Audit says USAID hid costs, failures of reconstruction

DUBAI — Pentagon auditors peering into US reconstruction programmes in Iraq found an accountant’s nightmare of mistakes, cloaked expenses and financial juggling that hid costs and delays, according to US reports released over the past week.

Auditors also learned that US Agency for International Development kept Congress in the dark on its rebuilding efforts in Iraq. Many US reconstruction projects have been scrubbed or broken down amid a chaotic insurgent and sectarian war.

The audit by the special inspector general for Iraq reconstruction focused on problems building a children’s hospital in the southern city of Basra. The project was touted by first lady Laura Bush as an example of America’s commitment to improving Iraqis’ lives.

But the hospital audit is one of a series detailing a litany of fraud, incompetence and costly delays across US rebuilding efforts.

The US ambassador to Iraq, Zalmay Khalilzad, has since ordered USAID and its prime contractor, San Francisco-based Bechtel Corp., to quit the hospital project and asked the US Army Corps of Engineers to take over, according to an embassy memo released with the audit.

USAID, which contested the audit’s findings, isn’t the only player faulted for US reconstruction failures.

Elsewhere, inspector general audits released this week hammered contractors and their US overseers, and said the Iraqi government may never be able to support the American projects that get finished.

The report predicted that completion of the $50 million hospital project — already suffering from cracking concrete — could eventually cost $170 million or more. It won’t be finished until at least next summer, a year-and-a-half late.

Beyond the hospital, the audit laid bare USAID’s accounting practices that made it appear the agency was trying to hide 10 months in delays and $48 million in cost overruns from Congress.

“USAID was reporting hospital project costs at $50 million even though the contractor estimated the cost at $98 million,” the report said.

The agency declined to report $48 million in overhead “so it could stay within the $50 million authorisation”, the audit said.

USAID only informed Congress of its spending on the project three days before the hospital’s scheduled completion date of December 31, the report states.

USAID Iraq mission director Dawn Liberi contested the findings, saying her agency’s reporting to Congress was proper and its accounting had been approved. A response letter from the Pentagon auditor backed the original charges against USAID.

The audit says USAID received special permission to change reporting procedures on the hospital, but the agency used that permission as blanket authorisation to alter reporting of its entire Iraq portfolio of 20 construction projects worth $1.4 billion. The reporting changes wound up obscuring true costs of other USAID projects.

For instance, the audit states USAID reported a $27.6 million cost overrun on a power plant that was only supposed to cost $6.6 million — a 418 per cent overrun.

“The net effect of USAID’s accounting errors is that millions of dollars in indirect costs that should have been applied to the hospital project were applied to other USAID projects, resulting in a serious misstatement of hospital project costs,” the audit says. “As a result, the actual status of all its projects was not apparent.” Other audits and interviews pointed out further problems with US reconstruction in Iraq. In one example, only 20 of 180 health clinics promised by the US government are expected to be built. American construction conglomerate Parsons Corp. was to build and equip 150 of the clinics.

But only six have been finished and even those are not fully complete, health ministry director Dr Chasib Latif Ali told the Associated Press last week.

Parsons, based in Pasadena, California, billed the US government $70 million for medical supplies for 150 clinics and a teaching academy, even though it was asked to cancel construction of 130 clinics, an audit says. The academy was also cancelled.

Parsons has already begun delivery of the excess medical supplies to Iraq. Auditors in May found 71 sets in a warehouse. Nearly half were damaged.

Auditors reported substantial changes in the overall use of $18.4 billion in Congress-approved aid for Iraq’s reconstruction. Almost a third — $6 billion — has been shifted from original priorities, mainly due to “dramatically increased spending for security needs.” The report cautioned that many US plans “will not be fully achieved” especially those in Iraq’s water, sanitation and electricity sectors, from which most of the shifted funds were taken.

In one case, $20 million was shifted into a fund for victims of the Iraqi war named for Marla Ruzicka, an American human rights activist killed by a car bomb in April 2005.

Even when US projects are completed, the auditors found that Iraq’s government may not have the money or expertise to maintain them. For 2007 alone, Iraq’s cash-strapped government needs to spend $828 million to sustain projects funded by American taxpayers.