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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 the tenth Quarterly Report from the Office of the Special Inspector General for Iraq Reconstruction (SIGIR). This Report is the product of the collective efforts of SIGIR’s auditors, inspectors, and investigators who continue to pursue SIGIR’s important mission to advise upon and account for the use of the Iraq Relief and Reconstruction Fund (IRRF). Field work for the Report occurred principally in Iraq, where nearly 50 SIGIR personnel operate daily in perilous conditions to execute comprehensive oversight of the U.S. taxpayers’ investment in Iraq. The Report is divided into four sections. Section 1 presents SIGIR’s observations on current issues affect- ing the U.S.-led program. Section 2 provides sector-by-sector updates on reconstruction progress. Section 3 lays out SIGIR’s most recent audit, inspection, and investigative work. And Section 4 summarizes other agency oversight. This Report meets my expectations that SIGIR provide the most comprehensive and accurate report- ing available on relief and reconstruction work in Iraq. While the program achieved progress this quarter, it remains a sobering reality that this progress occurred under the pall of an increasingly lethal security environ- ment. There is no avoiding the fact that the fomenting of widespread sectarian conflict in Iraq threatens to significantly forestall progress. This Report appears just past the midpoint of the Year of Transition in Iraq. In light of that important milestone, SIGIR stresses several key tasks in Section 1 that must be accomplished for transition to succeed: improve security, particularly in Baghdad; increase emphasis on infrastructure sustainment; multilateralize the reconstruction program through an international compact for financial support; control corruption in Iraq’s ministries; and build governance capacity at the national and local levels. The sector reviews in Section 2 include initial looks at the agriculture and private sector development pro- grams. Significantly, Section 2 notes that outputs in the electricity and oil sectors rose above pre-war levels for the first time in over a year. SIGIR’s audits and inspections in Section 3 include reviews of the Basrah Children’s Hospital, U.S. support of Iraqi anticorruption programs, and an update on the Al Fatah pipeline projects. SIGIR completed its Lessons Learned Report on Iraq Contracting this quarter and will publish its next Lessons Learned Report addressing Program and Project Management later this year. SIGIR remains committed to meeting the expectations of Congress, the Secretary of State, the Secretary of Defense, and the American taxpayer for timely and usable information on U.S. progress and performance in Iraq reconstruction. Although the IRRF is almost completely obligated, many challenges lie ahead. SIGIR intends to help the U.S. program meet and overcome those challenges. Submitted on July 31, 2006. Stuart W. Bowen, Jr. table of contents Section 1: Cost to Complete 88 SIGIR Observations 1 Sources of Funding for Year of Transition: Pushing Iraq Reconstruction 90 Through the Midpoint 3 International Donor Funds 93 Security: A Lethal Problem 4 Donor Coordination 95 Corruption: Endemic and Destructive 5 Iraqi Funds 102 Reconstruction Leadership: More Coordination Needed 5 Section 3: Capacity Building: Keystone to SIGIR Oversight 105 Transition 6 SIGIR Audits 107 The Next Phase: Multilateralizing SIGIR Inspections 143 Reconstruction 7 SIGIR Investigations 183 Notable SIGIR Activities This Quarter 7 SIGIR Hotline 188 Financial Impact of SIGIR Operations 10 SIGIR Lessons Learned Initiative 190 The Human Toll 11 Legislative Update 192 Section 2: Section 4: Uses of Funding: Status Other Agency Oversight 195 Reports by Sector 13 Introduction 197 Introduction 15 Other Agency Audits 198 General Challenges 16 Other Agency Investigations 201 Status of the Electricity Sector 19 Status of the Oil and Gas Sector 29 Endnotes Endnotes-1 Status of the Water Sector 39 List of Appendices Appendices-1 Status of the Agriculture, Acronyms and Democracy, Education, and Definitions Acronyms-1 Private Sector Development Sector 45 Status of the Security and Justice Sector 59 Status of the Health Care Sector 67 Status of the Transportation and Communications Sector 73 Contracts 83 table of contents Dahuk Erbil Ninewa Sulaymaniyah Tameem Salah al-Din Diyala Baghdad Anbar Babylon Wassit Kerbala Qadissiyah Missan Thi-Qar Najaf Basrah Muthanna SIGIR Summary of Performance February 1, 2004 – July 30, 2006 Audit Reports issued 65 Recommendations issued 215 Dollars saved $10,900,000 Financial benefit of SIGIR Audits $405,140,000* Inspections Project assessments issued 56 Limited preliminary assessments issued 96 Satellite