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Iraq: Monitoring Body Raises Concerns Over Weak Controls Of Oil Revenues

A worker at an Iraqi oil field near Kirkuk (AFP) An international auditing board is expressing serious concerns regarding the accounting practices and control of Iraq's current system for oil trade. The board says the Development Fund for Iraq (DFI), the principal repository for Iraq's oil-export receipts, has been poorly monitored. As a result, it says, there is lingering skepticism about how properly the funds are being spent. The board has consistently raised alarms over oil revenues, but says Iraqi authorities are now moving to correct the problem.

United Nations, 29 December 2005 (RFE/RL) -- The International Advisory and Monitoring Board (IAMB) has repeatedly raised four concerns related to Iraq's oil trade:

  • the widespread absence of oil metering;
  • the use of barter transactions for certain oil sales;
  • persistent weak controls on spending by ministries;
  • and the use of noncompetitive bidding procedures for some contracts funded from the DFI.

At a press conference at UN headquarters in New York on 28 December, IAMB Chairman Jean-Pierre Halbwachs said an agreement has recently been reached between the government of Iraq and a U.S. company to begin the expeditious installation of oil metering equipment. He did not specify the company.

Regarding the use of barter transactions for oil sales, Halbwachs said these are confined to one of Iraq's neighboring countries and are done mostly in exchange for electricity.

"Are we concerned about the state of the accounts and the control in place? I think the answer is yes," Halbwachs said. "In particular, we have repeatedly raised the use of barter transactions. [It] makes it difficult to determine whether fair value has been received for Iraqi oil revenues."

The DFI is the repository for proceeds from Iraq's oil export sales, as well as remaining balances from the UN's oil-for-food humanitarian program. A major report released in October documented large-scale corruption in the oil-for-food program.

Halbwachs appeared to go to great lengths to avoid using the word corruption. But Fayezul Choudhury, a World Bank representative on the IAMB, referred to weaknesses that have been identified that "speak to the potential for mismanagement [or] corruption."

The IAMB has repeatedly raised alarm over barter transactions because they are not being accounted for as required by UN Security Council Resolution 1483.

The persistent weak controls over financial transactions in Iraqi ministries have also been criticized in the reports issued by the IAMB since it began its work in December 2003.

"There are questions whether all the DFI disbursements have been made for the purposes intended, since the audits continue to criticize the overall financial control framework and contain exceptions to administrative and accounting procedures in the [Iraqi] spending ministries, by the U.S. agencies in respect of outstanding commitments which they have using DFI resources, and the Iraqi administration of DFI resources itself," Halbwachs said.

The IAMB asked a special auditor, KPMG, to review some 25 noncompetitive contracts amounting to $600 million. It said KPMG found "a number of exceptions to contracting procedures."

One specific contract -- for $1.4 billion, awarded to Kellogg Brown & Root, a subsidiary of the U.S. defense contractor Halliburton -- has been the subject of additional scrutiny. Nearly $210 million of the total has been reported as questionable, and a review is continuing.

Bert Keuppens, a representative on the board from the International Monetary Fund (IMF), said it will take time to fix the problems. But he said the Iraqi authorities "are committed to bringing their country back," adding, "They are on the road to recovery."

The monitoring board's mandate had been due to expire on 31 December, but has been extended by the UN Security Council for one more year.

RFE/RL Iraq Report

RFE/RL Iraq Report

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