The United States, along with its coalition partners and various international organizations and donors, have committed billions of dollars to the reconstruction of Iraq in the face of an unstable security situation and other challenges. These funds have come from multiple and diverse sources, the effective use of which requires significant oversight and cooperation. The Coalition Provisional Authority (CPA) has been responsible for the allocation of U.S. and Iraqi funds. The Departments of Defense and State, and the U.S. Agency for International Development, among others, have played play a primary role in U.S. efforts to fund and execute the reconstruction effort. To a large extent, these agencies have used contracts and personal services contractors to implement their programs. Agency inspectors general, the CPA inspector general, and other auditing authorities are responsible for auditing aspects of the reconstruction effort. This enclosure describes (1) the sources and amounts of funds that have been made available for the reconstruction of Iraq, and (2) the amounts of U.S. and Iraqi funds that have been obligated and disbursed as of April 30, 2004,and the uses to which those funds have been applied. Funds for U.S. military operations are not described in this enclosure. Data for U.S. appropriated funds are as of April 30, 2004, with the exception of some CPA Program Management Office obligations and disbursements, which are as of May 25 and June 16, respectively. Iraqi funds data are as of May 6, 2004. CPA established the Development Fund for Iraq to accommodate Iraqi funds that would be used to benefit the Iraqi people and facilitate the reconstruction of their country. from the deposed regime. Of the funding available for the reconstruction effort, about $24 billion had been obligated as of the end of April 2004. Of this amount, about $13 billion came from the Development Fund for Iraq and about $8 billion from U.S. appropriated funds. About $4 billion of the $4.5 billion in U.S. funds appropriated in 2003 and about $4.2 billion of the $19.6 billion in U.S. funds appropriated in 2004 have been obligated. The remaining $2.5 billion in obligated funds came from vested and seized assets. Obligations to date have primarily been applied to the operating expenses of the Iraqi ministries; restoration of essential services such as oil, water, and power; and humanitarian and human services, including the procurement of food and liquid petroleum gas for domestic consumption. Figure I.1: Total Funds Available, Obligated, and Disbursed for Iraq Reconstruction by Source, as of April 2004 Of the $13.6 billion pledged, donors have committed about $1 billion to the International Reconstruction Fund Facility for Iraq. “Vested assets” refers to former Iraqi regime assets held in U.S. financial institutions that the President confiscated in March 2003 and vested in the U.S. Treasury. The United States froze these assets shortly before the first Gulf War. The U.S.A. PATRIOT Act of 2001 amended the International Emergency Economic Powers Act to empower the President to confiscate, or take ownership of, certain property of designated entities, including these assets, and vest ownership in an agency or individual. The President has the authority to use the assets in the interests of the United States. In this case, the President vested the assets in March 2003 and made these funds available for the reconstruction of Iraq in May 2003. Seized assets refer to former regime assets seized within Iraq. An obligation is a binding agreement that will result in immediate or future outlays of funds. The reconstruction of Iraq has been supported from multiple sources of funds. The largest share of these funds has come from U.S. appropriations. The other sources, in descending order of amounts, are the DFI, vested assets, and seized assets (see fig. I.2). In addition, international donors have pledged about $14 billion to the reconstruction effort. Congress has appropriated about $24 billion of the approximately $58 billion provided to date for the relief and reconstruction of Iraq. The funds appropriated in fiscal year 2003 were made available until September 30, 2004; those appropriated in fiscal year 2004 were made available until September 30, 2006. In April 2003, Congress enacted the Emergency Wartime Supplemental Appropriations Act, which, when combined with previously appropriated funds, provided about $4.5 billion for the reconstruction of Iraq. Of this $4.5 billion, the act provided $2.475 billion for an Iraq Relief and Reconstruction Fund (IRRF). The act also included a provision for the Iraq Freedom Fund (IFF) to support ongoing military operations in Iraq, among other things, and for a Natural Resources Risk Remediation Fund to finance emergency firefighting, repair damaged oil facilities, and preserve oil distribution capability. In addition, some funds were transferred from the IFF to support the new Iraqi