Iraq Reconstruction: Better Data Needed to Assess Iraq's Budget
Execution (15-JAN-08, GAO-08-153).
The President's New Way Forward in Iraq identified Iraq's
inability to spend its resources to rebuild infrastructure and
deliver essential services as a critical economic challenge to
Iraq's self-reliance. Further, Iraq's ability to spend its $10.1
billion capital projects budget in 2007 was one of the 18
benchmarks used to assess U.S. progress in stabilizing and
rebuilding Iraq. This report (1) examines data the U.S. embassy
used to determine the extent to which the government of Iraq
spent its 2007 capital projects budget, (2) identifies factors
affecting the Iraqi government's ability to spend these funds,
and (3) describes U.S. government efforts to assist the Iraqi
government in spending its capital projects funds. For this
effort, GAO reviewed Iraqi government budget data and information
on provincial spending collected by the U.S. Provincial
Reconstruction Teams. GAO also interviewed officials from the
departments of the Treasury, Defense, State, and other agencies
and organizations.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-153
ACCNO: A79768
TITLE: Iraq Reconstruction: Better Data Needed to Assess Iraq's
Budget Execution
DATE: 01/15/2008
SUBJECT: Budget administration
Budget allowances
Budgeting
Budgets
Data integrity
Economic analysis
Economic growth
Federal aid to foreign countries
Financial management
Foreign aid programs
Foreign governments
International relations
Iraq War and reconstruction
Procurement
Procurement practices
Program evaluation
Reporting requirements
Program implementation
International Monetary Fund
Iraq
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GAO-08-153
* [1]Results in Brief
* [2]Background
* [3]Extent of Iraqi Capital Project Spending in 2007 Cannot Be D
* [4]U.S. and Iraqi Reports Show Differing Spending Rates
* [5]U.S. Administration Relies on Unofficial PRT Data to Track P
* [6]The Government of Iraq Faces Many Challenges in Attempting t
* [7]Violence and Sectarian Strife Hinder Budget Execution for Ca
* [8]Lack of Trained Personnel Hinders Capital Project Budgeting
* [9]Procurement, Budgetary, and Accounting Weaknesses Impair Cap
* [10]Several U.S. Assistance Efforts Are Under Way to Improve Ira
* [11]Conclusion
* [12]Recommendation
* [13]Agency Comments and Our Evaluation
* [14]Appendix I: Objectives, Scope, and Methodology
* [15]Appendix II: Comparison of Budget Execution during the First
* [16]Appendix III: Provincial Reconstruction Team Data on Provinc
* [17]Appendix IV: Comments from the Department of the Treasury
* [18]Appendix V: Comments from the Department of State
* [19]Appendix VI: GAO Contact and Staff Acknowledgments
* [20]GAO Contact
* [21]Staff Acknowledgments
* [22]Order by Mail or Phone
Report to Congressional Committees
United States Government Accountability Office
GAO
January 2008
IRAQ RECONSTRUCTION
Better Data Needed to Assess Iraq's Budget Execution
GAO-08-153
Contents
Letter 1
Results in Brief 2
Background 4
Extent of Iraqi Capital Project Spending in 2007 Cannot Be Determined Due
to Conflicting Data 6
The Government of Iraq Faces Many Challenges in Attempting to Spend Its
Capital Projects Budget 10
Several U.S. Assistance Efforts Are Under Way to Improve Iraqi Budget
Execution 15
Conclusion 19
Recommendation 19
Agency Comments and Our Evaluation 20
Appendix I Objectives, Scope, and Methodology 25
Appendix II Comparison of Budget Execution during the First 8 Months of
2006 and 2007 28
Appendix III Provincial Reconstruction Team Data on Provinces' Spending of
2006 and 2007 Capital Projects Funds 31
Appendix IV Comments from the Department of the Treasury 33
Appendix V Comments from the Department of State 35
Appendix VI GAO Contact and Staff Acknowledgments 39
Tables
Table 1: Capital Projects Budget, Unofficial and Official Data on
Expenditures for Five Iraqi Ministries with Largest Capital Budgets and
for Provinces, Fiscal Year 2007 7
Table 2: Government of Iraq 2006 Annual Budget and Expenditures through
August 2006 28
Table 3: Government of Iraq 2007 Annual Budget and Expenditures through
August 2007 28
Table 4: Iraq Budget Classification of Expenditures Reported by Ministry
of Finance, 2006 and 2007 29
Table 5: Provincial Capital Projects and Reconstruction Budgets, Funds
Committed and Spent, 2006 as of October 21, 2007 31
Table 6: Provincial Capital Projects and Reconstruction Budgets, Funds
Committed and Spent 2007, as of October 21, 2007 32
Figure
Figure 1: Iraq's 2006 Budget Expenditures 6
Abbreviations
CPA Coalition Provisional Authority
DOD Department of Defense
IFMIS Iraqi Financial Management Information System
IMF International Monetary Fund
IRMO Iraq Reconstruction Management Office
ITAO Embassy Iraq Transition Assistance Office
MNSTC-I Multinational Security Transition Command-Iraq
PRT Provincial Reconstruction Team
SIGIR Special Inspector General for Iraq Reconstruction
USAID U.S. Agency for International Development
This is a work of the U.S. government and is not subject to copyright
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wish to reproduce this material separately.
United States Government Accountability Office
Washington, DC 20548
January 15, 2008
Congressional Committees:
The President's February 2007 New Way Forward strategy for Iraq identified
Iraq's inability to spend its resources to rebuild infrastructure and
deliver essential services as a critical economic challenge to Iraq's
self-reliance. Further, the allocation and expenditure of Iraq's $10.1
billion capital projects budget in 2007 was 1 of the 18 benchmarks used to
assess U.S. progress in stabilizing and rebuilding Iraq.^1 Iraqi
government funds are a necessary source of financing for Iraq's rebuilding
effort, particularly because the United States has obligated most of the
$40 billion it has provided to Iraq for reconstruction since 2003.
However, the government of Iraq has had difficulty spending its resources
on capital projects.
This report (1) examines data used by the U.S. embassy in Baghdad to
determine the extent to which the government of Iraq has spent its $10.1
billion capital projects budget for 2007, (2) identifies factors affecting
the Iraqi government's ability to spend these funds, and (3) describes
U.S. government efforts to assist the Iraqi government in spending its
capital projects funds.
To address these objectives, we analyzed reports and interviewed officials
in Washington, D.C., and Baghdad from the departments of State (State),
Defense (DOD), and the Treasury (Treasury); the U.S. Agency for
International Development (USAID); the Economic Affairs Section of the
U.S. Embassy in Baghdad; and consultants under contract with the United
Kingdom's Department of International Development. We reviewed Iraqi
Ministry of Finance capital projects budget and expenditure data for
fiscal years 2006 and 2007, which were provided by Treasury and the U.S.
Embassy in Baghdad. We also reviewed information on provincial spending
collected by the U.S. Provincial Reconstruction Teams (PRT) and reported
by the U.S. Embassy in Baghdad. We conducted this performance audit from
April 2007 through December 2007 in accordance with generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives. A
detailed description of our scope and methodology is included in appendix
I of this report. Due to broad congressional interest in this issue, we
performed our work under the authority of the Comptroller General of the
United States to conduct reviews on his own initiative.
^1GAO, Securing, Stabilizing, and Rebuilding Iraq: Iraqi Government Has
Not Met Most Legislative, Security, and Economic Benchmarks,
[23]GAO-07-1195 (Washington, D.C.: Sept. 4, 2007).
Results in Brief
U.S. and Iraq reports show widely disparate rates for Iraqi government
spending on capital projects. Accordingly, we cannot determine the extent
to which the Iraqi government is spending its 2007 $10.1 billion capital
projects budget. In its September 2007 progress report on Iraqi
benchmarks, the administration stated that Iraq's central government
ministries had spent 24 percent of their 2007 capital projects budget, as
of July 15, 2007. The report concluded that, compared with 2006, the
government of Iraq was becoming more effective in spending its capital
projects budget. However, the administration's report is not consistent
with Iraq's official expenditure reports, which show that the central
ministries had spent only 4.4 percent of their investment budget, as of
August 2007.^2 The discrepancies between the official and unofficial data
highlight uncertainties about the sources and use of Iraq's expenditure
data.
The government of Iraq faces many challenges that limit its ability to
spend its capital project budget. First, Treasury officials noted that
violence and sectarian strife delay capital budget execution by increasing
the time and cost needed to award and monitor contracts, and by reducing
the number of contractors willing to bid on projects. Second, these
officials stated that recent refugee outflows and the de-Ba'athification
process have reduced the number of skilled workers available and
contributed to the exodus of these workers from Iraq. Third, U.S. and
foreign officials also noted that weaknesses in Iraqi procurement,
budgeting, and accounting procedures impede completion of capital
projects. For example, according to the State Department, Iraq's
Contracting Committee requires about a dozen signatures to approve
projects exceeding $10 million, which slows the process.
