SpecialSpecial InspectorInspector GeneralGeneral forfor IraqIraq ReconstructionReconstruction Quarterly Report to the United States Congress [October 30, 2008] MESSAGE FROM THE SPECIAL INSPECTOR GENERAL FOR IRAQ RECONSTRUCTION I am pleased to provide SIGIR’s 19th Quarterly Report to the Congress and the Secretaries of Defense and State. The issuance of this report coincides with the fourth anniversary of the Congress’ creation of SIGIR to oversee the use of U.S. reconstruction funds in Iraq. SIGIR, the follow-on agency to the Coalition Provisional Authority’s Inspector General, possesses a broad mandate to report on over $50 billion in taxpayer dollars. The success of the SIGIR model spawned the creation of two more special IGs this year—the Special Inspector General for Afghanistan Reconstruction (SIGAR) and, very recently, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). SIGIR provides administrative support to SIGAR. The theme of this Quarterly Report, “A Nascent Normalcy: The Evolution of U.S. Assistance to a Sovereign Iraq,” reflects the recognition of a fundamental shift in the U.S. relief and reconstruction effort this year, which SIGIR dubbed in January “The Year of Transfer.” The most salient features of that fundamental shift include: t the rising primacy of Iraq’s capital budget as the chief funding source for further reconstruction, resulting in an appropriate decrease in U.S. assistance t the strengthening of Iraq’s security forces, evident in the recent transfer of security responsibilities in Anbar and Babylon to Iraqi control t the incremental improvement in essential services across Iraq, highlighted by this quarter’s record electricity output t the increased velocity of economic activity prompted by Iraq’s oil revenue windfall, which may soon be tem- pered by recent rapid declines in world oil prices t the progress of the Maliki government on specific legislative items, most notably the passage of the Provincial Election Law SIGIR’s oversight teams produced seven audit reports and three inspection assessments this quarter, including: t a congressionally mandated review identifying 310 contractors that have provided security services in Iraq, costing U.S. taxpayers about $6 billion (with most of that money going to 77 of the contractors) t an audit requested by Ambassador Ryan Crocker that reviewed U.S. Embassy procedures for reporting progress on reconstruction projects to the Chief of Mission, finding systemic weaknesses that the Embassy is acting quickly to ameliorate t a focused financial review of two large USAID capacity-building contracts, finding significant shortcomings in invoice review, outcome reporting, and agency contract oversight t an audit of IRRF contract terminations, which found very few adverse actions taken against contractors terminated for default t an inspection of the Falluja Waste Water Treatment System, finding that the project will cost three times original estimates, will be completed over three years late, and will serve just over a third of the number of homes originally contemplated 400 Army Navy Drive • Arlington Virginia 22202 This quarter, I traveled to Iraq for the 20th time since my appointment in 2004. During visits to Falluja and around Baghdad, I observed noticeable improvements in the security situation. Significantly, Haifa Street, once one of the most dangerous places in Baghdad, was bustling with commerce in mid-August. But, as MNF-I Commanding General Ray Odierno recently observed, the security situation remains fragile. I soon will travel again to Iraq to support SIGIR’s 35 auditors, inspectors, and investigators who are working across the country on a wide spectrum of critical oversight issues. Finally, on October 19, I was pleased to accept, on behalf of SIGIR, three awards from the President’s Council on Integrity and Efficiency: one honored the loss last spring of SIGIR auditor Paul Converse (who was killed in a Green Zone rocket attack); one recognized the exemplary work accomplished by SIGIR’s entire Audits Directorate; and one lauded the outstanding report on the Mosul Dam produced by SIGIR’s Inspections Directorate. I remain proud of the dedicated SIGIR team, in both Baghdad and Arlington, which continues to carry out our complex mission with an enduring commitment to the highest standards of professionalism, productivity, and perseverance. Stuart W. Bowen, Jr. Special Inspector General for Iraq Reconstruction SIGIR Summary of Performance As of October 30, 2008 Audits Reports Issued 129 Recommendations Issued 343 Dollars Saved and Recovered $81,600,000 Dollars Put to Better Use $224,720,000 Challenged Payments $14,930,000 Inspections Project Assessments Issued 131 Limited On-site Assessments Issued 96 Aerial Assessments 640 Investigations Investigations Initiated 374 Investigations Closed or Referred 307 Open Investigations 67 Arrests 16 Indictments 18 Convictions 11 Court-ordered Restitution/Forfeiture $17,414,000 Hotline Contacts as of September 30, 2008 Fax 18 Telephone 75 