KPMG audit of the Development Fund for Iraq

International auditors KPMG were chosen by the Coalition Provisional Authority and the International Advisory and Monitoring Board to perform external audits of the Coalition's expenditures from the humanitarian Development Fund for Iraq.The IAMB started negotiating with the CPA to appoint an external auditor in December 2003. KPMG was appointed in April 2004, to audit the CPA's expenditures from Iraq's oil revenue in 2003.

United Nations Resolution 1483 transferred the authority to authorize expenditures from Iraq's oil revenue from the United Nations to the Coalition Provisional Authority.

It also created an international body to monitor the Coalition's expenditures from Iraq's oil revenue, the IAMB. The Coalition's authority to expend Iraq's oil revenue was conditional. The Coalition was only authorized to expend those funds for the benefit of the Iraqi people. Those expenditures were only authorized if they were made in an open and transparent manner. The Coalition was only authorized to expend funds so long as they cooperatived in the IAMB's oversight of those expenditures. The Coalition was charged with the obligation to make those expenditures with meaningful Iraqi input.

Paragraphs 12 and 20 of UN resolution 1483 specified that an external auditor would be appointed to audit the expenditure made from Iraq's oil revenue.

The auditors identified dozens of serious ways in which the CPA failed to meet its obligations.

Lack of cooperation with the auditors

CPA administrator Paul Bremer has complained that the independent Inspector General Stuart Bowen, whom the Congress appointed, never met with him. In contrast the KPMG auditors say Mr Bremer never scheduled a meeting with them, prior to the official hand-over, and surprised everyone by leaving Iraq early immediately after his early handover of authority to the Interim government.

George Wolfe, the chairman of the Program Review Board, Iraq's de facto Treasurer ...was unable to acknowledge the fair presentation of the statement of cash receipts and payments, the completeness of significant contracts entered into by the DFI and responsibilities for the implementation and operations of accounting and internal control systems, designed to prevent and detect fraud and error.

Internal auditor

In the [http://www.iraqcoalition.org/regulations/20030615_CPAREG_2_Development_Fund_for_Iraq.pdf CPA Administrator's second regulation] , of 10 June, 2003, Bremer committed the CPA to:

The CPA shall obtain the services of an independent certified public accounting firm to support the objective of ensuring that the Fund is administered and used in a transparent manner for the benefit of the people of Iraq, and is operated consistent with Resolution 1483. The accountants performing this function shall be separate from those public accountants (auditors) approved by the International Advisory and Monitoring Board.

But Bremer never obtained the services of an internal auditor. Instead the CPA hired a consulting firm, to set up a bookkeeping system – incomplete at the time of the handover.

Double entry bookkeeping

The CPA did not use a double entry bookkeeping system. Instead, it used what that auditors called a single entry, cash-based, transaction list — $ 20 billion of petty cash.

The CPA did not do a cash-reconciliation until April 2004, eleven months into its administration. At that point, the CPA had disbursed $ 6 billion in $ 100 bills.

Metering Iraq's oil

Iraq's oil infrastructure was damaged when the CPA took over. The CPA effected selected repairs. But the IAMB found that the CPA had chosen not to repair the meters on the pipelines. The IAMB told the CPA that they were concerned that the lack of metering made auditing Iraq's oil exports unreliable – making it impossible to detect fraud, deception or smuggling. The minutes of the IAMB meeting make clear that the CPA had assured the IAMB that they were in the process of repairing the meters – in bad faith. The CPA's authority came to an end with the meters unrepaired. Estimates of how much oil revenue was siphoned off during the year of the CPA's administration go as high as $ 4 billion – comparable to the amount Saddam Hussein is suspected of stealing during the entire duration of the oil-for-food program.

Record-keeping

The auditors found that the Program Review Board failed to keep proper minutes:
*The PRB minutes did not always keep minutes of its meetings.
*The PRB minutes almost never recorded the wording of minutes, or the vote tallies.
*The auditors felt that the minutes did not record enough details for later readers to understand the reasons why the Board made their decisions.
*The PRB minutes sometimes did not even record the who attended the meetings.

The auditors found that CPA staff responsible for overseeing programs were often unable to find their program files. They could not be counted on to be familiar with the programs they were responsible for.

ee also

*Development Fund for Iraq
*Coalition Provisional Authority
*International Advisory and Monitoring Board
*Special Inspector General for Iraq Reconstruction

External links

* [http://www.iamb.info/dfiaudit.htm Audit documents]
* [http://www.iamb.info/auditrep/r123103.pdf Appendix to the audit of the Development Fund for Iraq – Matters noted involving internal controls and other operations issues during the audit of the Fund for the period to 31 December 2003 ]
* [http://www.voanews.com/english/2005-06-21-voa67.cfm Congress Wants Pentagon Documents on Iraq Development Funds] , "Voice of America, June 21, 2005"
* [http://seattletimes.nwsource.com/html/nationworld/2002357082_iraqspend04.html Iraq reconstruction riddled with waste, audits find] , "The Seattle Times, July 4, 2005"
* [http://www.guardian.co.uk/Iraq/Story/0,2763,1522983,00.html “So, Mr Bremer, where did all the money go?”] , "The Guardian", July 7, 2005