IG: Iraq logistics contractor marked up prices as much as 12,000 percent

Auditor questions nearly 40 percent of company’s billings, among them $900 for a $7 control switch.

A United Arab Emirates-based logistics contractor billed Defense Department authorities in Iraq for parts at prices marked up as high as 5,000 percent and 12,000 percent, according to a quarterly report released Saturday by the Special Inspector General for Iraq Reconstruction.

A review of a $119 million reconstruction and logistics contract with Anham LLC questioned almost 40 percent of its costs, including:

  • $900 for a control switch valued at $7.05 (a 12,666 percent increase);
  • $80 for a small segment of drainpipe valued at $1.41 (a 5,574 percent increase);
  • $75 for a different piece of plumbing equipment also valued at $1.41 (a 5,219 percent increase);
  • $3,000 for a circuit breaker valued at $94.47 (a 3,076 percent increase);
  • $4,500 for another kind of circuit breaker valued at $183.30 (a 2,355 percent increase).

Because of what it called weak oversight, SIGIR formally questioned the contract's costs and recommended reviews of billing practices in all of Anham's U.S. government contracts in Iraq and Afghanistan, which total about $3.9 billion.

"This story illustrates two things," Danielle Brian, executive director of the Project on Government Oversight, told Government Executive. "One, our bloated defense budget is made up of all too many overpriced contracts like these. And two, this is exactly why there is a pressing need to fill the vacancies with an aggressive Special Inspector General for Afghanistan Reconstruction and State Department IG to root out war profiteering contractors the way the SIGIR did here."

The disclosures came in a larger report that documents a rise in political violence in Iraq just as U.S. troops are scheduled to depart in December.

The review of Anham was among six audits SIGIR summarized. The examples of flawed oversight included government contracting officers' representatives who "failed to compare vouchers with receiving documents and allowed Anham employees to sign for receipt of $10 million in goods."

Another audit faulted the Pentagon's Commander's Emergency Response Program for deferring too much to State Department agendas. "Many of the capacity development projects undertaken were not linked to specific military objectives," the audit found, adding that State officials "played a significant role in planning and executing CERP projects, raising questions about whether the CERP has simply become another U.S. development program."

SIGIR did credit the State Department with improving oversight of contracts for mentoring the Iraqi police program, addressing weaknesses the inspector general had been citing since 2005. In June 2011, Deputy Undersecretary for Management Patrick Kennedy told the Commission on Wartime Contracting that he had accelerated reconciliation of invoices overseen by the department's International Narcotics and Law Enforcement Affairs Bureau.

The State Department effort, which resulted in recovery of funds or reductions in billing totaling some $188 million, is "a clear demonstration of the critical importance of contemporaneous invoice oversight in contract execution," the SIGIR report said.

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