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Army in Iraq Is No Paymaster

Millions of dollars in Army payments made in Iraq and nearby countries, many in cash, have gone undocumented since 2001, says the Inspector General.
Tim Reason, CFO.com | US
May 23, 2008

A new audit report from the Inspector General of the Department of Defense estimates that $1.4 billion out of a total of $10.7 billion in payments made by the U.S. Army in Iraq, Kuwait, and Egypt between 2001 and 2006 lacked the "minimum supporting documentation" to assure they were used as intended.

The Inspector General's office says an additional $6.3 billion in payments had sufficient documentation, but did not comply with other laws and regulations. The report, Internal Controls Over Payments Made in Iraq, Kuwait and Egypt, was issued Thursday, the same day the Senate passed a bill that included $165 billion in funds for military operations in Iraq and Afghanistan meant to last through next spring. The bill has not yet been approved by the House.

According to the Inspector General's report, the Army made 183,486 commercial and miscellaneous payments, totaling $10.7 billion, from seven disbursing stations in Iraq, Kuwait, and Egypt between April 2001 and June 2006. The Inspector General's office examined 789 payments totaling $3.5 billion, and extrapolated from that to conclude that $1.4 billion of those payments lacked the documentation needed to show that the funds had not been subject to "fraud, waste, or abuse."

"We do not agree with the methodology used by the Office of the Inspector General, Department of Defense to estimate the projected dollar amount of payments lacking missing information or supporting documentation," wrote Undersecretary of Defense Deputy CFO James E. Short in a response. "We believe that the projections are misleading and invalid."

In 23 cases, the Inspector General's report says it found no proof that the Army had received the goods or services for which it had paid. One payment of $11.1 million was missing both the receiving report and invoice. "This payment was to a U.S. company; however, we could not identify the goods or services purchased," the report says, adding that, as a result, "The legitimacy of the payment is questionable." Similarly, a voucher for a $963,750 cash payment was missing both the invoice and receiving report, preventing the Inspector General from determining "whether the vendor was legally entitled to payment."

In 5 cases, the report alleges, Army finance personnel paid vouchers that were not signed as required by an authorized officer. Three of those vouchers exceeded $8 million. In 15 cases, Army finance personnel made cash payments totaling $5.1 million to vendors without documentation showing payee signatures that the vendors actually received the cash, according to the report. Three of the 15 vouchers were for more than $500,000, and were made to a U.S. company and two Iraqi companies for security services, trailers, and renovations. "Without the payee’s signature," the report notes, "a disbursing officer may be unable to prove that proper payment was made and could be required to make the payment again." The report also says that in 31 cases, including one $3.3 million payment to a Jordanian company for bottled water, payment vouchers were missing contract numbers, making it difficult to match the payment to the contract. Two other vouchers, including one for $303,716, were missing entirely, the report claims.

In a written response to a draft of the report, the Army says it was able to find full documentation for 96 percent of the 702 payments audited by the Inspector General's office, and concludes that just 12 payment invoices could constitute loss of funds and that all but 2 of those had been validated as having actually been paid properly. The Inspector General's office responded that Army and Department of Defense accountants had not provided any proof of that assertion or explained how they had reached their conclusions.

Acknowledging that proper accounting is difficult in a war zone, the Inspector General says that, of 53 legal and regulatory requirements for making payments in a "military contingency environment," only 27 constituted the "minimum necessary information to support a payment." The report concludes that $6.3 billion of commercial payments met these criteria, but did not comply with other statutory and regulatory requirements and were still missing such items as taxpayer identification numbers, contact information, and payment terms. "Without the taxpayer identification number, the Internal Revenue Service is not notified when payment is made to a U.S. contractor," the report says. "This could lead to the potential loss of tax revenue."

In his response, Short said, "The estimated dollar amount of payments not meeting all statutory or regulatory requirements appears to give each type of error equal weighting and does not distinguish between 'critical' and 'noncritical' errors."

The Inspector General's report also says the Department of Defense had not maintained an adequate audit trail over $1.8 billion in payments made to Iraqi representatives to ensure that the funds were used to help the Iraqi people, nor had it properly accounted for more than $134.8 million in payments made to representatives of foreign governments.

According to the report, Tina Jonas, Undersecretary of Defense CFO, announced new payment guidelines on May 16 to improve internal controls over payments made by disbursing stations in or near the war zone. "The audit identified areas where management controls needed improvement, but did not acknowledge the improvements made to address these areas," she wrote in response to a draft of the Inspector General's report. In addition, she said, "A forward deployed cell of [Defense Finance and Accounting Service] personnel was established in-theater to relieve warfighters of the administrative functions associated with documentation processing."




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