Report: Defense Department cannot fully account for $7.8B spent in Iraq

A House panel Thursday displayed vouchers showing single U.S. Army payments of up to $11 million made without any documentation showing how the money was spent.

The House Oversight and Government Reform Committee used a hearing to publicize a Defense Department inspector general's report, released Thursday, which estimates that of $8.2 billion used to buy commercial goods and services in the war, the Defense Finance and Accounting Service processed $7.8 billion in payments without adequate documentation.

For $1.4 billion of payments, the Army lacked the minimum justification required for payment, the report estimates.

"We don't know what we paid for," testified Mary Ugone, the Defense Department's deputy inspector general for auditing.

The IG made estimates by extrapolating from a sample of 702 commercial payments; a methodology the Army questioned in a written response to the report.

Lawmakers highlighted some of the largest single payouts made without adequate paperwork, such as a voucher showing an $11.1 million payment in 2005 to contractor IAP Worldwide Services that "was missing both the receiving report and invoice," the report said, and a $5.6 million payment made in 2004 to an Iraqi company without any description of how the money was used.

The report also highlights $135 million in payments made without documentation through the Commander's Emergency Response Program, which was created to give local U.S. military commandeers in Iraq the ability to back small local projects. While the program is generally used to pay Iraqis for supporting U.S. forces, the report notes large lump sum payments of up $8 million made to foreign governments with troops in Iraq. The United Kingdom got $68 million, Poland $45 million and South Korea $21 million. But the IG report says of 22 related vouchers reviewed "none contained sufficient supporting documentation to provide reasonable assurance that these funds were used for their intended purpose."

The report says auditors could not identify any reconstruction project resulting from the funds. Ugone denied that war conditions excuse sloppy recordkeeping. She said auditors used standards significantly less rigorous than those for domestic spending to decide if payments were adequately documented.

"There are challenges, but there should be some semblance of accountability," she said. "No documentation, from our perspective, is not acceptable." Ugone noted that from 2003 to 2006, the audit found accounting did not improve.

House Oversight and Government Reform ranking member Tom Davis, R-Va., pointed out that problems accounting for payments have long plagued the Defense Department, putting it on GAO's high-risk list for the last 15 years. But Davis joined Democrats in faulting the Army for its response to the issue. Due to the audit, the Pentagon moved the DFAS office reconciling Iraqi payments from Kuwait to a Rome, N.Y. facility, but Ugone said she was unsure what larger fixes are underway.

House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., said the Pentagon had refused to send a witness to Thursday's hearing even though "the department has known about this audit for more than a year and has known about this hearing for several weeks." Members noted Pentagon officials had claimed they needed time to review the report, but had already sent extensive written comments on it to the IG.

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