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Audit: Poor control of Iraq oil money

Friday 16 July 2004 7:53 AM GMT

Audit says unknown quantity of oil was smuggled out




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The International Advisory and Monitoring Board (IAMB) on Thursday released a critical first audit of the Development Fund of Iraq, which holds Iraqi oil income and the balance of frozen Iraqi assets and the UN oil-for-food-programme.

The audit by accountants KPMG found that from the establishment of the fund in May last year to the end of 2003:

- A lack of "meters" to measure Iraqi oil production, despite repeated requests for them by the IAMB, made it impossible to say how much Iraqi oil had been smuggled out of the country.

- The US-led occupying authority, known as the CPA, which handed over power to an interim Iraqi government on 28 June, had inadequate accounting systems and poor record keeping.

- Iraqi spending ministries had insufficient accounting and payroll records, and they strayed from rules requiring open, competitive tenders for contracts funded with oil money.

No 'reasonable assurances'

Known oil proceeds, reported frozen assets and transfers from the UN oil-for-food programme had been properly and transparently accounted for by the development fund, the KPMG audit said.

Oil pipelines continue to serve as
targets for attack

"The single qualification to the opinion was that an unknown quantity of oil was smuggled out of Iraq following the war, resulting in a loss of oil revenue," it said.

A review of the audit showed controls over the Iraqi oil industry were insufficient to provide "reasonable assurance" for the completeness of Iraqi oil sales, the IAMB found.

It also was impossible to be sure oil money was spent on the purposes intended, said the IAMB, which has officials from the United Nations, International Monetary Fund, World Bank and Arab Fund for Social and Economic Development.

The board raised particular concern over the use of Iraqi oil money for "sole-sourced contracts," which had not been put out to competitive tender.

Sweet-heart deals?

The US-led occupying forces informed the IAMB that oil money had been used for a $1.4-billion, no-bid contract for Halliburton, an oil services company, which was run by Vice President Richard Cheney from 1995 to 2000.

Jean-Pierre Halbwachs, who represents the United Nations on the board, said he wrote to Paul Bremer, then overseer of Iraq, to ask for a copy of the audit into the Halliburton contract.

The board also requested a list of all the no-bid contracts paid for with oil money, and access to the relevant audits, he said.

So far, it had heard nothing.

"There have been, we are told, other sole-source contracts (besides Halliburton). To whom, and the amount, we are not aware," Halbwachs said.

"That is what we are trying to establish."

The Iraqi development fund has
brought in some $11.1 billion

Legal questions remain

IAMB officials said they had been told that legal questions had to be resolved before they could receive the documents.

The IAMB also had requested but not yet received a copy of a review of controls in the Iraqi state oil marketing organisation, SOMO.

Since the creation of the Development Fund of Iraq, it has raked in Iraqi oil export revenue amounting to $11.1 billion, more than half of the development fund's total cash income of $20.6 billion.

The fund now holds about $7.5 billion.

A UN Security Council resolution endorsing Iraqi "full sovereignty" still subjects oil revenues to the IAMB's oversight.

The IAMB said it would consider "over the next few weeks" whether further special audits or investigations were needed.

A second KPMG audit covering the first half of 2004 is already underway.

A UN-backed watchdog has reported weak controls over Iraqi oil riches under the US-led occupation, including use of the money for a no-bid Halliburton contract.

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