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US agency hides overruns for reconstruction in Iraq

The US agency in charge of US$1.4 billion in reconstruction money in Iraq used an accounting shell game to hide cost overruns on its projects in Iraq and knowingly withheld information on schedule delays from Congress, a US federal audit released on Friday found.

The agency hid construction overruns by listing them as overhead or administrative costs, according to the audit, written by the Special Inspector-General for Iraq Reconstruction, an independent office that reports to Congress and the Pentagon.

Usaid

Called the US Agency for International Development, or USAID, the agency administers foreign aid projects around the world. It has been working in Iraq on reconstruction since shortly after the 2003 invasion.

The report by the inspector-general's office does not give a full accounting of all projects financed by the agency's US$1.4 billion budget, but cites several examples.

The findings appeared in an audit of a children's hospital in the city of Basra, but they referred to USAID's wider range of reconstruction activities in Iraq. 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.

In March last year, USAID asked the Iraq Reconstruction and Management Office at the US Embassy in Baghdad for permission to downsize some of its projects to ease the widespread financing problems it was having.

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.

Embassy approval

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 inspector-general wrote that "The memorandum was not intended to give USAID blanket permission to change the reporting of all indirect costs."

The hospital's construction budget was US$50 million. By April of this year, Bechtel had told the aid agency that because of escalating costs for security and other problems, the project would actually cost US$98 million to complete. But in an official report to Congress that month, the agency "was reporting the hospital project cost as US$50 million," the inspector-general wrote in the report.

The rest of the cost was reclassified as overhead, or "indirect costs." According to a contracting officer at the agency who was cited in the report, the aid agency "did not report these costs so it could stay within the US$50 million authorization."
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