^2Iraq's investment budget consists primarily of capital projects. The
2007 Iraq budget has separate categories for capital goods and capital
projects. However, in 2007, Iraq's ministries started reporting these
expenditures under a single category, "nonfinancial assets," which we
refer to as "investment" for the purpose of this report (with capital
projects representing almost 90 percent of the investment budget).
U.S. agencies have undertaken a variety of programs to help Iraq execute
its capital projects budget, although it is not clear what impact these
efforts have had to date. U.S. assistance established in early 2007 that
specifically targets Iraqi budget execution includes a procurement
assistance office, which offers technical assistance to ministries and
provinces, and a Coordinator for Economic Transition position in the U.S.
Embassy, who met regularly with senior Iraqi government officials on
matters related to budget execution and oversaw related U.S. assistance
efforts. In addition, improving Iraqi government budget execution is part
of a broader U.S. assistance effort to improve the capacity of the Iraqi
government. For example, USAID has trained 500 ministry officials in
procurement or budget execution. USAID also led the effort to implement an
automated financial management information system for the government of
Iraq, although this program was suspended in June 2007 following the
kidnapping of five contractors involved in the project. U.S. advisors also
work directly with key Iraqi ministries to assist with budget execution
and procurement, among other responsibilities. It is difficult to
determine the impact of these efforts on the capacity of the government of
Iraq to spend its capital projects budget, given the limitations with
available data, and because new programs specifically designed to improve
Iraq's budget execution were established too recently for U.S. agencies to
evaluate them.
We recommend that the Secretary of Treasury work with the government of
Iraq and relevant U.S. agencies to enhance the department's ability to
report accurate and reliable expenditure data from the ministries and
provinces. Treasury agreed with our recommendation.
In commenting on a draft of this report, Treasury and State raised several
concerns. First, Treasury stated that our analysis of Iraq's budget
execution was based on incomplete and unofficial reporting, in particular,
the data that the administration used in it September 2007 Benchmark
Assessment Report to Congress. We agree that the unofficial data that the
administration used in the report to Congress do not portray a full and
accurate picture of the situation. Accordingly, we compared these data
with official Ministry of Finance data to assess the extent to which the
Iraqis had spent their capital projects budget. Since the spending gap
between the administration's unofficial data and the Ministry of Finance's
official data is strikingly large, we recommend that the Department of
Treasury work with the Ministry of Finance to reconcile these differences.
Second, Treasury stated that our report incorrectly concluded that capital
spending is only contained in the Iraqi budget item for "nonfinancial
assets" (which we refer to as "investment"). State made a similar comment.
Treasury and State asserted that capital spending is spread through many
chapters in the new chart of accounts and that the amount is higher than
the 4.4 percent cited in our report. However, State and Treasury did not
provide us with evidence to demonstrate which Iraqi accounts included
additional capital expenditures.
State also commented that the draft report failed to accurately portray
the "tangible progress" that the central and provincial governments have
made in budget execution. However, we do not believe the data are
sufficiently reliable to conclude that U.S. assistance efforts have
already achieved significant success helping the Iraqi government execute
its capital budget.
In addition, State attributed the discrepancy between the official and
unofficial data cited in our report to "a time lag in data collection" and
asserted that the July 15 data were representative of the government of
Iraq's budget performance. After we provided our draft report to State for
comment, we received updated data from Treasury that clearly refutes
State's comment. These updated data show that the central ministries spent
4.4 percent of their investment budget through August 2007, raising
questions about the unofficial data reported to Congress in the
administration's September 2007 benchmark report.
Background
The United States, along with its coalition partners and various
international organizations and donors, have made significant efforts to
rebuild Iraq's infrastructure and the capacity of its personnel. The
United States alone has provided more than $40 billion since 2003, most of
which has been obligated. The February 2007 U.S. strategy, The New Way
Forward in Iraq, emphasizes a transition of responsibility for
reconstruction to the Iraqi government.
Iraq's national government was established after a constitutional
referendum in October 2005, followed by election of the first Council of
Representatives (Parliament) in December 2005, and the selection of the
first Prime Minister, Nuri Kamal al-Maliki, in May 2006. By mid-2006, the
cabinet was approved; the government now has 34 ministries responsible for
providing security and essential services--including electricity, water,
and education--for the Iraqi people.
Iraq's Ministry of Finance plays the key role in developing, analyzing,
and executing the budget, including distributing funds to individual
spending units, and preparing periodic financial reports. Iraq's financial
management law directs the Ministry of Finance to consult with the
Ministry of Planning and Development Cooperation in establishing budget
funding priorities. Individual Iraqi spending units in the 34 central
government ministries, the 15 provinces, and the Kurdistan region provide
expenditure estimates to the Ministry of Finance. The Ministry of Finance,
in consultation with the Ministry of Planning, uses this information to
develop the budget and submits the draft budget to the Council of
Ministers for approval before submitting it to the National Assembly for
final approval. The Ministry of Planning is responsible for centralized
project management support, including review and analysis of capital
project plans and monitoring of contractor performance.
As we reported in September 2007,^3 the government of Iraq spent only 22
percent of its $6.2 billion capital projects budget in 2006 for the
central government and Kurdistan (see fig. 1). The provinces received
about $2 billion in 2006 funds for infrastructure and reconstruction
projects, but these funds were included in the budget as transfers, rather
than as part of the capital projects budget.
^3 [24]GAO-07-1195 .
Figure 1: Iraq's 2006 Budget Expenditures
Extent of Iraqi Capital Project Spending in 2007 Cannot Be Determined Due to
Conflicting Data
The government of Iraq's fiscal year 2007 budget allocates $10.1 billion
for capital projects, including $6.4 billion for use by central government
ministries, $2.1 billion for use by the provinces, and $1.6 billion for
use by the semiautonomous Kurdistan region.^4 However, we cannot determine
the extent to which Iraq has spent these funds due to conflicting
expenditure data. The U.S. government's September 2007 benchmark report,^5
citing unofficial Ministry of Finance data, stated that Iraqi ministries
had spent 24 percent of their capital projects budgets, as of July 15,
2007. However, according to official Ministry of Finance expenditure data,
Iraqi ministries had spent only 4.4 percent of their budgets for
"nonfinancial assets," or investment, as of August 31, 2007. Capital
projects represent almost 90 percent of the investment budget, which
combines capital projects and capital goods. In addition, the
administration has relied on unofficial PRT data to track the provinces'
spending on capital projects and has reported the level of funds that the
provinces have committed to projects as an indicator of spending.^6
However, provinces had spent only 12 percent of their 2007 funds, as of
October 2007, according to PRT reporting.
^4According to Section 9 of Iraq's Financial Management law, "funds
approved for spending units may be used only until December 31st of the
fiscal year, except to the extent that goods and services have been
validly ordered and received."
^5The White House, Benchmark Assessment Report, Sept. 14, 2007.
U.S. and Iraqi Reports Show Differing Spending Rates
Citing unofficial Ministry of Finance data, the administration's September
2007 Benchmark Assessment Report stated that the Iraqi ministries had
spent 24 percent of their capital projects budgets, as of July 15, 2007.
The report concluded from these data that the government of Iraq is
becoming more effective compared with 2006 in spending its capital
projects budget. However, the unofficial data on percent of budget spent
are significantly higher than official Iraqi expenditure data indicate.
According to official reporting by the Ministry of Finance, as of August
31, 2007, Iraqi ministries spent only 4.4 percent of their 2007 investment
budget (most of which is for capital projects). Table 1 compares the two
sets of data.
Table 1: Capital Projects Budget, Unofficial and Official Data on
Expenditures for Five Iraqi Ministries with Largest Capital Budgets and
for Provinces, Fiscal Year 2007
Dollars in
millions
Investment
Capital projects expenditures
expenditures as of through August
July 15, 2007 2007 (official
(unofficial data)^a data)^b
2007 As percentage
capital of capital As
Ministry/spending projects Amount projects Amount percentage
unit budget spent budget spent of budget
Ministry of Oil $2,381 $500 21% $0.27 0.01%
Ministry of
Electricity 1,385 354 26 0.05 0.004
Ministry of
Municipalities and
Public Works 338 196 58 102 30.2
Ministry of Health 342 11 3 30 7.8
Ministry of 335 79 24 34 10.0
Housing &
Construction
Other spending 1,641 396 24 170 6.2
units
Subtotal for 6,421 1,536 24 337 4.4
central government
Provinces^c 2,071 NA NA 2 0.09%
Kurdistan region 1,560 NA NA 255 15.0
Total capital $10,052 NA NA 594 5.2%
budget
Source: GAO analysis of unofficial Iraq Ministry of Finance expenditure
data through July 15, 2007, and Ministry of Finance official data through
August 31, 2007, provided by the U.S. Department of the Treasury.
Note: Totals may be different due to rounding.
^aThe unofficial July 15, 2007 data do not break out provincial
expenditures.
^bOfficial expenditure data are subject to a verification process by the
Ministry of Finance, according to a Treasury official. Treasury officials
stated that, for 2007, ministries are reporting capital projects
expenditures together with capital goods expenditures as part of a single
budget category for investment. The 2007 budget for investment is the sum
of the budgets for capital goods ($1.3 billion) and capital projects
($10.1 billion).
