By David Wood

NEWHOUSE NEWS SERVICE

Saturday, July 2, 2005

WASHINGTON -- The U.S.-led reconstruction of Iraq, a strategic cornerstone of the war on terrorism, has been badly mismanaged, according to a growing body of evidence compiled mostly by U.S. government auditors.

Billions of dollars, some of it in shrink-wrapped bundles of $100 bills airlifted to Baghdad from the Federal Reserve Bank in New York, should have helped pay Iraqi bureaucrats, fix power lines and build schools. Instead, much of it can't be properly accounted for and millions have been stolen, auditors say.

On the streets of Baghdad, U.S. military commanders began complaining early that the money rarely seemed to trickle down.

"We're losing the peace," a frustrated U.S. Special Forces Maj. Robert Caffrey said in June 2003. At the time, Caffrey was furious that he could get no money to foster local government or fund small clean-up projects and schools.

Now back home in Hartford, Conn., Caffrey wrote this week in an e-mail that "it doesn't seem that much has changed in the last two years. Much to my sadness, when I said two years ago that we were losing the peace, I was more right than I knew."

A year ago, Iraqis stood an average of six minutes in line to buy gasoline; today they wait an hour. Eighteen months ago, electricity powered lights and air conditioning across Iraq an average of 13 hours a day. Today, the nationwide average has sunk to 9.4 hours, according to statistics gathered by the Brookings Institution, a Washington think tank.

It is difficult to track the precise amount the United States is spending on reconstruction.

The Pentagon has awarded contracts potentially worth $42.1 billion and currently funded at $25.4 billion for a mixture of military logistics and reconstruction. The U.S. Agency for International Development has signed reconstruction and development contracts worth about $5 billion.

In addition, U.S. occupation authorities in Baghdad spent almost $20 billion in Iraqi funds, most from oil sales and formerly held by the United Nations. It was turned over to the United States in 2003 for humanitarian and development programs.

Auditors from Congress' Government Accountability Office, the Defense Contract Audit Agency, the U.S. Army Audit Agency and the State Department, among others, have raised serious questions about how all this money was used.

Pentagon investigators, for example, found $219 million in "unacceptable" charges under a contract with Halliburton Co., the U.S. contracting giant, for the $2.5 billion "Restore Iraqi Oil" program to supply Iraq with fuel and rebuild its oil industry. Another $60 million in claims were "unsupported" by documentary evidence -- receipts, in short.

A separate program, the Development Fund for Iraq, was financed by $20 billion in Iraqi money. Between June 2003 and June 2004, nearly $12 billion of the money was shipped to Iraq in cash.

U.S. military auditors including Stuart Bowen, the Pentagon's special inspector general for Iraq reconstruction, have detailed millions of dollars that are missing or not properly accounted for. Of $120 million sent to one region for use by U.S. authorities, $96.6 million couldn't be accounted for. In one case, $7.2 million in $100 bills simply disappeared in Iraq, according to Bowen. Two cases of alleged fraud -- one involving $1.5 million, the other an unspecified amount -- are pending.

Of about $1.6 billion from the Development Fund for Iraq that went to Halliburton, Defense Department auditors questioned some $218 million in apparent overcharges, including claims for labor, material, subcontracts and administrative expenses.

Although the United States had promised "transparency" in how it handled Iraq's money, the Pentagon has refused to give U.N. auditors full access to Bowen's report. Halliburton was allowed to edit the report before releasing a partial version to the United Nations.