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UN Panel Says CPA is Mismanaging Iraqâ€TMs Oil Revenues

by Chris Shumway

In criticism reminiscent of US charges against Saddam's handling of Iraq's oil revenues, a UN-mandated oversight panel says the US-led Coalition Provisional Authority has mishandled billions in Iraqi funds.

June 24, 2004 – A UN-mandated oversight panel says the US-led Coalition Provisional Authority (CPA) is mismanaging billions of dollars in Iraqi oil revenues.

The International Advisory and Monitoring Board (IAMB), which was set up by the UN to monitor the Development Fund for Iraq (DFI), issued the criticism on Tuesday, according to Reuters. The Fund holds proceeds from the sale of Iraqi oil, as well as assets seized from Saddam Hussein’s regime and money transferred from the sanctions-era Oil for Food Program.

According to Reuters, the Monitoring Board said the Coalition Provisional Authority falsely stated that it had awarded contracts for equipment to meter Iraq’s oil production. The absence of such equipment makes it possible for smugglers to gain access to oil supplies, said the IAMB.

The IAMB also accused the CPA of delaying action for three months on a request by the Board that it turn over US audits of sole-source contracts awarded to Halliburton last year without competitive bidding, according to Reuters.

The IAMB includes representatives from the Secretary-General of the United Nations, the International Monetary Fund, the World Bank and the Arab Fund for Social and Economic Development.

The Financial Times reports that the US-based accounting firm KPMG, which is currently auditing the development fund on behalf of the Monitoring Board, says the Coalition’s poor management has left the Fund "open to fraudulent acts."

KPMG is not expected to complete its audit until July 14, two weeks after the Coalition Provisional Authority is formally dissolved, according to Reuters. But in a preliminary report, a copy of which the Financial Times has obtained, KPMG criticized the coalition’s handling of the DFI and said the audit has been delayed in part by "resistance" from CPA staff.

The Development Fund for Iraq was created by the UN last May and is managed by the CPA’s Program Review Board (PRB), a panel appointed by and subordinate to the Coalition’s civilian administrator, Paul Bremer. Spread sheets on the CPA’s own web site indicate that the PRB has already spent $11.2 billion from the Fund, an amount that far exceeds the $3.2 billion in US taxpayer funds awarded thus far by the CPA for Iraqi reconstruction projects.

The PRB has also committed $4 billion to additional projects, leaving only $4.4 billion in the fund, which is to be formally turned over to Iraq’s interim government on June 30. The UN Security Council resolution setting the terms for Iraqi sovereignty states that the interim government is obligated to honor all contracts awarded by the CPA.

The KPMG report obtained by Financial Times reads, "The CPA does not have effective controls over the ministries' spending of their individually allocated budgets, whether the funds are direct from the CPA or via the ministry of finance."

Some of KMPG’s harshest criticism was directed at the State Organization for Marketing Oil (SOMO), an agency charged with selling Iraq’s oil, the Financial Times reports. KMPG’s report says SOMO’s only record of transactions was "an independent database, derived from verbal confirmations gained by Somo staff."

An Iraqi minister, speaking to the Financial Times, said he and many of his colleagues who will take office on June 30 feel "let down by how the CPA has controlled resources."

An adviser to a former member of the Iraqi Governing Council told the Financial Times that he feared auditors would never be able to complete a thorough review of the CPA’s handling of Iraq’s money. "If the auditors don’t finish by June 30, they never will, because the CPA staff are going home," the adviser said. "I lament the lack of transparency and lack of involvement by Iraqis."

Ironically, the US has frequently complained about the UN’s management of funds in the Oil for Food program while Saddam Hussein was in power.

The CPA would not discuss the KPMG report with the Financial Times, stating only that it "has been and will continue to discharge its responsibilities under the Iraqi Development Fund."

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The NewStandard ceased publishing on April 27, 2007.

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