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DOD audit finds Iraq reconstruction contracts fail to meet anti-fraud guidelines

[JURIST] The US military has failed to ensure that over $8 billion dollars in Iraq reconstruction contracts awarded between 2001 and 2006 complied with federal anti-fraud laws, according to a report [PDF text] released Thursday by the Department of Defense Inspector General's Office [official website]. The same day, Deputy Inspector General for Auditing Mary Ugone testified [statement, PDF] before the House of Representatives Committee on Oversight and Government Reform [official website] that inadequate record-keeping and poor oversight in dealing with military contractors made the possibility of fraud more likely:

Ineffective internal controls include such things as missing documentation, missing signatures from certifying officials, receiving officials, and payees; and missing voucher information. Ineffective internal controls could create an environment where duplicative payments, fraudulent activity, or improper use of funds takes place and is not identified and corrected in the normal course of business. A lack of internal controls can result in either no audit trail or in a complex audit trail, which hinders the search for supporting documents. Ineffective internal controls can result in missing or inadequate documentation. Also, ineffective internal controls can result in unreliable accounts payable and expense amounts reported on DOD financial statements.

We identified material internal control weaknesses related to out-of-country payments made in support of the Global War on Terror and for the Iraq Security Forces Fund as defined by DOD Instruction 5010.40, "Managers' Internal Control Program Procedures." The Army's internal controls did not ensure proper support for the commercial payments and that funds were used as intended. Multi-National Security Transition Command – Iraq did not have adequate procedures in place to provide reasonable assurance that equipment, construction, and services procured through the Iraq Security Forces Funds were provided to the Iraq Security Forces.
AP has more.

Fraud has been an on-going concern in US reliance on private contractors during reconstruction. In October 2007, the Special Inspector General for Iraq Reconstruction (SIGIR) [official website] said that the US State Department could not account for most of the $1.2 billion [JURIST report] that it had paid to a private contractor hired to train Iraqi police forces. In March 2007, SIGIR chief Stuart Bowen told the US Senate Judiciary Committee that investigators would apply stricter standards [JURIST report] when dealing with companies performing contract work in Iraq.

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