Walk-in 110 E-mail 327 Referrals 26 Mail 28 SIGIR Website 97 Total Hotline Contacts 681 Non-Audit Products Congressional Testimony 26 Lessons Learned Reports Issued 3 TABLE OF CONTENTS SECTION 1 SECTION 4 SIGIR observations 1 sigir oversight 159 A NASCENT NORMALCY: THE EVOLUTION OF SIGIR AUDITS 160 U.S. ASSISTANCE TO A SOVEREIGN IRAQ 2 SIGIR INSPECTIONS 180 THE DIPLOMATIC CONTOURS OF A SIGIR INVESTIGATIONS 200 NASCENT NORMALCY 4 SIGIR HOTLINE 204 THE INCREASING FUNCTIONAL SIGIR WEBSITE 205 AUTONOMY OF A SOVEREIGN IRAQ 4 LEGISLATIVE UPDATE 206 CONGRESS PASSES NEW LAW ON RECONSTRUCTION AND STABILIZATION 9 SIGIR OVERSIGHT 11 SECTION 5 THE HUMAN TOLL 14 other agency oversight 211 INTRODUCTION 212 OTHER AGENCY AUDITS 212 SECTION 2 OTHER AGENCY INVESTIGATIONS 218 reconstruction Overview 15 SUMMARY OF FUNDING FOR IRAQ ENDNOTES 219 RECONSTRUCTION 16 ACRONYMS AND DEFINITIONS 233 SUMMARY OF U.S. FUNDING 22 * USES AND OUTCOMES 43 List of Appendices Appendix A: Statutory Requirements SECURITY 44 Appendix B: Impact of SIGIR Operations INFRASTRUCTURE 55 Appendix C: Cross-Reference ECONOMY 69 of SIGIR Budget Terms GOVERNANCE 77 Appendix D: SIGIR Sector Cross-Reference Appendix E: U.S. Appropriated Funds Appendix F: IRRF Apportionments by Agency Appendix G: Iraqi Funds SECTION 3 Appendix H: International Support for Iraq provincial overview 89 Appendix I: Completed SIGIR Audits PROVINCE SNAPSHOTS 90 Appendix J: Completed SIGIR Inspections KURDISTAN 94 Appendix K: Indictments and Convictions NINEWA 98 Appendix L: Suspensions and Debarments TAMEEM 102 Appendix M: Detailed Summary of Other Agency Oversight SALAH AL-DIN 106 Appendix N: Summary of U.S. Oversight ANBAR 110 in Iraq DIYALA 114 BAGHDAD 118 *The complete version of this SIGIR Quarterly Report is available on the SIGIR website: www.sigir.mil. It is the WASSIT 124 official version of the Report, containing all appendices and BABYLON 128 corrections. QADISSIYA 132 KERBALA 136 NAJAF 140 MUTHANNA 144 THI-QAR 148 MISSAN 152 BASRAH 155 TABLE OF CONTENTS Dahuk Erbil Ninewa Sulaymaniyah Tameem Salah Al-Din Diyala Baghdad Anbar Babylon Wassit Kerbala Qadissiya Missan Najaf Thi-Qar Basrah Muthanna SIGIR OBSERVATIONS A NASCENT NORMALCY: THE EVOLUTION OF U.S. ASSISTANCE TO A SOVEREIGN IRAQ THE DIPLOMATIC CONTOURS OF A NASCENT NORMALCY THE INCREASING FUNCTIONAL AUTONOMY OF A SOVEREIGN IRAQ CONGRESS PASSES NEW LAW ON RECONSTRUCTION AND STABILIZATION SIGIR OVERSIGHT THE HUMAN TOLL 1section 1 SIGIR OBSERVATIONS A NASCENT NORMALCY: THE EVOLUTION OF U.S. ASSISTANCE TO A SOVEREIGN IRAQ This penultimate quarter of the Year of Transfer Department of Defense’s (DoD’s) Commander’s witnessed the emergence of nascent normalcy Emergency Response Program (CERP) have in Iraq. As U.S. reconstruction assistance contin- $1.81 billion and $0.88 billion left to expend, ued to target civil and military capacity building, respectively.4 In sum, about $10.72 billion of the Iraq achieved progress on the security, political, four major U.S. reconstruction funds has yet to be and economic fronts. Violent incidents dropped expended, and $5.26 billion remains unobligated. to their lowest levels since 2004; the long-awaited For an overview of amounts available for obliga- Provincial Election Law finally passed; and com- tion in the four major funds, see Figure 1.1. mercial activity, spurred by Iraq’s oil-revenue The ESF program expends funds at a much windfall, continued to increase. But, as General slower rate than CERP due in part to DoS’s Ray Odierno, the new Commanding General, use of Interagency Agreements, which trans- Multi-National Force-Iraq (MNF-I), recently fer ESF monies to DoD or the U.S. Agency for noted, Iraq “was a failed state [in 2006]. In 2008, International Development (USAID) for execu- it’s a fragile state. We’ve got to move it to a stable tion. Oddly, DoS reported that, although 100% of state.”1 To sustain progress in this direction, Iraq 2008 ESF funds were obligated, 0% was expended must improve its provision of security and es- this quarter. For an executive summary of SIGIR’s sential services, such as electricity, potable water, audit on this issue, see Section 4. sewage systems, and health care services. Figure 1.1 Iraq’s nascent normalcy follows upon—and, to some extent, stems from—the completion Balances of the Four Major Funds $ Billions and transfer of most of the significant U.S. relief and reconstruction projects. Almost exactly five years ago, the Congress appropriated more than Obligated IRRF 2 $0.53 $18 billion to the Iraq Relief and Reconstruction $38.37 ISFF $3.85 Unobligated Fund (IRRF) to support the ambitious Coalition $5.26 Provisional Authority (CPA) rebuilding program. ESF $0.57 CERP $0.31 On September 30, 2008, the authority of U.S. agencies to obligate IRRF funds for new obliga- tions expired. At that point, over 97% was obligat- ed, and nearly 94% was spent.2 The $17.94 billion Iraq Security Forces Fund (ISFF) also is drawing down, with $3.85 billion left to obligate and $6.90 Note: Numbers affected by rounding.