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"Show Me the Money!" - Waste and Fraud in Iraq from the Start


By Michael Collins - Posted on 30 August 2010

Michael Collins

The Associated Press ran an article Sunday that focused on the wasted funds during the US reconstruction efforts in Iraq.  There were stories of an unused children's hospital, a prison for 3,600 that will never open, and the diversion of reconstruction funds to pay off Sunni fighters to turn on al Qaeda.

AP failed to mention that the main reason that we have to rebuild Iraq is that the United States government invaded it and destroyed everything it could in a display of shock and awe. Also unmentioned were the unique post invasion strategies of no security for sites like power plants that keep the country running and the dissolution of the 400,000 man army, the main institution that kept order in the country before the invasion.  But I digress.

Anyone paying attention should know that financial controls and accountability went out the window from the very first days following the defeat of Saddam Hussein's military.


Henry Kissinger protégé, US Ambassador to Iraq Paul Bremer promised that, "As steward for the Iraqi people, the CPA (Coalition Provisional Authority) will manage and spend Iraqi funds, which belong to the Iraqi people, for their benefit. … (the funds) shall be managed in a transparent manner…" in accordance with international law.  Aug 19, 2003

Let's see how well Bremer and the CPA did in the months after Baghdad was occupied.

Show Me the Money

Of the $19.5 billion disbursed in Iraq in just over a year after the invasion, $12 billion came from the New York Federal Reserve board in cash.  This consisted of $1, $5, and $10 denominations to start and shifted to $100's over time.  One shipment consisted of $3 billion in cash.  The pallets holding the cash weighted nearly a ton.

In order to keep track of this type of money, a top notch accounting system is required.  The CPA didn't like their first accounting firm.  Instead, they hired a very small firm, North Star Consultants, Inc. out of San Diego, which apparently was located in a suburban residence.  The $1.4 million contract with North Star didn't go far.  There were no internal controls within CPA to handle this money, none, according to congressional testimony.

So to answer the question, "How well did the United States do in handling all this cash, we'd have to say, "Who knows?"

The special inspector general for Iraq reconstruction summarized the financial controls succinctly.  The system was characterized by:

(1) the absence of reconciliation procedures for transfers between ministries and for bank accounts;
(2) inadequate accounting records;
(3) deviations from the tendering procedures designed to ensure competitive bidding; and
(4) insufficient payroll records."  Feb. 6, 2007

KPMG was the required external auditing firm.  It found and reported problems but little, if anything, was done.

Of the $19.6 billion disbursed, much of the money supposedly went to salaries.  Some of these were for what was described as "ghost" employees.  Substantial funds went to Iraqi government agencies but there were no controls to track the money.  A whopping $8.8 billion was never accounted for, even by the generous standards employed in tracking money.  It simply disappeared without a trace.

This is Just a Sample

The direct costs of Iraq appear below.  There are higher estimates that include the post war costs of caring for all those injured and opportunity costs.  But this will do.

The $8.8 billion lost in the initial phases of the occupation is just a sample of a much wider problem.  We'll have a much larger overall fraud rate at some point.  But it will be too late.  A job once well done is twice done.  We'll be doing the accounting job forever on Iraq but we'll never see a dime of the money return to the Treasury.

Mission accomplished for the greedy criminals who stole this money and much more out of other programs.

Here's how the official in charge described the flawed and costly sham of an accounting system:

Retired Admiral David Oliver, "Ambassador Bremer’s principal deputy for financial matters at the CPA:
Oliver: I have no idea. I can’t tell you whether or not the money went to the right things or didn’t — nor do I actually think it’s important.
Question: Not important? (author's emphasis)
Oliver: No. The coalition — and I think it was between 300 and 600 people, civilians — and you want to bring in 3,000 auditors to make sure money’s being spent? Feb. 6, 2007

We don't need any more stories from AP that recycle the same old problems over and over again.  The waste and fraud were there from the start.  It was well known and nothing was done about it.  We'd be better off with investigators arresting thieves and special prosecutors trying them.  But that won't happen either.

We are truly at the end of the long road of public lying to enrich the financial elite in their most profitable enterprise - war.  We can't fund their avarice anymore.  It's over.

END

See:  Cash Transfers to the Coalition Provisional Authority, Majority Staff, House Committee on Government Oversight and Reform, Feb. 6, 2007

United States' Involvement in Iraq Reconstruction, United States House Oversight and Government Reform Committee, Feb. 6, 2007.

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