministries. According to U.S.  officials, the inability of the Iraqi government to spend its 2006 capital  budget also increases the uncertainty that it can sustain the rebuilding  effort.
subsections: section_title: Iraq Has Difficulty Sustaining the Billions of Dollars Invested in Infrastructure and Security
paragraphs: The United States has obligated about $14 billion to restore essential  services such as oil, electricity, and water, and more than $15 billion to  train, equip, and sustain Iraqi security forces. Reconstruction has focused  on projects such as repairing oil facilities, increasing electricity generating  capacity, and restoring water treatment plants. For example, the U.S.  Army Corps of Engineers reported that it had completed 293 of 523  planned electrical projects, including the installation of 35 natural gas  turbines in Iraqi power generation plants. Stabilization efforts have  focused on MNF-I training and equipping approximately 323,000 Iraqi  security forces. To help sustain these forces, MNF-I is assisting Iraq’s  Ministries of Defense and Interior in funding and building logistics systems  for the military and police. The military logistics system includes a  national depot, regional logistics centers, and garrison support units. The  draft logistics plan for the police called for a system of warehouses to  perform maintenance on equipment and distribution centers to dispense  supplies.
The United States has spent billions of dollars rebuilding the infrastructure  and developing Iraqi security forces. However, the Iraqi government has  had difficulty operating and sustaining the aging oil infrastructure,  maintaining the new and rehabilitated power generation facilities, and  developing and sustaining the logistics systems for the Ministries of  Defense and Interior. The coalition provides the critical support necessary  for the ministries to carry out their security responsibilities. As of  December 2006, neither ministry was self-sufficient in logistics, command  and control, or intelligence. For example:  Iraq’s oil production and exports have consistently fallen below their  respective program goals. In 2006, oil production averaged 2.1 million  barrels per day, compared with the U.S. goal of 3.0 million barrels per day.  The Ministry of Oil has had difficulty operating and maintaining the  refineries. According to U.S. officials, Iraq lacks qualified staff and  expertise at the field, plant, and ministry level, as well as an effective  inventory control system for spare parts. According to State, the Ministry  of Oil will have difficulty maintaining future production levels unless it  initiates an ambitious rehabilitation program. In addition, oil smuggling  and theft of refined oil products have cost Iraq substantial resources.
In 2006, electrical output reached 4,317 megawatts of peak generation per  day, falling short of the U.S. goal of 6,000 megawatts. Prewar electrical  output averaged 4,200 megawatts per day. Production also was outpaced  by increasing demand, which has averaged about 8,210 megawatts per day.  The Iraqi government has had difficulty sustaining the existing facilities.  Problems include the lack of training, inadequate spare parts, and an  ineffective asset management and parts inventory system. Moreover,  plants are sometimes operated beyond their recommended limits,  resulting in longer downtimes for maintenance. In addition, major  transmission lines have been repeatedly sabotaged and repair workers  have been intimidated by anti-Iraqi forces.
As of December 2006, the coalition was providing significant levels of  support to the Iraqi military because the Ministry of Defense could not  fully supply its forces with adequate life support, fuel, uniforms, building  supplies, ammunition, vehicle maintenance and spare parts, or medical  supplies. In addition, the ministry was not able to run its communications  networks on its own or independently acquire communications equipment.  Furthermore, the Ministry will likely lack a comprehensive plan for its  intelligence structure until December 2007. Although the coalition plans to  begin turning over certain support functions to ministerial control in the  spring of 2007, it is unlikely that the Ministry of Defense will achieve  complete self-sufficiency in logistics, command and control, or  intelligence before mid-2008.
The Ministry of Interior also receives critical support from the coalition  and is not self-sufficient in logistics, command and control, or intelligence.  Because the ministry is unable to provide maintenance for vehicles of the  national police, the coalition has let several contracts to train Iraqi  mechanics, provide spare parts to contractors, and repair police vehicles.  In addition, the ministry is not able to self-sufficiently operate or maintain  its communications networks. Furthermore, the coalition estimates that, if  the security environment in Baghdad improves, the ministry’s intelligence  organization will be self-sufficient by mid-2008. However, if this self- sufficiency depends on improved security, there may be cause for  concern, given that the average total attacks per day have increased, rising  from about 70 per day in January 2006 to a record high of about 180 per  day in October 2006. Although the coalition plans to begin turning over  certain support functions to ministerial control in the spring of 2007, it is  unlikely that the Ministry of Interior will achieve complete self-sufficiency  in logistics, command and control, or intelligence before mid 2008.
section_title: The Iraqi Government Faces Critical Challenges Staffing Effective Civil Service, Fighting Corruption, and Managing Resources
paragraphs: Iraqi government institutions are undeveloped and confront significant  challenges in staffing a competent, non-partisan civil service; effectively  fighting corruption; using modern technology; and managing resources  effectively. Figure 2 provides an organizational chart of the Iraqi executive  branch and ministries.
The Iraqi civil service remains hampered by inadequately trained or  unskilled staff whose political and sectarian loyalties jeopardize the  ministries’ ability to provide basic services and build credibility among  Iraqi citizens, according to U.S. government reports and international  assessments. A U.S. report states that the government ministries and the  associated budgets are used as sources of power for political parties with  ministry positions staffed with party cronies as a reward for political  loyalty. According to U.S. officials, patronage leads to staff instability as  many are replaced when the government changes or a new minister is  named. Some Iraqi ministries, including the Ministries of Interior,  Agriculture, Health, Transportation, and Tourism, are led by ministers  whose allegiance is to political parties hostile to U.S. goals. These  ministers use their positions to pursue partisan agendas that conflict with  the goal of building a government that represents all ethnic groups. U.S.  officials have expressed reservations about working in some of these  ministries, noting that the effectiveness of programs is hampered by the  presence of unresponsive or anti-U.S. officials.