^cThis allocation of $2,071 million is for "agencies not linked to a
ministry." Of this amount, the provinces were allocated $2,067 million,
with the remainder allocated to other agencies.
^6While PRTs' separate reporting of provincial expenditures includes the
level of funds committed by provinces, Ministry of Finance expenditure
data do not include commitments. Commitments are defined under Iraq's
Financial Management Law, as "an undertaking to make an expenditure
following the conclusion of a binding agreement that will result in a
payment."
Although the 2007 Iraq budget has separate categories for capital goods
and capital projects, the Iraqi government's official expenditure data do
not break out capital projects expenditures separately in 2007. To comply
with new International Monetary Fund (IMF) budget classification
requirements in 2007, the Iraqi government reports capital expenditures
together under the heading of "nonfinancial assets," which we refer to as
investment in table 1.^7 Capital projects represent almost 90 percent of
the investment budget, combining capital projects and capital goods.
Appendix II provides further analysis of 2007 Ministry of Finance
expenditure data and comparable 2006 data.
^7To achieve debt restructuring, Iraq agreed to implement IMF conditions
that stipulate specific economic reforms and milestones that the
government needs to meet. These conditions are contained in the IMF
stand-by arrangement, which was approved in December 2005, and in
subsequent IMF reviews of the stand-by arrangement. The conditions include
adoption of a government budget classification system and chart of
accounts in line with IMF standards.
In reviewing our draft report, Treasury officials stated that our official
figure of 4.4 percent excluded capital project spending found in other
budget categories. However, Treasury could provide no documentation that
would allow us to verify whether, or the extent to which this occurs.
State Department made similar comments in reviewing our report. However,
State was unable to provide us with supporting documentation and referred
us to the Department of Treasury. Also, Treasury officials noted that the
higher figure of 24 percent capital project spending could include
commitments in addition to actual expenditures.
The Ministry of Oil represents the largest share (24 percent) of the Iraqi
government's capital projects budget in 2007. According to the unofficial
data reported by the U.S. administration, as of July 15, 2007, the
Ministry of Oil spent $500 million on capital projects, which is 21
percent of the ministry's $2.4 billion capital projects budget. This
reported level of spending has already surpassed the ministry's total for
2006; however, it is not consistent with the much lower level of spending
reflected in official Ministry of Finance data through August (see table
1). According to the Special Inspector General for Iraq Reconstruction
(SIGIR), U.S. officials stated that the ministry may not have spent all of
these funds but instead shifted them to subsidiaries such as the State Oil
Marketing Organization, which have responsibility for spending much of the
oil ministry's capital projects budget.^8
U.S. Administration Relies on Unofficial PRT Data to Track Provincial Spending
The Iraqi government provided $2.1 billion, or over 20 percent of the 2007
capital projects budget, to the provinces (not including the
semiautonomous Kurdistan region), in amounts proportional to their
populations. These funds are in addition to approximately $2 billion in
2006 provincial funds, most of which had not been transferred to the
provinces until November and December of 2006. Because of the late
transfer, the provinces were permitted to carry over unspent 2006 funds.^9
Additionally, the semiautonomous Kurdistan region received a separate 2007
budget allocation of $1.6 billion, or 16 percent of the total 2007 capital
projects budget.
^8SIGIR, Quarterly Report and Semiannual Report to the United States
Congress (Arlington, VA: July 30, 2007).
^9The approximately $2 billion in 2006 capital projects funds for the
provinces did not include the Kurdistan region, which received a separate
allocation of $500 million from the government of Iraq for capital
projects in 2006. The government of Iraq permitted the provinces to carry
over an estimated $1.3 billion in unspent 2006 funds. Unspent 2007 capital
funds for the provinces may not be carried over, according to U.S.
officials.
To track capital projects budget execution by the provinces, the
administration uses unofficial commitment and expenditure information
collected by PRTs.^10 The administration's September 2007 benchmark report
cited PRT commitment data as an indicator of successful budget execution
by the provinces. The September report stated that provinces committed
almost half of their 2007 capital projects budgets. However, the extent to
which committed funds indicate actual spending is unknown. Given the
capacity and security challenges currently facing Iraq, many committed
contracts may not be executed and would not result in actual expenditures,
according to U.S. agency officials. According to PRT reporting, the
provinces committed 58 percent of their 2007 budget but had spent only 12
percent as of October 21, 2007.^11 (For additional analysis of PRT data,
see app. III.) U.S. officials noted that the provinces are still spending
the 2006 funds they were permitted to carry over, which contributes to the
low expenditure rate in 2007. Ultimately, actual spending by the provinces
should be reflected in official 2007 expenditure data reported by the
Ministry of Finance.
The Government of Iraq Faces Many Challenges in Attempting to Spend Its Capital
Projects Budget
U.S. government, coalition, and international agencies have identified a
number of factors that challenge the Iraqi government's efforts to fully
spend its budget for capital projects. First, Treasury officials noted
that violence and sectarian strife can delay capital budget execution by
increasing the time and cost needed to award and monitor contracts, and by
reducing the number of contractors willing to bid on projects. Second,
these officials stated that recent refugee outflows and the
de-Ba'athification process have reduced the number of skilled workers
available and contributed to the exodus of Iraq's professional class from
the country. Third, U.S. and foreign officials also noted that weaknesses
in Iraqi procurement, budgeting, and accounting procedures impede
completion of capital projects.
^10PRTs are joint civil-military units formed in fall 2005 to help improve
provincial governance, including assistance with budget formulation and
execution.
^11This 12 percent figure includes a small portion of the Kurdistan
region's separate capital projects budget allocation.
Violence and Sectarian Strife Hinder Budget Execution for Capital Projects
U.S., coalition, and international officials noted that violence and
sectarian strife remain major obstacles to developing Iraqi government
capacity, including its ability to execute budgets for capital projects.
The high level of violence has contributed to a decrease in the number of
workers available and can increase the amount of time needed to plan and
complete capital projects. The security situation also hinders U.S.
advisors' ability to provide the ministries with assistance and monitor
capital project performance.
Violence and sectarian strife have reduced the pool of available talent to
budget and complete capital projects and, in many cases, have increased
the time needed to complete projects. International officials noted that
about half of Iraqi government employees are absent from work daily; at
some ministries, those who do show up only work between 2 to 3 hours per
day for security reasons. U.S. and UN officials stated that, while the
Ministry of Planning has a relatively skilled workforce, the security
situation seriously hinders its ability to operate. These officials noted
that 20 director generals (department heads or other senior officials) in
the ministry have been kidnapped, murdered, or forced to leave the
ministry in the 6 months prior to February 2007.
Numerous U.S. and coalition officials also stated that security concerns
delay the ability of advisors to provide assistance, noting that it is
often too dangerous for staff to provide training or monitor contract
performance. The high level of violence hinders U.S. advisors' access to
their counterparts in the ministries and directly affects the ability of
ministry employees to perform their work. State and USAID efforts are
affected by the U.S. embassy restrictions imposed on their movement.
Embassy security rules limits, and in some cases bars, U.S. civilian
advisors from visiting the ministries outside the Green Zone. For example,
a former Treasury attache noted that his team could not visit the Ministry
of Finance outside the Green Zone and thus had limited contact with
ministry officials. Further, USAID suspended efforts to complete the
installation of the Iraqi Financial Management Information System (IFMIS)
in May 2007 after five British contractors were kidnapped from the
Ministry of Finance.
Lack of Trained Personnel Hinders Capital Project Budgeting and Execution
U.S., coalition, and international agency officials have observed the
relative shortage of trained budgetary, procurement, and other staff with
technical skills as a factor limiting the Iraqis' ability to plan and
execute their capital spending. The security situation and the
de-Ba'athification process have adversely affected available government
and contractor staffing. Officials report a shortage of trained staff with
budgetary experience to prepare and execute budgets and a shortage of
staff with procurement expertise to solicit, award, and oversee capital
projects. According to State and other U.S. government reports and
officials, there has been decay for years in core functions of Iraqi's
government capacity, including both financial and human resource
management.
Officials also state that today's unsafe environment has resulted in a
large percentage of Iraq's more skilled citizens leaving the country.
According to a UN report, between March 2003 and June 2007, about 2.2
million Iraqis left the country, and about 2 million were internally
displaced. The UN also has estimated that at least 40 percent of Iraq's
professional class has left the country since 2003. One Iraqi official
complained that those leaving the country tend to be from the educated and
professional classes. As a result, fewer skilled Iraqi workers outside the
government are available to bid on, design, and complete proposed capital
projects.
Further, a 2006 Department of Defense (DOD) report stated that Iraq's
government also confronts significant challenges in staffing a nonpartisan
civil service and addressing militia infiltration of key ministries. The
report noted that government ministries and budgets are sources of power
for political parties, which staff ministry positions with party cronies
as a reward for political loyalty.^12 Some Iraqi ministries under the
authority of political parties hostile to U.S. goals use their positions
to pursue partisan agendas that conflict with the goal of building a
government that represents all ethnic groups. For example, until late
April 2007, the Ministries of Agriculture, Health, Civil Society,
Transportation, Governorate Affairs, and Tourism provided limited access
to U.S. officials, as they were led by ministers loyal to Muqtada al-Sadr,
who has been hostile to U.S. goals.
