Audit Finds U.S. Hid Cost of Iraq Projects
BAGHDAD, Iraq, July 29 The State Department agency in charge of
billion in reconstruction money in Iraq used an accounting shell
to hide ballooning cost overruns on its projects there and knowingly
withheld information on schedule delays from Congress, a federal
released late Friday has found.
The agency hid construction overruns by listing them as overhead or
administrative costs, according to the audit, written by the Special
Inspector General for Iraq Reconstruction, an independent office
reports to Congress, the Pentagon and the State Department.
Called the United States Agency for International Development, or
A.I.D., the agency administers foreign aid projects around the
It has been working in Iraq on reconstruction since shortly after
The report by the inspector general's office does not give a full
accounting of all projects financed by the agency's $1.4 billion
budget, but cites several examples.
The findings appeared in an audit of a children's hospital in Basra,
but they referred to the wider reconstruction activities of the
development agency in Iraq. American and Iraqi officials reported
week that the State Department planned to drop Bechtel, its
on that project, as signs of budget and scheduling problems began to
The United States Embassy in Baghdad referred questions about the
audit to the State Department in Washington, where a spokesman,
Higgins, said Saturday, "We have not yet had a chance to fully
this report, but certainly will consider it carefully, as we do all
the findings of the inspector general."
Bechtel has said that because of the deteriorating security in
the hospital project could not be completed as envisioned. But Mr.
Higgins said: "Despite the challenges, we are committed to
this project so that sick children in Basra can receive the medical
help they need. The necessary funding is now in place to ensure that
In March 2005, A.I.D. asked the Iraq Reconstruction and Management
Office at the United States Embassy in Baghdad for permission to
downsize some projects to ease widespread financing problems. In its
request, it said that it had to "absorb greatly increased
costs" at the Basra hospital and that it would make a modest shift
priorities and reduce "contractor overhead" on the
The embassy office approved the request. But the audit found that
agency interpreted the document as permission to change reporting of
costs across its program.
Referring to the embassy office's approval, the inspector general
wrote, "The memorandum was not intended to give U.S.A.I.D.
permission to change the reporting of all indirect costs."
The hospital's construction budget was $50 million. By April of this
year, Bechtel had told the aid agency that because of escalating
for security and other problems, the project would actually cost $98
million to complete. But in an official report to Congress that
the agency "was reporting the hospital project cost as $50
the inspector general wrote in his report.
The rest was reclassified as overhead, or "indirect costs."
to a contracting officer at the agency who was cited in the report,
the agency "did not report these costs so it could stay within the
"We find the entire agreement unclear," the inspector general
the A.I.D. request approved by the embassy. "The document states
hospital project cost increases would be offset by reducing
overhead allocated to the project, but project reports for the
show no effort to reduce overhead."
The report said it suspected that other unreported costs on the
hospital could drive the tab even higher. In another case cited in
report, a power station project in Musayyib, the direct construction
cost cited by the development agency was $6.6 million, while the
overhead cost was $27.6 million.
One result is that the project's overhead, a figure that normally
to a maximum of 30 percent, was a stunning 418 percent.
The figures were even adjusted in the opposite direction when that
helped the agency balance its books, the inspector general found. On
an electricity project at the Baghdad South power station, direct
construction costs were reported by the agency as $164.3 million and
indirect or overhead costs as $1.4 million.
That is just 0.8 percent overhead in a country where security costs
are often staggering. A contracting officer told the inspector
that the agency adjusted the figures "to stay within the
for each project."
The overall effect, the report said, was a "serious misstatement
hospital project costs." The true cost could rise as high as
million, even after accounting for at least $30 million pledged for
medical equipment by a charitable organization.
The inspector general also found that the agency had not reported
known schedule delays to Congress. On March 26, 2006, Bechtel
the agency that the hospital project was 273 days behind, the
inspector general wrote. But in its April report to Congress on the
status of all projects, "U.S.A.I.D. reported no problems with
In a letter responding to the inspector general's findings, Joseph
Saloom, the newly appointed director of the reconstruction office at
the United States Embassy, said he would take steps to improve the
reporting of the costs of reconstruction projects in Iraq. Mr.
took little exception to the main findings.
In the letter, Mr. Saloom said his office had been given new powers
the American ambassador in Baghdad, Zalmay Khalilzad, to request
financing information on American reconstruction projects. Mr.
wrote that he agreed with the inspector general's conclusion that
shift would help "preclude surprises such as occurred on the
"The U.S. Mission agrees that accurate monitoring of projects
allocating indirect costs in a systematic way that reflects
the true indirect costs attributable to specific activities and
projects, such as a Basra children's hospital," Mr. Saloom
"There will always be cruelty, always be violence, always be
destruction.... We cannot eliminate all devastation for all time,
we can reduce it, outlaw it, undermine its sources and foundations:
these are victories." - Rebecca Solnit, Hope in the