On Tuesday, the Office of the Special Inspector General for Iraq Reconstruction (SIGIR) released a devastating report on the Department of Defense's (DOD) control of Iraqi reconstruction funds. SIGIR reviewed the Pentagon's control of the funds from 2004 to 2007 and found that DOD could not account for 96 percent of the $9.1 billion it received during that time.

A majority of the money was made up of profits from the sale of Iraqi natural resources, such as oil and natural gas, as well as frozen Iraqi assets. The Coalitional Provisional Authority (CPA) created an account – the Development Fund for Iraq (DFI) – in May 2003 to house the funds, which were to go towards reconstruction activities "in a transparent manner for the benefit of the people of Iraq." After the CPA dissolved in June 2004, oversight of the DFI went to DOD, which controlled the fund until December 2007, when the Iraqi government withdrew its authority for control.

According to SIGIR, the Pentagon did not give guidance to its surrogates on awarding contracts using DFI funds, which created a variety of disbursement methods. Some organizations simply mixed the Iraqi money in with U.S. reconstruction funds; others added task orders onto existing contracts paid for through U.S. money. This has prevented the Pentagon from closing out some of these reconstruction contracts, leaving the question open as to whether the U.S. government or the Iraqi government is liable for paying any outstanding invoices.

SIGIR also found that DOD did not enforce adequate financial and management controls on the disbursement of the money, which "left the funds vulnerable to inappropriate uses and undetected loss." The weak controls left few records to help determine the path of the monies, so in many cases the Pentagon can't tell how much of these funds were actually expended or, if they were, what they went for.

The chance of misuse is higher than zero. As SIGIR noted in their report, "The vulnerability of not having proper financial and management controls over these types of funds was demonstrated in a 2005 SIGIR report addressing paying agent activities in the South-Central Region of Iraq." In that case, U.S. government officials could not account for over $96 million, and after a criminal investigation, SIGIR charged eight individuals with offenses including bribery, fraud, and money laundering. We'll see what happens with this latest case.

Image by Flickr user mugley used under a Creative Commons license.