Procurement, Budgetary, and Accounting Weaknesses Impair Capital Budget
Execution
Weak procurement, budgetary, and accounting systems are of particular
concern in Iraq because these systems must balance efficient execution of
capital projects while protecting against reported widespread corruption.
A 2006 survey of perceptions of corruption by Transparency International
ranked Iraq's government as one of the most corrupt in the world.^13 A
World Bank report notes that corruption undermines the Iraqi governments'
ability to make effective use of current reconstruction assistance.^14
According to a State Department document, widespread corruption undermines
efforts to develop the government's capacity by robbing it of needed
resources, some of which are used to fund insurgency; by eroding popular
faith in democratic institutions, perceived as run by corrupt political
elites; and by spurring capital flight and reducing economic growth.
^12DOD, Measuring Stability and Security in Iraq: Report to Congress in
Accordance with the Department of Defense Appropriations Act 2007, Section
9010, Public Law 109-289 (Washington, D.C.: November 2006).
^13Transparency International, Annual Report 2006.
U.S. and international officials have cited many weaknesses in Iraqi
procurement procedures and practices. The World Bank found that Iraq's
procurement procedures and practices are not in line with generally
accepted public procurement practices, such as effective bid protest
mechanisms and transparency on final contract awards. Iraqi procurement
laws and regulations are composed of a mixture of Saddam Hussein-era
rules, CPA Order 87 requirements,^15 and recent Iraqi government budgetary
practices. The complexity of Iraq's contracting regulations combined with
the inexperience of many new Iraqi officials has led to a pervasive lack
of understanding of these laws and regulations, according to State
officials. The Iraqi government has sponsored conferences on budget
execution in 2007 to clarify budgeting and procurement rules and
procedures and issued regulations for implementing Order 87. However, laws
and regulations are still complex and are frequently confusing to
implement in practice, according to a Treasury official.
U.S., coalition, and international officials have identified difficulties
in complying with Iraqi procurement laws and regulations as a major
impediment to spending Iraqi capital project budgets. For example,
according to an Iraq Reconstruction Management Office (IRMO)^16 official,
the Iraqi procurement process often requires a minimum of three bids
through a competitive bidding process. However, when less than three
technically qualified bids are received, all bids are thrown out and the
project cycles through a new round of bidding. The result has been fewer
bids submitted in subsequent rounds. In addition, Iraqi procurement
regulations require about a dozen signatures to approve oil and
electricity contracts exceeding $10 million, which also slows the process,
according to U.S. officials. Procurements over this amount must be
approved by the High Contracting Commission, chaired by the Deputy Prime
Minister, which causes further delays. U.S. advisors to the Ministry of
Oil noted that the $10 million threshold is far too low, given the size of
infrastructure projects in the energy sector. In June 2007, the Council of
Ministers raised the dollar thresholds for contracts requiring High
Contracting Commission approval from $10 million to $20 million for the
Ministries of Defense, Electricity, Oil, and Trade, and raised the level
from $5 million to $10 million for other ministries. However, the embassy
noted that the increased thresholds may not improve budget execution
without an increase in the number of trained personnel or technical
assistance from the Ministry of Planning.
^14World Bank, Rebuilding Iraq: Economic Reform and Transition, February
2006.
^15CPA Order 87 outlines requirements for public contracts in Iraq.
^16On May 9, 2007, a presidential order created the Iraq Transition
Assistance Office (ITAO) as the successor organization to IRMO.
Other features in the Iraqi budgetary and accounting systems adversely
affect the tracking of capital projects spending. For example, government
spending on reconstruction projects is not coordinated with spending for
donor-financed projects, according to the World Bank. As a result,
significant donor-financed expenditures are not included in the budget. In
addition, according to U.S. officials, the budget is appropriated and
tracked at too high a level of aggregation to allow meaningful tracking of
decisions because multiple projects can be combined on a single line.
Reconciliation of budget accounts is often impossible as budget execution
reports are submitted late or with incomplete information. In addition, as
discussed earlier, in response to IMF requirements, the government of Iraq
began implementing a new budget classification and chart of accounts in
2007 that does not provide a separate breakout of capital projects
spending. Appendix II provides further analysis of 2007 Ministry of
Finance expenditure data and comparable 2006 data.
U.S. agencies, the World Bank, and independent auditors have reported a
number of serious internal control weaknesses in Iraqi government
accounting procedures. U.S. officials reported that the government of Iraq
uses a manual reporting system to audit expenditures, which does not
provide for real-time reports. According to a Treasury official, the Iraqi
government reports capital expenditures by ministry but not by specific
project, which limits its ability to track capital projects expenditures.
The World Bank reported that reconciliation of government of Iraq accounts
is impossible because the government lacks consolidated information on the
exact number of government bank accounts it has and the balances in them.
The World Bank also noted that provincial governments do not provide an
accounting of funds they receive. In addition, the independent public
accounting firm for the Development Fund for Iraq^17 reported numerous
internal control weaknesses in Iraqi ministries for 2006, including that
Iraqi ministries do not have policies and procedures manuals that detail
comprehensive financial and internal controls. It also reported that the
ministries do not have unified procurement policies and procedures, do not
have proper project management and monitoring systems, and lack written
project management policies and procedures manuals. Finally, the firm
noted that the ministries' internal audit departments do not cover the
operations of state-owned companies and entities that are related to the
ministries and that there are no proper monitoring procedures over the
operations of the related companies.
Several U.S. Assistance Efforts Are Under Way to Improve Iraqi Budget Execution
In early 2007, U.S. agencies increased the focus of their assistance
efforts on improving the Iraqi government's ability to effectively execute
its budget for capital projects, although it is not clear what impact this
increased focus has had, given the inconsistent expenditure data presented
earlier in this report. Several new U.S. initiatives were established
targeting Iraqi budget execution, including coordination between the U.S.
embassy and an Iraqi task force on budget execution, and the provision of
subject-matter experts to help the government track expenditures and to
provide technical assistance with procurement. According to U.S.
officials, these targeted efforts also reflect an increased interest of
senior Iraqi officials in improving capital budget spending. In addition,
improving Iraqi government budget execution is part of a broader U.S.
assistance effort aimed at improving the capacity of the Iraqi government
through automation of the financial management system, training, and
advisors embedded with ministries.
We recently reported on U.S. efforts to build the capacity of Iraqi
ministries led by State, DOD, and USAID.^18 The findings and
recommendations from that report also apply to assistance efforts
targeting Iraqi Budget Execution, which are a part of U.S.
capacity-building efforts. Our report found that U.S. capacity building
efforts in Iraq faced several challenges that posed risks to their
success. The report also found that U.S. agencies implementing capacity
development projects have not developed performance measures for all of
their efforts, particularly outcome-related performance measures that
would allow them to determine whether U.S. efforts at the civilian
ministries have achieved both U.S.- and Iraqi-desired goals and
objectives.^19 The report recommended that State, in consultation with the
Iraqi government, complete an overall capacity-building strategy that
includes plans to address risks and performance measures based on outcome
metrics.
^17 [25]United Nations Security Council Resolution 1483 noted the
establishment of the Development Fund for Iraq (DFI). The DFI holds the
proceeds of petroleum export sales from Iraq, as well as remaining
balances from the UN Oil-for-Food Program and other frozen Iraqi funds.
Disbursements from the Development Fund for Iraq must be used for the
benefit of the Iraqi people.
^18See GAO, Stabilizing and Rebuilding Iraq: U.S. Ministry Capacity
Development Efforts Need an Overall Integrated Strategy to Guide Efforts
and Manage Risk, [26]GAO-08-117 (Washington, D.C.: Oct. 1, 2007).
In early 2007, U.S. agencies began providing technical assistance and
coordination specifically targeted to addressing Iraq's capital budget
expenditure bottlenecks. This assistance includes the following:
o Coordinator for Economic Transition in Iraq. State established
this position in the U.S. Embassy in February 2007 to work with
senior Iraqi government officials and to coordinate with U.S.
agencies that provide assistance related to improving Iraq's
budget execution. The coordinator participated in regular meetings
of an Iraqi government budget execution task force, which includes
the Deputy Prime Minister and the Ministers of Finance and
Planning, to address impediments to spending the government's
capital projects budget. The coordinator also worked with the U.S.
Treasury attache to help the Iraqi government hold conferences on
budget execution to educate government officials about Iraqi
budget and procurement processes. According to a State official,
the responsibilities of this position were transferred to
Ambassador Charles Reis in June 2007, when he assumed
responsibility for coordinating all economic and assistance
operations in the Embassy.
o Budget Execution Monitoring Unit. The Iraq Reconstruction
Management Office supported the creation of this unit in the
Deputy Prime Minister's office with four to six subject-matter
experts to help assess budget execution by collecting and
aggregating spending data for key ministries and provinces. The
unit was established in spring 2007. State officials noted that
the Budget Execution Monitoring Unit tracks aggregate spending by
ministry. Although some ministries have demonstrated some
capability to track what projects are undertaken with capital
projects spending, the U.S. Embassy does not have a mechanism to
track the results of capital projects spending across all
ministries and provinces, according to State officials. Embassy
officials and the Treasury Attache are analyzing how to help Iraqi
ministries and provinces develop project tracking tools.
