In a scathing review, the inspector general of the CPA says the occupation authority, led by US Ambassador L Paul Bremer, failed to implement adequate controls over the money even after a warning that the financial system at one ministry was open to fraud, kickbacks and misappropriation of funds.
“Specifically, the CPA disbursed over US$8.8bn in DFI (Development Fund for Iraq) funds without assurances the monies were properly used or accounted for,” says the report by Stuart Bowen, the CPA inspector general.
The fund was established to allow the CPA to administer Iraqi oil revenues and other funds, provided it be done in a transparent manner in behalf of the Iraqi people.
Mr Bowen says there was no assurance that the money was not used to pay salaries of thousands of “ghost” employees.
The CPA authorized payment of funds for 74,000 guards, even though the guards or the number of sites to be guarded were never validated, the report says.
At one ministry, 8,026 guards were on the payroll, but the existence of only 602 guards could be validated.
At another ministry, the CPA authorized funds for 1,471 guards, but only 642 guards could be shown to exist.
“However, when the CPA staff recommended that the Iraqi Ministry of Finance require certified payrolls prior to salary payments, CPA Ministry of Finance personnel stated the CPA would rather overpay salaries than risk not paying employees and inciting violence,” the report says.
The review also found that the CPA did not maintain adequate documentation to support budget disbursements. So, it was unable to explain significant differences between spending plans, budget disbursements and cash allocations.
“For example, approximately US$1.5bn in cash allocations were made to Iraqi banks between January and April 2004 for operating expenses, yet spending plans supported only approximately US$498m in operating expenses,” the report says.