Corruption in Iraq is reportedly widespread and also poses a major  challenge to building an effective Iraqi government. Corruption  jeopardizes future flows of needed international assistance and reportedly  undermines the government’s ability to make effective use of current  reconstruction assistance. According to U.S. government and World Bank  reports, there are several reasons for corruption in Iraq. The reasons,  among others, include (1) an ineffective banking system that leaves the  government dependent on cash transactions; (2) nontransparent, obsolete  ministry procurement systems; and (3) ineffective, inadequately resourced  accountability institutions, such as the ministries’ inspectors general.
GAO and the inspectors general are working with Iraq’s accountability  organizations—the Board of Supreme Audit, Commission on Public  Integrity, and inspectors general of the ministries—to strengthen their  capabilities.
The Iraqi ministries lack adequate information technology and have  difficulty managing their resources, according to U.S. officials and an  international assessment, further contributing to the corruption problem.  For example, U.S. officials said that the Ministry of Interior relies on  manual processes such as hand-written ledgers and a cash-based payroll  system that has resulted in Iraqi police leaving their posts to deliver cash  to their families. U.S. officials also estimated that 20 to 30 percent of the  Ministry of Interior personnel are “ghost employees”— nonexistent staff  paid salaries that are collected by other officials.
section_title: Inability of Iraq’s Ministries to Spend the 2006 Capital Budget Creates Further Uncertainty about Sustaining Efforts
paragraphs: Sound government budgeting practices can help determine the priorities  of the new government, provide transparency on government operations,  and help decision makers weigh competing demands for limited resources.  However, unclear budgeting and procurement rules have affected Iraq’s  efforts to spend capital budgets effectively and efficiently according, to  U.S. officials. The inability to spend the money raises serious questions for  the government, which has to demonstrate to skeptical citizens that it can  improve basic services and make a difference in their daily lives. The U.S.  government has launched a series of initiatives in conjunction with other  donors to address this issue and improve the Iraqi government’s budget  execution.
As of August 2006, the government of Iraq had spent, on average, 8 percent  of its annual capital goods budget and 14 percent of its annual capital  projects budget. Some of the weakest spending occurs at the Ministry of  Oil, which relies on damaged and outdated infrastructure to produce the  oil that provides nearly all of the country’s revenues. The Ministry of Oil’s  $3.5 billion 2006 capital project’s budget targeted key enhancements to the  country’s oil production, distribution, and export facilities. However, as of  August 2006, the ministry had spent less than 1 percent of these budgeted  funds. Moreover, Interior and Defense had only spent about 11 and 1  percent, respectively, of their capital goods budget, which include funds  for the purchase of weapons, ammunition, and vehicles, among other  items. According to U.S. officials, Iraq lacks clearly defined and  consistently applied budget and procurement rules needed for effective  budget planning and implementation. The ministries have multiple rules  and regulations promulgated under the former regime, the CPA, and the  current government. The lack of procurement and budgeting rules creates  opportunities for corruption and mismanagement. Table 1 provides further  information on the Iraqi ministries efforts to spend their capital budgets.
section_title: Concluding Observations
paragraphs: As I have discussed in my statement today, a number of conditions exist in  Iraq that have led or will lead to fraud, waste, and abuse of U.S funds and  will affect the U.S. effort to achieve our security, economic, and  diplomatic goals in Iraq. Addressing these problems will require complete  and transparent information on the progress made to reasonably judge our  past efforts and determine future directions. This includes more accurate,  reliable, and comprehensive information on the cost of the war, the  capabilities of Iraqi security forces, and the results of U.S. efforts to build  the managerial capacity of the Iraqi ministries.
Furthermore, given DOD’s heavy and increasing reliance on contractors in  Iraq and elsewhere, and the risks this reliance entails, it may be  appropriate to ask if DOD has become too reliant on contractors to  provide essential services. Moreover, given the pace of activities during  contingency operations, it is essential that DOD and other government  agencies engage, as early as possible, in (1) identifying potential support  requirements, (2) locating contractors capable of providing support and  negotiating with contractors to provide this support in a timely and cost- effective manner, and (3) planning for additional military and civilian  personnel to oversee and manage this increase in contractor activities.
Mr. Chairman and members of the committee, this concludes my  statement. I will be happy to answer any questions you may have.
section_title: Contact and Acknowledgments
paragraphs: For questions regarding this testimony, please call Joseph A. Christoff,  Director, International Affairs and Trade, at (202) 512-8979; John Hutton,  Acting Director, Acquisition and Sourcing Management, at (202) 512-4841;  or William Solis, Director, Defense Capabilities and Management, at (202)  512-8365.
Other key contributors to this statement Nanette Barton, Dan Cain, Carole  Coffey, Allisa Czyz, Tim DiNapoli, Mattias Fenton, Whitney Havens,  Patrick Hickey, Wesley Johnson, Hynek Kalkus, Judy McCloskey, Tet  Miyabara, James A. Reynolds, Chris Turner, and Marilyn Wasleski.
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