^19The World Bank defines outputs as the short-term achievements that
result from activities undertaken to implement a program (e.g., the number
of public servants trained). Outcomes are the medium term changes that
result from achieving the outputs (e.g., the improved skills of
employees). Impacts are the long-term changes that result over time from
achieving the program's outputs and outcomes (e.g., improved program
delivery).
o Procurement Assistance Program. State and DOD provided funding
for 10 to 12 international subject-matter experts to support this
program within the Ministry of Planning and Development
Cooperation to help ministries and provinces with procurement and
capital budget execution, including policy interpretation,
training, acquisition consulting, and technical assistance. The
program was established in May 2007 and consists of two
Procurement Assistance Centers in Baghdad and one in Erbil. The
program is currently setting up 18 Provincial Procurement
Assistance Teams that will provide direct assistance to provincial
officials.
In addition to these recently established efforts, which are
specifically designed to help the Iraqi government execute its
capital projects budget, several broader, ongoing
capacity-building assistance efforts are under way. These efforts
include assistance related to budget execution, although that is
not their primary focus. These efforts include the following:
o Iraqi Financial Management Information System (IFMIS). USAID and
IRMO awarded contracts beginning in 2003 to BearingPoint to
install a Web-based financial management information system for
the government of Iraq to support a fully automated and integrated
budget planning and expenditure reporting and tracking system at
the central and provincial levels.^20 The IMF has highlighted the
importance of implementing IFMIS in its reviews of Iraq's progress
toward meeting the terms of the IMF Standby Agreement. However,
according to USAID officials, the project experienced significant
delays, due in part to a lack of full support by Iraqi government
officials. USAID suspended assistance to the Ministry of Finance
to implement IFMIS in June 2007, following the kidnapping of five
BearingPoint employees. A USAID official stated that the Iraqi
government continues to rely on its legacy manual accounting
system, which contributes to delays in the government's reporting
of expenditure data. In lieu of IFMIS, Treasury and USAID are now
assisting provincial governments with the use of inexpensive
spreadsheet software to improve their financial management
capability, according to Treasury officials.
^20DOD has a separate contract to install this system for the Ministries
of Defense and Interior.
o National Capacity Development Program. This USAID program is to
improve public administration skills at the ministerial level and
has provided training in a range of issues, including project
management, budgeting, fiscal management, leadership, and
information technology. As of October 2007, the program had
trained more than 2,000 ministry officials from 30 different Iraqi
institutions since November 2006 when the training program was
first established, according to USAID officials. The program has
trained 500 Iraqi government officials specifically in
procurement, and 51 of the 500 completed the "Train the Trainers"
course to enable them to train additional ministry officials in
procurement. USAID officials also noted that the program includes
imbedded teams at the Ministry of Planning and Development
Cooperation that are helping ministries set up proper procurement
units with procurement tracking systems.
o Local Governance Program. This program, operated under a USAID
contract, supports Iraq's efforts to improve the management and
administration of local, municipal, and provisional governments.
According to USAID officials, this program includes several
activities to assist with provincial budget execution. These
efforts include the development of reference materials refreshed
annually to reflect new guidance by the Minister of Finance and
Minister of Planning and Development Cooperation; national and
regional conferences that bring together provincial council
members, governors, and members of their staffs to discuss
provincial budget execution; and local staff in many provincial
government centers assisting with provincial budget execution, as
well as public finance advisors in some of the PRTs and at its
Baghdad headquarters.
o Advisors to civilian and security ministries. These advisors
assist in the development of the ministries' budget planning and
contracting skills. As of mid-2007, State and USAID were providing
169 advisors and subject-matter experts to civilian ministries to
implement capacity development projects and provide policy advice
and technical assistance at key ministries and government
entities. In addition, DOD and Multinational Security Transition
Command-Iraq (MNSTC-I) provided 215 embedded U.S. and coalition
military and civilian advisors to the Ministries of Interior and
Defense; and a U.S. Treasury attache advises the Ministry of
Finance. Treasury reports that it has completed four multiday
budget execution workshops in 2007 that have trained over 120
central ministry and provincial government staff members, and it
plans additional training for January 2008.
The administration's September 2007 Benchmark Assessment Report
concluded that the government of Iraq has steadily improved its
ability to execute capital projects spending, as a result of U.S.
assistance efforts. However, it is not clear what impact these
efforts have had to date due to limitations with available data,
outlined earlier in this report, and because much of this
assistance specifically designed to improve budget execution was
established too recently for U.S. agencies to fully evaluate them.
Conclusion
To support continued economic growth and improve the delivery of
services, the government of Iraq needs to make significant
investment in its infrastructure. Such investments come from the
government's efficient execution of its capital budget. The
administration's September 2007 Benchmark Assessment Report
concluded that the government of Iraq had steadily improved its
ability to execute capital projects spending as a result of U.S.
technical assistance. However, the additional information provided
by Treasury and State in commenting on a draft of this report did
not reassure GAO that accurate and reliable data on Iraq's budget
exists. State and Treasury continue to cite unofficial expenditure
data to support assertions that the government of Iraq is becoming
more effective in spending its capital project budget, even though
the data differ significantly from the official expenditure
figures generated under a new IMF-compliant chart of accounts. The
discrepancies between the unofficial and official data highlight
the ambiguities about the extent to which the government of Iraq
is spending its resources on capital projects. Thus, we do not
believe these data should be used to draw firm conclusions about
whether the Iraqi government is making progress in executing its
capital projects budget. The lack of consistent and timely
expenditure data limits transparency over Iraq's execution of its
multibillion dollar 2007 capital budget and makes it difficult to
assess the impact of U.S. assistance.
Recommendation
To help ensure more accurate reporting of the government of Iraq's
spending of its capital projects budget, we recommend that the
Secretary of Treasury work with the government of Iraq and
relevant U.S. agencies to enhance the Treasury department's
ability to report accurate and reliable expenditure data from the
ministries and provinces. This reporting should be based on the
IMF-compliant standards rather than unofficial data sources that
are of questionable accuracy and reliability.
Agency Comments and Our Evaluation
We provided a draft of this report to Departments of Defense,
State, the Treasury, and USAID. Treasury and State provided
written comments, which are reprinted in appendixes IV and V.
Treasury, State, and USAID also provided technical comments and
suggested wording changes that we incorporated as appropriate. DOD
did not comment on the report.
Treasury and State raised several concerns in commenting on our
draft report. First, Treasury stated that our analysis of Iraq's
budget execution was based on incomplete and unofficial reporting,
in particular, the unofficial July 15, 2007 data used to comply
with a congressional reporting requirement (the September 2007
Iraq Benchmark Assessment Report). The administration highlighted
this unofficial data in the September 2007 benchmark report to
Congress to assert that Iraq's central government and provinces
were becoming more effective at spending their capital budgets. We
do not believe these data should be used to draw firm conclusions
about the Iraqi government's progress in spending its capital
budget. We agree that the unofficial data the administration used
in the report to Congress do not portray a full and accurate
picture of the situation. Accordingly, we compared these data with
official Iraqi Ministry of Finance data to assess the extent to
which the Iraqis had spent their capital projects budget. Since
the spending gap between the administration's unofficial data and
the Ministry of Finance's official data is strikingly large, we
recommend that the Department of Treasury work with the Ministry
of Finance to reconcile these differences.
Second, Treasury stated that our report incorrectly concluded that
capital spending is only contained in the Iraqi budget item for
"nonfinancial assets" (which we refer to as "investment"). State
made a similar comment. Treasury and State asserted that capital
spending is spread through many chapters in the new chart of
accounts and that the amount is higher than the 4.4 percent cited
in our report. However, State and Treasury did not provide us with
evidence to demonstrate which Iraqi accounts included additional
capital expenditures.
Third, Treasury questioned our comparison of 2006 and 2007 Iraqi
spending as displayed in appendix II. Treasury stated that it is
misleading to compare 2006 and 2007 spending levels because of
changes in Iraqi spending accounts between the 2 years. We added
this note of caution to appendix II. However, we also made
adjustments to account for the differences in the budget
classification systems, thereby enabling valid comparisons between
2006 and 2007 data. Table 4 outlines the key differences in the
2006 and 2007 classification systems. After updating the draft
report with data through August 2007, budget execution ratios in
2007 are still lower in most cases than corresponding ratios in
2006. We believe this analysis provides additional perspective on
the comparisons between 2006 and 2007 expenditures made in the
administration's September 2007 Benchmark Assessment Report to
Congress.
State also raised several concerns in commenting on a draft of
this report. First, State commented that the draft report fails to
accurately portray the "tangible progress" that the central
government and provincial governments have made in budget
execution. State commented that this progress represents a
tangible example of Iraq's leaders working together successfully.
