WASHINGTON, 2 August 2006 — A federal audit released late Friday acknowledged that the US State Department, currently in charge of $1.4 billion in reconstruction money in Iraq, hid construction overruns by listing them as overhead or administrative costs.
The audit was written by the Special Inspector General [IG] for Iraq Reconstruction, an independent office that reports to Congress, the Pentagon and the State Department known as the United States Agency for International Development, or A.I.D. AID is involved in the administration of foreign aid projects around the world and has been working in Iraq on reconstruction since shortly after the 2003 invasion.
The special investigator said AID used questionable accounting measures to conceal the expenses, and failed to report problems to Congress, and that it labeled millions of dollars as overhead or administrative costs. Last month, a top USAID official, James Kunder, Assistant Administrator for Asia and the Near East, told Congress that 22 percent of reconstruction funds had gone to security needs in Iraq. The findings appeared in an audit of a children’s hospital in the southern Iraqi city of Basra, but they referred to the wider reconstruction activities of the agency in Iraq. The report said officials were granted $50 million for the children’s hospital.
By April of this year, the engineering contractor of the project Bechtel Corporation told the AID agency that because of escalating costs for security and other problems, the project would actually cost $98 million to complete. The budget has now expanded to about $150 million. The high-tech, two-story children’s hospital was championed by First Lady Laura Bush. The First Lady and Secretary of State Condoleezza Rice spoke highly of the project and lobbied Congress for the money. The report noted similar problems on an electrical project in Baghdad.
In March 2005, USAID asked the Iraq Reconstruction and Management Office at the US Embassy in Baghdad for permission to downsize some projects to ease widespread financing problems. In its request, it said that it had to “to absorb greatly increased construction costs” at the Basra hospital, and that it would make a modest shift of priorities and reduce “contractor overhead” on the project.
The embassy office approved the request. But the audit found that the agency interpreted the document as permission to change reporting of costs across its program. Referring to the embassy office’s approval, the IG wrote, “The memorandum was not intended to give USAID blanket permission to change the reporting of all indirect costs.” Standard project overhead usually runs up to about 30 percent of the estimated cost. However, the AID had a project overhead of 418 percent.
The US Embassy in Baghdad referred questions about the audit to the State Department in Washington, where a spokesman, Justin Higgins, told journalists Saturday: ‘’We have not yet had a chance to fully review this report, but certainly will consider it carefully, as we do all the findings of the inspector-general.’’ US and Iraqi officials reported last week that the State Department planned to drop Bechtel, its contractor on that project, as signs of budget and scheduling problems began to surface.
