To help Iraq assume responsibility for sustaining U.S. reconstruction efforts, U.S. agencies are implementing programs to build the capacity of Iraq’s central and provincial governments, including State’s PRDC program to strengthen the capacity of Iraqi provincial governments to deliver essential services such as water and electricity and USAID’s NCD program to assist the Iraqi government in improving the administrative capacity of several ministries and executive offices through training. In 2005, the United States created PRDCs to give the provinces a voice in deciding how to spend U.S. reconstruction funds for Iraq. The PRDCs comprise members of Iraq’s Provincial Councils, representatives of the governor, and the Director Generals of Iraq’s Central Ministries. The PRDC role is to identify needs within their province, prioritize the needs, and develop a list of projects to address those needs. The primary U.S. objective of the PRDC program is not reconstruction but strengthening the capacity of Iraqi provincial governments to develop and implement essential service projects, according to State. Congress appropriates funds to State, which are used, for the PRDC program to State, and the USACE’s Gulf Regional Division (GRD) implements the program. ITAO coordinates and oversees the selection process for specific projects and according to State provides overall program management, and GRD provides project management. The Office of Provincial Affairs within the U.S. Embassy Baghdad provides policy guidance and support to the Provincial Reconstruction Teams (PRT) program. The PRTs serve as the coordinating body for this funding, assisting PRDCs with identifying, prioritizing, and developing project request packages. Each PRDC creates a prioritized list of reconstruction projects that address provincial needs; these are then discussed in a public forum. The project list is submitted to the Provincial Council for review and approval. Approved projects are forwarded to the PRT provincial program manager who reviews them to ensure they meet U.S. government policies and legal requirements. The PRT provincial program manager forwards the list to ITAO for review and approval. The National Embassy Team reviews and approves projects. The Gulf Region Division (GRD) scopes, estimates, bids, and awards project contracts. As the implementer, GRD assists ITAO by providing program and project oversight, which includes awarding contracts and providing quality assurance and quality control. The PRT engineer provides teaching, mentoring, training, guidance, and support for the PRDCs in preparing scopes of work, bills of quantities, estimates, and project nomination forms. The program funds small-scale projects proposed by the PRDCs, including water and electric plants, roads, bridges, schools, health clinics, airports, and fire stations. For fiscal year 2007 funds, the PRDC program shifted focus to provide funds to help provincial governments sustain and plan essential service projects. Figure 1 is an example of a PRDC project we visited in Iraq in November 2008. Through three interagency agreements between State and USACE, State obligated $700 million for fiscal years 2006 and 2007 to reimburse the USACE for costs incurred and awards made for the PRDC program. Specifically, State obligated $315 million and $385 million for fiscal years 2006 and 2007, respectively, under the agreements. As table 1 shows, for fiscal year 2006, USACE had entered into contracts to implement the program totaling about $259 million and about 135 out of 213 projects had been completed by April 2009, according to GRD. For fiscal year 2007, USACE had entered into contracts amounting to about $207 million and about 40 out of 185 projects had been completed by April 2009, according to GRD. In July 2006, USAID created the National Capacity Development (NCD) program to build the capacity of Iraq’s central government. The program focuses on building the skills and capabilities of several Iraqi government executive offices, such as the Prime Minister’s Office, and 10 key Iraqi ministries, such as the Ministries of Electricity, Oil, and Water. Key tasks include (1) raising the skill levels of Iraqi public managers in project management, fiscal management, human resources, budgeting, and information technology; (2) advising key ministries in strategy development, program planning, and capacity building; and (3) expanding the Iraqi government’s training capacity at its national training center and in the provinces. Additional activities for the program included providing equipment, furniture, and support to develop Iraq’s training centers, and providing overseas scholarships to Iraqi civil servants. To help reform the Iraqi government’s procurement system, USAID purchased equipment for administrative tribunal courtrooms at the Ministry of Planning and Development Cooperation, which rules on disputes over Iraqi government contract awards (see figure 2). USAID is responsible for the NCD program and has hired a contractor, Management Systems International, to implement the program. The initial contract was for $165 million for a 3-year period. Various modifications increased the program funding, changed the scope of work, and extended the completion date to January 31, 2011. A modification made in September 2008 increased the total contract amount to $339 million. According to the USAID’s financial management system, as of April 2009, the program has obligated $259 million, and of that amount about $152 million has been disbursed. State’s PRDC program has management control weaknesses in organization, monitoring, and communication that hinder the achievement of its goal of building provincial government capacity. First, State’s organization of the program does not clearly define who is responsible for the overall management of the program, and the multistep process for implementing the program adds to this ambiguity. Second, State lacks a performance monitoring system that measures progress toward building the capacity of provincial governments. Third, State’s guidelines and policies have changed frequently, as has the direction of the program, but State did not fully communicate or consult with program implementers about these changes. Finally, USACE labor costs for the program are not always supported by adequate documentation, increasing the risk that USACE’ requests to State for reimbursement of labor costs may be overstated or understated. Management control standards require a well-managed and properly structured organization that clearly delineates authority and responsibility. In addition, management control standards call for qualified staff in place without excessive personnel turnover in key functions, such as program management, to implement proper management controls. State’s PRDC program has multiple entities responsible for managing parts of its complicated, multistep process to approve and implement projects. However, no single program manager was clearly responsible for overall management of the program until May 2009, when State designated one in response to GAO’s findings. The PRDC process for approving and implementing projects includes at least 7 entities and 7 steps involving project development, project management, and project execution. Figure 3 illustrates the PRDC’s complex organizational structure and process as reported by State. Until May 2009, no single entity was accountable for the program in its entirety or responsible for ensuring that the program’s objectives were met. For instance, although ITAO has a PRDC program manager, in response to an October 2008 report on ESF in Iraq, State indicated that ITAO coordinates and oversees project selection. The other entities also do not have responsibility for managing and ensuring that the overall program objectives are met. For instance, the Provincial Reconstruction Teams (PRT), through the PRT provincial program manager and PRT engineer, focus on helping the PRDC identify, prioritize, and develop project proposals. The PRDCs create prioritized lists of reconstruction projects that are submitted to the Provincial Council for review and approval. According to a State document, the PRT provincial program manager guides the process; however, a PRT provincial program manager is located at each PRT and therefore guides the process for that individual PRT and does not manage the entire process. ITAO and the National Embassy Team review and approve projects and then forward these to the program implementer, the USACE Gulf Regional Division (GRD). GRD focuses on scoping projects, estimating their costs, receiving bids, awarding projects, and providing quality assurance and quality control. As a result, no entity was responsible for managing the overall program and ensuring the program’s goals are achieved. Without an overall program manager, no one oversees the entire program process and has overall responsibility for addressing systemic problems such as coordination issues. For instance, although coordination between U.S. and Iraqi officials is essential to building provincial capacity, it remains one of the program’s key challenges. In our sample of 40 PRDC projects, we found that about 16 projects had problems coordinating with local Iraqi authorities. For example, determining and verifying land ownership is a major challenge in Iraq and is one of the most common causes for delays in awarding project contracts. In another instance, a $1.5 million potable water network to service Baghdad’s Mansour district lost nearly 7 months waiting for the necessary building permits and test results. Other coordination challenges have also resulted in delays, cost increases, and project terminations. For example, on a $1.4 million Baghdad water network project, a local government office did not follow established guidance in requiring certain technical tests to be performed and rejected subsequent test results because they were conducted by an independent laboratory. The municipality suspended all work at the site and threatened to arrest personnel who continued to work. With about $400,000 already spent, the project is in the process of being terminated. In May 2009, State designated ITAO as the program manager in response to one report finding. Both ITAO and GRD have staffing challenges. Our review of ITAO documents found that ITAO’s PRDC point of contact, who coordinates and oversees the selection process for specific projects, changed six times since December 2006. Specifically, from January 2008 to September 2008, ITAO had three different PRDC managers. According to GRD, these frequent changes in ITAO’s PRDC managers contributed to inconsistent information about program direction.