However, we do not believe these data are sufficiently reliable to
conclude that U.S. assistance efforts have already achieved
success helping the Iraqi government execute its capital budget.
Second, State attributed the discrepancy between the official and
unofficial data cited in our report to "a time lag in data
collection" and asserted that the July 15 data are representative
of the government of Iraq's performance as of the publication of
the administration's September 2007 Benchmark Assessment Report.
After providing our draft report to State for comment, we received
updated data from Treasury that clearly refutes State's comment.
These updated data show that the central ministries spent 4.4
percent of their investment budget through August 2007, raising
questions about the unofficial data reported to Congress in the
administration's September 2007 benchmark report.
Finally, State commented that the amount of money committed and
dispersed in the provinces during 2007 is "especially impressive."
However, as we noted in our report, commitments do not represent
expenditures. The absence of provincial spending data in official
Ministry of Finance reporting makes it difficult to determine the
extent to which the Iraqi government was spending its 2007 capital
projects funds. As Treasury noted in their comments, the official
Ministry of Finance reporting does not show provincial spending
and is working to determine the discrepancy.
We are sending copies of this report to interested congressional
committees. We will also make copies available to others on
request. In addition, this report is available on GAO's Web site
at http://www.gao.gov. If you or your staffs have any questions
concerning this report, please contact me at (202) 512-8979 or
[email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the
last page of this report. Key contributors to this report are
listed in appendix VI.
Joseph A. Christoff
Director, International Affairs and Trade
List of Congressional Committees
The Honorable Carl Levin:
Chairman:
The Honorable John S. McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Joseph R. Biden, Jr.
Chairman:
The Honorable Richard G. Lugar:
Ranking Member:
Committee on Foreign Relations:
United States Senate:
The Honorable Daniel Inouye:
Chairman:
The Honorable Ted Stevens:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Patrick J. Leahy:
Chairman:
The Honorable Judd Gregg:
Ranking Member:
Subcommittee on State, Foreign Operations, and Related Programs:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Duncan L. Hunter:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable Tom Lantos:
Chairman:
The Honorable Ileana Ros-Lehtinen:
Ranking Member:
Committee on Foreign Affairs:
House of Representatives:
The Honorable Henry A. Waxman:
Chairman:
The Honorable Tom Davis:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable Joseph P. Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
The Honorable Nita M. Lowey:
Chairman:
The Honorable Frank R. Wolf:
Ranking Member:
Subcommittee on State, Foreign Operations, and Related Programs:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
In this report, we review the Iraq government's progress in expending
its fiscal year 2007 capital projects budgets. Specifically, we (1)
examine the data the U.S. embassy uses to determine the extent to which
the Iraqi government has spent its 2007 capital projects budget, (2)
identify factors affecting the Iraqi government's ability to spend
these funds, and (3) describe U.S. government efforts to assist the
Iraqi government in spending its capital projects funds. We undertook
this review under the Comptroller General's authority to conduct
reviews on his own initiative, and in recognition of broad
congressional interest in Iraq and the critical importance of Iraqi
capital expenditures in rebuilding its infrastructure.
To examine the data the U.S. Embassy in Baghdad uses to measure Iraqi
government spending, we obtained expenditure data from the U.S.
Department of the Treasury and the U.S. Embassy in Baghdad and
interviewed knowledgeable U.S. agency officials. We reviewed three
different sets of data on Iraqi government expenditures: official
monthly expenditure reports from the Ministry of Finance through August
2007;[Footnote 21] unofficial Ministry of Finance data on expenditures
by central ministries, as of July 15, 2007; and U.S. Provincial
Reconstruction Team (PRT) data on expenditures by Iraq's provincial
governments, as of October 21, 2007. The official Ministry of Finance
expenditure reports reflected a much lower rate of spending on capital
projects than the unofficial Ministry of Finance and unofficial PRT
data showed. We did not independently verify the precision of the data
on Iraq's budget execution. However, the disparity between the
different sets of data calls into question their reliability and
whether they can be used to draw firm conclusions about the extent to
which the Iraqi government has increased its spending on capital
projects in 2007, compared with 2006. We are presenting the PRT data in
appendix III for informational purposes, even though our field work
raised questions about their reliability. To obtain a better
understanding of Iraqi capital budget and spending data and Iraqi
practices in developing expenditure data, we interviewed U.S. officials
with the Departments of Defense (DOD), State (State), and the Treasury
(Treasury); and the U.S. Agency for International Development (USAID)
in Washington, D.C., and Baghdad. We also interviewed advisors to the
Ministry of Finance, working under a contract with the United Kingdom's
Department for International Development. We also reviewed U.S. embassy
reports on Iraqi budget execution, Iraqi government instructions for
executing the budget, Iraq's Financial Management Law, the Special
Inspector General for Iraq Reconstruction (SIGIR)'s July 2007 Quarterly
and Semiannual Report to the Congress, and the administration's July
and September 2007 Benchmark Assessment Reports.
To examine the factors affecting the Iraqi government's ability to
spend its capital projects budget, we reviewed and analyzed reports and
interviewed officials from DOD, State, Treasury, and USAID. We also
interviewed advisors to the Ministry of Finance, working under a
contract with the United Kingdom's Department for International
Development. We interviewed these officials in Iraq over the telephone
and visited Iraq in July 2007. We also reviewed Iraq's Financial
Management Law and relevant reports from the World Bank, the
International Monetary Fund (IMF), Ernst and Young, and SIGIR. In
addition, we reviewed previous GAO reports. We reviewed information
provided in these interviews and reports to identify the different
factors affecting Iraq's ability to spend its capital projects budget.
To examine U.S. government efforts to assist the Iraqi government in
executing its capital projects budget, we interviewed officials from
DOD, State, Treasury, and USAID. We reviewed several U.S. government
documents, including State's April 2007 quarterly section 1227 report
to Congress on the military, diplomatic, political, and economic
measures undertaken to complete the mission in Iraq; [Footnote 22]
DOD's quarterly reports to Congress, Measuring Security and Stability
and Iraq, from November 2006 to September 2007; the USAID contract
awarded in July 2006 to Management Systems International, Inc.,
Building Recovery and Reform through Democratic Governance National
Capacity Development Program; a status report on USAID's implementation
of the Iraqi Financial Management Information System under the Economic
Governance Project II, and reports from USAID's Iraq Local Governance
Program.
We conducted this performance audit from April 2007 through December
2007 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Comparison of Budget Execution during the First 8 Months
of 2006 and 2007:
Budget execution is a relative measure comparing actual expenditures to
the budget. Using the budget execution metric, the government spent 36
percent of its budget during the first 8 months of 2007, compared to 43
percent during the same period in 2006. Tables 2 and 3 provide a
breakdown of budget execution for the first 8 months of 2006 and 2007,
respectively. While we were not able to determine the reliability of
these official Iraqi expenditure data, we are presenting this analysis
because it raises additional questions about the data presented by the
administration in its September 2007 assessment of Iraqi benchmarks.
Whereas the unofficial Iraqi expenditure data cited by the
administration suggest that the Iraqi government has improved its
ability to spend capital projects funds in 2007, this analysis of
official Iraqi expenditure reports suggests the opposite.
Table 2: Government of Iraq 2006 Annual Budget and Expenditures through
August 2006 (Dollars in millions):
Employee compensation:
Budget: $5,405;
Expended: $3,531;
Not expended: $1,874;
Percent expended: 65%.
Goods and services:
Budget: $3,634;
Expended: $784;
Not expended: $2,850;
Percent expended: 22%.
Transfers and other:
Budget: $17,363;
Expended: $9,315;
Not expended: $8,049;
Percent expended: 54%.
Investment:
Budget: $7,573;
Expended: $994;
Not expended: $6,579;
Percent expended: 13%.
Total expenditure:
Budget: $33,975;
Expended: $14,623;
Not expended: $19,352;
Percent expended: 43%.
Source: GAO analysis of Ministry of Finance data provided by U.S.
Treasury.
[End of table]
Table 3: Government of Iraq 2007 Annual Budget and Expenditures through
August 2007 (Dollars in millions)
Employee compensation:
Budget: $11,686;
Expended: $6,160;
Not expended: $5,527;
Percent expended: 53%.
Goods and services:
Budget: $6,358;
Expended: $1,709;
Not expended: $4,649;
Percent expended: 27%.
Transfers and other:
Budget: $11,623;
Expended: $6,314;
Not expended: $5,309;
Percent expended: 54%.
Investment:
Budget: $11,386;
Expended: $594;
Not expended: $10,793;
Percent expended: 5%.
Total expenditure:
Budget: $41,054;
Expended: $14,776;
Not expended: $26,278;
Percent expended: 36%.
Source: GAO analysis of Ministry of Finance data provided by U.S.
Treasury.