imagery reports issued 172 Financial benefit of SIGIR Inspections $1,362,900,000* Investigations Investigations initiated 236 Investigations closed or referred 154 Open investigations 82 Arrests 5 Convictions 2 Value of assets seized/recovered $13,011,304* Hotline Contacts Fax 12 Telephone 59 Walk-in 109 E-mail 272 Standard mail 24 Referrals 25 Total Hotline contacts 501 Non-audit Products Congressional testimony 6 Lessons Learned reports issued 2 *For details on financial benefits, see Appendix J. SIGIR Observations Year of Transition: Pushing Through the Midpoint Security: A Lethal Problem Corruption: Endemic and Destructive Reconstruction Leadership: More Coordination Needed Capacity Building: Keystone to Transition The Next Phase: Multilateralizing Reconstruction Notable SIGIR Activities this Quarter Financial Impact of SIGIR Operations The Human Toll 1section SIGIR OBSERVATIONS I SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION SIGIR OBSERVATIONS This is the tenth Quarterly Report from the phase must be multilateralized, which means Special Inspector General for Iraq Reconstruc- more international effort and investment. This tion (SIGIR). During this reporting period, multilateral phase will be energized by the several positive effects of the U.S. reconstruc- development of a new international finan- tion program became evident. Significantly, cial compact for Iraq, which is expected to over the past six weeks, the production of generate broader support for reconstruction both electricity and oil in Iraq climbed above while requiring Iraq to meet specific politi- pre-war levels. Electricity output nationwide cal and economic milestones. The compact now exceeds 5,000 megawatts, and oil produc- anticipates increased commitments from tion reached 2.5 million barrels per day. Both international donors, and thus it will serve as a of these levels are the highest achieved in more bridge between the U.S.-led phase and a more than a year. extended and comprehensive reconstruction These accomplishments are critical as the and recovery program, which Iraq itself must U.S.-led phase of Iraq’s relief and reconstruc- ultimately fund and execute. See below, “The tion moves towards its conclusion. The next Next Phase: Multilateralizing Reconstruction.” YEAR OF TRANSITION: PUSHING THROUGH THE MIDPOINT By the end of June 2006, $18.94 billion of the de-obligated and subsequently re-obligated combined U.S. Iraq Relief and Reconstruction after this date. Thus, there should be con- Fund (IRRF 1 and IRRF 2)1 had been obli- tinuing oversight of plans to de-obligate and gated, and $14.85 billion had been expended. re-obligate funds to ensure that the IRRF On September 30, 2006, the U.S. government’s continues to be used to meet Iraq’s highest authority to obligate the IRRF will expire. Con- reconstruction priorities. sequently, any unobligated IRRF dollars must The U.S. Army Corps of Engineers-Gulf be put under contract by the end of September, Region Division (GRD) and the Project and or the funds will revert to the U.S. Treasury. Contracting Office (PCO) plan to begin draw- In light of these circumstances, the Joint ing down staff later this year based on project- Contracting Command-Iraq and other con- ed workload reductions. Additionally, the Iraq tracting entities are currently focused on obli- Reconstruction Management Office (IRMO), a gating all remaining IRRF dollars as rapidly as temporary agency funded by the IRRF, is slated possible. Although the IRRF must be entirely to terminate in 2007. The Department of State obligated by September 30, funds may be (DoS), however, has requested funding for JULY 30, 006 I REPORT TO CONGRESS I 3 SIGIR OBSERVATIONS IRMO in its FY 2007 budget so that it can con- Along with security, sustainment remains tinue to support capacity building and other a critical challenge confronting the new Iraqi reconstruction initiatives. SIGIR supports this government. Sustainment means ensuring that decision and observes that sufficient personnel Iraq has the capacity to manage and support should remain with GRD, PCO, and IRMO the programs, projects, and assets that the until the IRRF is fully executed. U.S. will transfer to it. SIGIR raised sustain- During this reporting period, the most ment as a significant concern last year, and significant event in the Year of Transition U.S. reconstruction managers responded by occurred: the first permanent, democratically developing new transition plans that more elected government of Iraq took office with the fully addressed the issue. IRMO commendably inauguration of a new Prime Minister, the seat- created an office to ensure adequate planning ing of a new assembly, and the appointment for the sustainment of IRRF projects. But con- of a
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