Army (about $50 million) and for CPA operating expenses (about $600 million). The Natural Resources fund provided about $800 million to the reconstruction effort. In addition, agencies have also been reimbursed about $575 million for expenses incurred before the passage of the supplemental appropriations act. In November 2003, Congress enacted another emergency wartime supplemental appropriation, of which $18.4 billion was provided for Iraq relief and reconstruction. In addition, under the same act, the CPA received its own funding authority of $983 million for operating expenses. Further, $140 million was transferred from the IFF to support regional emergency response programs. As of May 6, 2004, the DFI had received deposits of about $18 billion. This fund, established by the CPA in May 2003 and noted by U.N. Security Council Resolution 1483, was created to benefit the Iraqi people and facilitate the reconstruction of their country. The U.N. resolution provided for an initial deposit of $1 billion from unencumbered Oil for Food program funds. The resolution further authorized the subsequent deposits of (1) proceeds from the sale of Iraqi oil, natural gas, and petroleum products; (2) U.N. funds such as unused Oil for Food program funds; and (3) transferred assets from the former Iraqi regime that U.N. member states had frozen in the 1990. The DFI does not include U.S. appropriated funds. See enclosure III for more detailed information on the DFI. Vested Assets and Assets Seized in Iraq Approximately $2.7 billion in assets the United States confiscated and seized from the former regime have been made available for use in Iraq’s reconstruction. In March 2003, the U.S. government confiscated more than $1.7 billion in Iraqi assets located in U.S. financial institutions and vested them in the U.S. Treasury. These funds were Iraqi government funds originally frozen in 1990 consistent with a U.N. Security Council Resolution and held in U.S financial institutions from 1990 to 2003. From May to September 2003, the United States transferred these funds to Iraq. As of May 2004, coalition forces seized more than $900 million of regime assets in Iraq. The Oil for Food program was established by the United Nations and Iraq in 1996 to address concerns about the humanitarian situation in Iraq after the imposition of international sanctions in 1990. The program allowed the Iraqi government to use the proceeds of its oil sales to pay for food, medicine, and humanitarian goods for the benefit of the Iraqi people. U.N. Security Council Resolution 1483 provides for the deposit of oil revenues and some Oil for Food program funds in the DFI until an internationally recognized, representative government of Iraq has been constituted. See U.S. General Accounting Office, United Nations: Observations on the Management and Oversight of the Oil for Food Program, GAO-04-730T (Washington D.C.: Apr. 28, 2004). The international donors described in this enclosure include individual nations, the European Commission, and international financial institutions. International donors, exclusive of the United States, have pledged or committed nearly $14 billion to the reconstruction of Iraq through 2007. These contributions will be made either bilaterally or through a newly established multilateral mechanism known as the International Reconstruction Fund Facility for Iraq. For detailed information on international donors, see enclosure II. Overall, about $24 billion in U.S. and Iraqi funds has been obligated for the reconstruction effort in Iraq as of April 30, 2004. About $13 billion in obligations has come from the DFI, and about $8 billion from U.S. appropriated funds. The remaining $2.5 billion in obligations has come from vested assets and seized assets. Reliable information on the international donors’ obligations and expenditures is not available. Table 1.1 provides a detailed breakdown of obligations by sources of funding for the broad range of activities associated with the reconstruction of Iraq, not solely for infrastructure. The World Bank Group defines a pledge as an indication of intent to mobilize funds for which an approximate sum of contribution is specified. International donor pledges range from $13.6 billion to $17.3 billion, reflecting the range of loans pledged by the World Bank and International Monetary Fund (IMF). Given the uncertainty of the ultimate amount of loans provided by the World Bank and IMF, we have used the lower pledge amount in this report. Table I.1: U.S., DFI, Vested and Seized Funds Obligated by Activity, as of April 2004 U.S. oversight of the U.S., Iraqi, and international funds used to rebuild Iraq? 2. To what extent are existing accounting and management information systems adequate to provide complete and reliable reporting on the implementation of the reconstruction effort? 3. What are the roles and responsibilities of the CPA Inspector General with the transfer of power to the Iraqis?