Note: The budget for investment is the sum of the budgets for capital
projects ($10.1 billion) and capital goods ($1.3 billion) with capital
projects representing 88 percent. U.S. officials stated that, for 2007,
ministries are reporting capital projects expenditures together with
capital goods expenditures as part of a single budget category for
investment. However, if all the $594 million were capital projects
expenditures, they would still represent less than 6 percent of the
$10.1 billion capital projects budget. Totals may not add up due to
rounding.
[End of table]
To compare the 2006 and 2007 budgets, we combined various expenditure
categories into four groups. As explained in the report, beginning in
2007, the Iraqi government adopted a new chart of accounts as
recommended by the IMF, which complicates efforts to compare 2006 with
2007. Column 1 in table 4 shows the nine categories of expenditures
reported in 2006 and their combination into the four groups presented
in the table; column 2 shows the eight categories used in the 2007
chart of accounts.
Table 4: Iraq Budget Classification of Expenditures Reported by
Ministry of Finance, 2006 and 2007:
2006 Budget classifications:
A. Employee compensation;
1. Employee compensation;
B. Goods and services;
2. Goods;
3. Services;
4. Maintenance;
C: Transfers and other;
5. Transfers;
6. Foreign obligations;
7. Stipends and pensions;
D. Investment:
8. Operating capital;
9. Capital projects and reconstruction:
2007 Budget classifications:
A. Employee compensation;
1. Employee compensation;
B. Goods and services;
2. Goods and services;
C: Transfers and other;
3. Interest;
4. Subsidies;
5. Grants;
6. Social benefits;
7. Other expenditures;
D. Investment:
8. Nonfinaincial assets.
Source: GAO analysis of Ministry of Finance official monthly reports
provided by the U.S. Treasury.
[End of table]
The percentage of the budget expended as of August 31 is the ratio used
to measure budget execution for 2006 and 2007 in tables 1 and 2,
respectively. Only in the category of goods and services did budget
execution appear to increase, from 22 percent in 2006 to 27 percent in
2007. In general, the Iraqi ministries have compensated their
employees. However, even in that category, budget execution decreased
from 65 percent in 2006 to 53 percent in 2007.
As mentioned previously, the expenditures for capital projects are no
longer reported as a separate category in official Ministry of Finance
accounts. The 2007 budget provides separate categories for capital
goods and capital projects. However, the reported expenditures in the
category nonfinancial assets, which we refer to as investment, combine
capital goods and capital projects. The capital projects budget of
$10.1 billion represents 88 percent of the combined investment category
of $11.4 billion. The budget execution ratio of this investment
category was 5 percent for the first 8 months of 2007, compared with 13
percent for the first 8 months of 2006.
The expenditure performance of the Iraqi government from January
through August 2007 may even be worse than the dollar expenditure
figures suggest. The Ministry of Finance reports the government's
budget and expenditures in its own currency Iraq dinars (ID). The U.S.
Treasury converts them to dollars using a budget exchange rate of ID
1,500 per dollar in 2006 and ID 1,260 per dollar in 2007. The dollar
value of expenditures from January through August 2007 is 19 percent
higher due to the exchange rate conversion. Expenditures from January
through August 2007 were ID 18,600 billion or about 15 percent lower
than the ID 21,900 billion spent over the same period in 2006.
[End of section]
Appendix III: Provincial Reconstruction Team Data on Provinces'
Spending of 2006 and 2007 Capital Projects Funds:
Table 5 and table 6 provides additional details on provincial capital
projects budgets, by allocations, committed funds, and spent funds, for
2006 and 2007, as of October 21, 2007. These funding levels are based
on data collected and reported by U.S.-led PRTs. Because the government
of Iraq only reports provincial spending in the aggregate, the embassy
relies on PRT data to track provincial capital projects spending. We
are presenting the PRT data for informational purposes, even though our
field work raised questions about their reliability.
Table 5: Provincial Capital Projects and Reconstruction Budgets, Funds
Committed and Spent, 2006 as of October 21, 2007 (Dollars in millions):
2006 Provincial capital projects budgets:
Province: Anbar;
Budget allocation: $97;
Amount committed: $78;
Percentage of budget committed: 80%;
Amount spent: $78;
Percentage of budget spent: 80%.
Province: Babil;
Budget allocation: 111;
Amount committed: 111;
Percentage of budget committed: 100;
Amount spent: 98;
Percentage of budget spent: 88.
Province: Baghdad;
Budget allocation: 503;
Amount committed: 503;
Percentage of budget committed: 100;
Amount spent: 427;
Percentage of budget spent: 85.
Province: Basrah;
Budget allocation: 172;
Amount committed: 172;
Percentage of budget committed: 100;
Amount spent: 115;
Percentage of budget spent: 67.
Province: Dhi-Qar;
Budget allocation: 119;
Amount committed: 119;
Percentage of budget committed: 100;
Amount spent: 119;
Percentage of budget spent: 100.
Province: Diyala;
Budget allocation: 99;
Amount committed: 61;
Percentage of budget committed: 62;
Amount spent: 0;
Percentage of budget spent: 0.
Province: Karbala;
Budget allocation: 62;
Amount committed: 56;
Percentage of budget committed: 90;
Amount spent: 56;
Percentage of budget spent: 90.
Province: Kurd Prov;
Budget allocation: 131;
Amount committed: 126;
Percentage of budget committed: 96;
Amount spent: 35;
Percentage of budget spent: 27.
Province: Maysan;
Budget allocation: 66;
Amount committed: 66;
Percentage of budget committed: 100;
Amount spent: 50;
Percentage of budget spent: 76.
Province: Muthana;
Budget allocation: 46;
Amount committed: 43;
Percentage of budget committed: 93;
Amount spent: 39;
Percentage of budget spent: 85.
Province: Najaf;
Budget allocation: 79;
Amount committed: 72;
Percentage of budget committed: 91;
Amount spent: 72;
Percentage of budget spent: 91.
Province: Ninawa;
Budget allocation: 202;
Amount committed: 202;
Percentage of budget committed: 100;
Amount spent: 202;
Percentage of budget spent: 100.
Province: Qadisiyah;
Budget allocation: 74;
Amount committed: 74;
Percentage of budget committed: 100;
Amount spent: 56;
Percentage of budget spent: 76.
Province: SaD;
Budget allocation: 83;
Amount committed: 82;
Percentage of budget committed: 99;
Amount spent: 65;
Percentage of budget spent: 78.
Province: Tameen;
Budget allocation: 81;
Amount committed: 81;
Percentage of budget committed: 100;
Amount spent: 73;
Percentage of budget spent: 90.
Province: Wasit;
Budget allocation: 74;
Amount committed: 72;
Percentage of budget committed: 97;
Amount spent: 60;
Percentage of budget spent: 81.
Province: Total;
Budget allocation: $1,999;
Amount committed: $1,918;
Percentage of budget committed: 96%;
Amount spent: $1,543;
Percentage of budget spent: 77%.
Source: U.S. Embassy reporting of unofficial data collected by PRTs.
[End of table]
Table 6: Provincial Capital Projects and Reconstruction Budgets, Funds
Committed and Spent 2007, as of October 21, 2007 (Dollars in millions):
2006 Provincial capital projects budgets:
Province: Anbar;
Budget allocation: $107;
Amount committed: $52;
Percentage of budget committed: 49%;
Amount spent: $0;
Percentage of budget spent: 0%.
Province: Babil;
Budget allocation: 112;
Amount committed: 127;
Percentage of budget committed: 113;
Amount spent: 42;
Percentage of budget spent: 38.
Province: Baghdad;
Budget allocation: 560;
Amount committed: 301;
Percentage of budget committed: 54;
Amount spent: 70;
Percentage of budget spent: 13.
Province: Basrah;
Budget allocation: 195;
Amount committed: 159;
Percentage of budget committed: 82;
Amount spent: 12;
Percentage of budget spent: 6.
Province: Dhi-Qar;
Budget allocation: 138;
Amount committed: 119;
Percentage of budget committed: 86;
Amount spent: 2;
Percentage of budget spent: 1.
Province: Diyala;
Budget allocation: 110;
Amount committed: 0;
Percentage of budget committed: 0;
Amount spent: 0;
Percentage of budget spent: 0.
Province: Karbala;
Budget allocation: 71;
Amount committed: 62;
Percentage of budget committed: 86;
Amount spent: 17;
Percentage of budget spent: 24.
Province: Kurd Prov;
Budget allocation: 314;
Amount committed: 113;
Percentage of budget committed: 36;
Amount spent: 0;
Percentage of budget spent: 0.
Province: Maysan;
Budget allocation: 76;
Amount committed: 2;
Percentage of budget committed: 3;
Amount spent: 26;
Percentage of budget spent: 34.
Province: Muthana;
Budget allocation: 52;
Amount committed: 38;
Percentage of budget committed: 73;
Amount spent: 4;
Percentage of budget spent: 8.
Province: Najaf;
Budget allocation: 88;
Amount committed: 88;
Percentage of budget committed: 100;
Amount spent: 23;
Percentage of budget spent: 26.
Province: Ninawa;
Budget allocation: 226;
Amount committed: 54;
Percentage of budget committed: 24;
Amount spent: 17;
Percentage of budget spent: 8.
