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Message from the Special Inspector General for Iraq Reconstruction

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Message from the Special Inspector General for Iraq Reconstruction MESSAGE FROM THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION I am pleased to submit to the U.S. Congress and the Secretaries of State and Defense the ninth Quarterly Report from the Special Inspector General for Iraq Reconstruction (SIGIR). As this year of transition in Iraq reconstruction unfolds, U.S.-funded projects are rapidly being completed and transferred to Iraqi management and control. Within that context, SIGIR identifies, in Section 1 of this Report, five critical issues the resolution of which will help advance Iraq toward economic prosperity and democratic success: • Improve Infrastructure Security—by intensifying efforts to ensure that Iraq can secure its essential energy infrastructure. • Close the Reconstruction Gap—by providing funds for sustaining Iraq’s infrastructure and devel- oping Iraqi capacities to manage projects and programs. • Bolster Anticorruption Efforts—by empowering and enabling Iraq’s incipient anticorruption insti- tutions through training and funding. • Energize the Oil and Gas Sector—by stimulating and sustaining investment in this sector, which is the key to Iraq’s future prosperity. • Increase International Donor Participation—by engaging donor nations to participate more actively in the next phase of Iraq’s relief and reconstruction. Section 2 of this Report updates SIGIR’s previous reviews of Iraq’s essential service sectors—oil and gas, electricity, and water—and provides initial reports on the following sectors: security; transporta- tion and communications; health care; and democracy, education, and private sector development. Taken together, these sector reviews provide, for the first time, a comprehensive and detailed picture of the activities, outputs, and outcomes arising from the enormous U.S. investment in Iraq’s infra- structure. Despite certain setbacks, chiefly caused by security problems, the overall picture conveys a sense of substantial progress in the relief, recovery, and reconstruction of Iraq. Section 3 of this Report provides summaries of SIGIR audits, inspections, and investigations per- formed this quarter. Notable among the audits is a performance review of the contract to construct primary health care centers across Iraq. As the audit notes, both the contractor and the U.S. govern- ment’s oversight failed to meet expectations. After $186,000,000 had been spent, only six health care centers were complete. Fourteen more will be completed by the contractor, and the remaining facili- ties, which are partially constructed, will have to be completed by other means. SIGIR performed five inspections of selected health care centers covered by this contract, and, at each facility, SIGIR inspectors found serious deficiencies. SIGIR also audited “Task Force Shield” this quarter, a program designed in September 2003 to build Iraq’s capacity to protect its oil and gas and electrical infrastructures. The audit documents significant shortcomings in the program and concludes that it failed to meet its goals because it was burdened by a lack of clear management structure and poor accountability. There were also indications of potential fraud, which are now under review by SIGIR investigators. SIGIR inspectors continued to meet their mission this quarter, which is to visit project sites from every sector and geographical region in Iraq and report on the quality of the work performed. The 13 on-site project assessments in this Report include positive reviews of the work performed at the Mosul Airport, the Erbil electrical transformer project, and the Dahuk primary school, and problematic reviews regarding construction at the Kirkuk airport and the Ninewa village roads project. Detailed inspection reports of these and other sites visited, with accompanying photographs, are in Section 3. SIGIR’s investigators continued work on more than 70 cases in Iraq and the U.S., combating and detering fraud. During this quarter, a U.S. contractor and a former Coalition Provisional Authority (CPA) regional comptroller pleaded guilty to charges of money laundering, bribery, and conspiracy; others have been arrested in this widening case that involves corruption in CPA’s south-central regional office during 2003-2004. In March, SIGIR investigators also arrested a contractor for bribery in an undercover sting operation executed in Iraq. This Report also contains a thorough review of the history and status of investments in Iraq’s relief and reconstruction by non-U.S. donor nations and international institutions, as well as a summary of Iraq’s current debt situation. SIGIR’s Lessons Learned initiative made progress this quarter toward the publication of the contracting report, which will