US Iraq Reconstruction payments ok, but payment for what?

A large amount of money is at risk all along the procurement trail from the time a "need" is identified to the time it is exhausted by consumption of the goods or services procured. Strict budgeting, planning and management controls are needed to make sure the need is indeed that and properly identified. Competitive oversight via effective protest systems give real time policing of the solicitation process. And accounting and auditing work are meant to control the delivery and payments functions of the contract administration end of the procurement lifecycle.

This is a tale of that last aspect of procurement.

Final Forensic Audit Report of Iraq Reconstruction Funds (SIGIR-12-017)

Public Law 108-106, as amended, requires the Special Inspector General for Iraq Reconstruction (SIGIR) to perform forensic audits and issue a final report on all funding appropriated for the relief and reconstruction of Iraq. A forensic audit involves the systematic examination of a program’s internal controls over expenditures and financial data for indications of fraudulent, wasteful, or abusive activities.

This report summarizes the results of SIGIR’s forensic audits and investigations of Iraq reconstruction funds and satisfies the requirement for a final forensic audit report.

SIGIR audits, inspections, and investigations have found serious weaknesses in the government’s controls over Iraq reconstruction funds that put billions of American taxpayer dollars at risk of waste and misappropriation. The precise amount lost to fraud and waste can never be known, but SIGIR believes it is significant. As of June 30, 2012, SIGIR audit reports had questioned $635.8 million in costs, and SIGIR Investigations, working with other agencies, had resulted in $176.84 million in fines, forfeitures, and other monetary results.

SIGIR found few problems in the agencies’ invoice payment processes. SIGIR tested 180,000 DoD Department of Defense), DoS (Department of State) and USAID payment transactions totaling about $40 billion. SIGIR looked for problem transactions such as duplicate payments, payments to fictitious vendors, or inappropriate separation of duties of individuals in the payment process. Overall, SIGIR’s tests found that once invoices were approved for payment, the payments were essentially processed correctly and to valid vendors.

However, because of the internal control weaknesses, government agencies cannot be certain that the payments were for goods and services that (1) were actually received, (2) met contractual specifications, (3) were in accordance with the contract prices, or (4) were competitively priced.

SIGIR audit reports identified internal control weaknesses such as inadequate reviews of contractors’ invoices, insufficient numbers of, or inadequately trained oversight staff, poor inventory controls, high staff turnover, poor recordkeeping, insufficient price competition by subcontractors, and weak oversight of cash disbursements.

For example, SIGIR’s audit of a DoS contract for Iraqi police training program support found that more than $2.5 billion in U.S. funds was vulnerable to fraud and waste as a result of poor DoS oversight. Another SIGIR audit of a DoD contract for warehousing and distribution services found that the contractor’s business systems had not been adequately reviewed. Business system reviews are the government’s primary control to ensure that prices paid are reasonable and allowable.

Weaknesses in internal controls open the door to opportunities for fraud and other illegal activities. As of June 30, 2012, SIGIR investigators, working with other agencies’ investigators, have developed information used to indict 87 individuals and convict 71 individuals for fraudulent activities including bribery, kick-backs, theft of government funds and property, inflated invoices, delivery of insufficient or inferior goods, and bid rigging.

For example, a U.S. Army Captain was convicted of stealing $690,000 intended for security contracts and relief and reconstruction programs. A regional vice president of a logistics company was convicted of a scheme to inflate invoices for military shipments to Baghdad through the firm’s contract. The estimated loss to the U.S. government was approximately $1 million.

Read the full report at the link.