be out next quarter. The Lessons Learned forum on program and project management was held in April, and that report will be out in the summer of 2006. I am gratified to report that SIGIR’s dedicated auditors, inspectors, and investigators remain on the case in Iraq and the U.S. SIGIR continues to oversee the American taxpayers’ investment by providing meaningful oversight that promotes efficiency, enforces accountability, and seeks to serve the interests of the overall success of U.S. relief and reconstruction efforts in Iraq. Submitted April 30, 2006 Stuart W. Bowen, Jr. table of contents Section 1: SIGIR Observations 1 Status of the Electricity Sector 57 A Year of Transition Update 3 Status of the Oil and Gas Sector 65 Critical Issue: Protecting Status of the Water Sector 75 Iraq’s Infrastructure 4 Contracts Update 81 Critical Issue: Closing the Cost to Complete 85 Reconstruction Gap 5 Sources of Funding for Critical Issue: Energizing the Iraq Reconstruction 87 Oil and Gas Sector 6 Critical Issue: Bolstering Section 3: Iraq’s Anticorruption Efforts 7 SIGIR Oversight 107 Critical Issue: Encouraging SIGIR Audits 109 More International Donor SIGIR Inspections 145 Participation 8 SIGIR Investigations 185 Notable SIGIR Activities SIGIR Hotline 189 During This Quarter 8 SIGIR Lessons Learned Initiative 191 Financial Impact of SIGIR SIGIR Web Site 192 Operations 11 Anticorruption Initiative 193 The Human Toll 11 Section 4: Section 2: Other Agency Oversight 199 Uses of Funding: Status Other Agency Audits 202 Reports by Sector 15 Other Agency Investigations 221 Introduction 17 Status of the Security and List of Appendices Appendices-1 Justice Sector 21 Acronyms and Status of the Health Care Sector 31 Definitions Acronyms-1 Status of the Transportation Endnotes Endnotes-1 and Communications Section 37 Status of the Democracy, Education, and Private Sector Development Sector 47 table of contents SIGIR Summary of Performance February 1, 2004 – April 30, 2006 Audit Reports issued 55 Recommendations issued 165 Dollars Saved $10,900,000 Financial Benefit of SIGIR Audits $391,800,0001 Inspections Project Assessments issued 42 Limited preliminary assessments issued 97 Satellite imagery reports issued 112 Financial Benefit of SIGIR Inspections $1,339,700,000 Investigations Investigations initiated 177 Investigations closed 105 Open investigations 72 Arrests 5 Convictions 2 Value of assets seized/recovered $13,011,304 Hotline Contacts Fax 12 Telephone 55 Walk-in 108 E-mail 248 Standard mail 22 Referrals 25 Total Hotline Contacts 470 Non-Audit Products Congressional Testimony 5 Lessons Learned Reports issued 1 1For details on Financial Benefits, see Appendix I SIGIR Observations A Year of Transition Update Critical Issue: Protecting Iraq’s Infrastructure Critical Issue: Closing the Reconstruction Gap Critical Issue: Energizing the Oil and Gas Sector Critical Issue: Bolstering Iraq’s Anticorruption Efforts Critical Issue: Encouraging More International Donor Participation Notable SIGIR Activities During this Quarter Financial Impact of SIGIR Operations The Human Toll 1section SIGIR OBSERVATIONS I SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION SIGIR OBSERVATIONS With 67% of the $21 billion in Iraq Relief and international donors to sustain the substantial Reconstruction Funds (IRRF) now expended U.S. investment in Iraq’s infrastructure. For and only $2 billion left to obligate, the U.S. this process to succeed, more investment is reconstruction program in Iraq is fully necessary. To that end, Congress is currently engaged in project execution and sustainment, considering a new supplemental funding bill contract close-out, and program transition. that will support work toward achieving and Effectively advancing the progress of recon- sustaining U.S. reconstruction goals. The struction and development in Iraq at this increasing pace of transition in Iraq makes critical juncture requires the U.S. government it all the more important that these funds to work closely with the Iraqi government and become available soon. A YEAR OF TRANSITION UPDATE In its January 2006 Report, the Special Inspec- projects. U.S. transition plans anticipate this tor General for Iraq Reconstruction (SIGIR) structural development to occur within Iraq’s observed that this is the Year of Transition in government this year. Iraq reconstruction. By the end of 2006, most Insurgent activity continues to impede programs and projects funded by the IRRF will ongoing reconstruction projects and interrupt be turned over to Iraqi authorities. With that their transition to Iraqi control. But the attacks prospect on the horizon, reconstruction plan- remain concentrated in a few areas, leaving ning and operations are increasingly becoming daily life in much of the rest of Iraq—particu- a joint enterprise, with U.S. and Iraqi officials larly the Kurdish north and
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