Province: Qadisiyah;
Budget allocation: 64;
Amount committed: 64;
Percentage of budget committed: 100;
Amount spent: 13;
Percentage of budget spent: 20.
Province: SaD;
Budget allocation: 93;
Amount committed: 75;
Percentage of budget committed: 81;
Amount spent: 11;
Percentage of budget spent: 12.
Province: Tameen;
Budget allocation: 90;
Amount committed: 58;
Percentage of budget committed: 64;
Amount spent: 17;
Percentage of budget spent: 19.
Province: Wasit;
Budget allocation: 83;
Amount committed: 65;
Percentage of budget committed: 78;
Amount spent: 20;
Percentage of budget spent: 24.
Province: Total;
Budget allocation: $2,381;
Amount committed: $1,379;
Percentage of budget committed: 58%;
Amount spent: $275;
Percentage of budget spent: 12%.
Source: U.S. Embassy reporting of unofficial data collected by PRTs.
Note: The data include $314 million of Kurdistan region's separate 2007
capital projects allocation of $1.56 billion. The total 2007 budget
allocation for the provinces, excluding the Kurdistan region, is $2.067
billion.
[End of table]
[End of section]
Appendix IV: Comments from the Department of the Treasury:
Department Of The Treasury:
Washington, DC 20220:
December 13, 2007:
Mr. Joseph A. Christoff:
Director, International Affairs and Trade:
Government Accountability Office:
Dear Mr. Christoff:
Thank you for the opportunity to review and comment on the December
2007 draft of the GAO's report on budget execution in Iraq, Iraq
Reconstruction: Budget, Security, and Other Factors Limit Iraq's
Ability to Execute Capital Projects Budget and Track Spending. Treasury
has been closely engaged with the Iraqi Ministry of Finance on
improving budget execution, and appreciates GAO's attention to an issue
that is crucial for reconstruction and growth in Iraq.
Measuring Iraq's budget execution is a difficult task, as data are
often revised, and the Iraqis have just implemented a new chart of
accounts that changes capital expenditure classifications. As the
report notes, there are many reasons for a slow pace of budget
execution in Iraq, particularly related to weak capacity and security.
The U.S. government and Iraqi government have focused on addressing
these problems, and we believe that incremental progress is being made.
We expect that building Iraqi capacity in various ministries for a more
effective financial management will take time and additional
investment.
Nonetheless, we are concerned with many of the statements in this
report and offer comments on each section of the report below.
Treasury's attach� in Baghdad will also provide extensive informal
comments on this report.
1) Assessment of Extent to which GOI has spent its $10.1 billion
capital projects budget for 2007.
Due to data limitations and changes in Iraqi financial procedures, the
pace of execution of capital projects for 2007 will not be fully known
for some time. Ideally, GAO would wait until all 2007 data are
available to properly analyze GOI budget execution. The GAO analysis is
based on incomplete and unofficial reporting that does not portray a
full and accurate picture of the situation. In particular, the GAO
report focuses on preliminary data from July 15th that the
administration used to comply with a requirement to report to Congress.
The administration has consistently indicated that there were potential
accuracy issues with the data in this report. More recent Iraqi data
are helping Treasury understand some of the discrepancies in the
various reporting formats from the Ministry of Finance, Ministry of
Planning, Central Bank of Iraq, and PRT data.
On some specific points:
* The report incorrectly asserts that capital spending is only
contained in the Iraqi budget item for "non-financial assets". But, in
the new chart of accounts, capital spending is spread throughout many
chapters, and is much higher than the June figure for non-financial
assets.
* It is misleading to make comparisons to 2006 below the aggregate
spending figures because of the different charts of account. Treasury
is still working with the GOI to determine just how much of the capital
budget is accurately captured in MOF reports, as many discrepancies
exist between different GOI reports.
* The PRT data for the provinces are just one source of data. Comparing
this with spending data in the special report provides some insight
into spending by the provinces. The official MOF reporting does not
show provincial spending, and Treasury is again working to determine
the discrepancy.
2) Factors affecting GOI's ability to spend these funds:
* The lack of skilled workers available is not just because of
De'Baathification and refugee outflow. Rather these factors compound
the dearth of capacity that pervades the Iraqi civil service and
society after 25 years of wars and sanctions.
* The report would benefit from fuller discussion of the overall
systemic impediments and Byzantine processes that slow budget
execution, in addition to the procurement, budgetary, and accounting
issues highlighted in the report.
3) USG efforts to assist the GOI in spending its capital project funds:
* Many capacity development programs require many months before they
can make slight impacts on outcome-oriented objectives. We would
encourage GAO to consider intermediate and qualitative indicators in
its assessment of the impact of USG capacity building programs.
Signed by:
Ahmed M. Saeed:
Deputy Assistant Secretary, Middle East & Africa:
U.S. Department of the Treasury:
[End of section]
Appendix V: Comments from the Department of State:
United States Department of State:
Assistant Secretary for Resource Management and Chief Financial
Officer:
Washington, D.C. 20520:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, NW:
Washington, D.C. 20548-0001:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report, "Iraq
Reconstruction: Budget, Security, and Other Factors Limit Iraq's
Ability to Execute Capital Projects Budget and Track Spending," GAO Job
Code 320484.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact Kyle
Peterson, Desk Officer, Bureau of Near Eastern Affairs, at (202) 647-
9837.
Sincerely,
Signed by:
Bradford R. Higgins:
cc: GAO � Steve Lord:
NEA � C. David Welch:
State/OIG � Mark Duda:
Department of State Comments on GAO Draft Report:
Iraq Reconstruction: Budget, Security, and Other Factors Limit Iraq's
Ability to Execute Capital Projects Budget and Track Spending (GAO-08-
153, GAO Code 320484):
Thank you for the opportunity to review and comment on the December
2007 draft of GAO's report on budget execution in Iraq, Iraq
Reconstruction: Budget, Security, and Other Factors Limit Iraq's
Ability to Execute Capital Projects Budget and Track Spending. As
indicated by its inclusion as a benchmark in the September 2007
Benchmark Assessment Report, the Government of Iraq's (GOI) ability to
create and execute its own budget is vital to Iraq's reconstruction,
fiscal stability, and the GOI's ability to meet the needs of the Iraqi
people. Therefore, we welcome GAO's attention to this matter.
We are concerned that the draft report fails to accurately portray the
tangible progress that the central government and provincial
governments have made in budget execution. The GOI's progress on budget
execution represents a tangible example of Iraq's leaders working
together successfully. It also reflects increased U.S. and
international assistance focused on budget execution.
We strongly disagree with GAO's characterization of the discrepancy
between the June 2007 official Ministry of Finance (MoF) data and the
July 15, 2007 unofficial MoF data cited in the September 2007 Benchmark
Assessment Report. The July 15 unofficial data were provided to the
U.S. Embassy at our request prior to the September 2007 Benchmark
Assessment Report. As such, these data represented the most up-to-date
information on Iraqi budget execution at that time.
The discrepancy between the June 2007 and July 15 data represents,
foremost, a time lag in data collection. In the weeks between the two
data sets, MoF overcame some of the lag in collection experienced
previously. The 1.1 percent ministerial capital budget execution rate
cited in the draft report reflects only what the MoF reported. Actual
performance was higher. Given the late passage of the 2007 Federal
Budget Law, the MoF was still refining its collection reporting in
June. By July 15, the MoF had accelerated its data collection.
Additionally, many ministries that had previously been creating budgets
and committing funds began to receive and spend their capital funds at
a greater rate. In summary, we stand by the statement that the July 15
data is representative of the GOIs performance as of the publication of
the September Benchmark Assessment Report, and that findings based on
the outdated June data are misleading.
The MoF was also delayed in reporting budget execution data because it
was implementing the International Monetary Fund (IMF)-imposed Chart of
Accounts. The Chart of Accounts provides for enhanced data collection,
aligns MoF accounting with international standards, and represents
significant capacity development on the part of MoF officials. Given
these refined and improved accounting procedures, the draft report
citing 1.1 percent expenditure of Non-financial Assets does not reflect
the entirety of investment spending reported. In fact, capital
expenditures are recorded through all expenditure categories, including
Non-financial Assets, Salaries, Goods and Services, Grants, and Other
Expense.
One of the most important points about provincial budget execution in
2007, which is insufficiently highlighted in the draft GAO report, is
that provincial governments have been simultaneously committing and
disbursing 2006 and 2007 funds. The amount of money committed and
disbursed during 2007 is thus especially impressive. Additionally, the
draft report expresses concern that commitments may not be a good
indicator of actual disbursements. Our data, however, suggests that for
the most part they are.
There is a clear trade-off between using more timely PRT-collected
data, which acts as a leading indicator, and official MoF provincial
data, which is more authoritative but less timely. PRT technical
advisors continually refine their data collection and reporting
methods. Although some data discrepancies remain, provincial officials
relay financial data to the PRTs in much the same way they report it to
the MoF. We agree with GAO's recommendation that "actual spending by
the provinces should be reflected in official 2007 expenditure data
reported by the Ministry of Finance." [Footnote 23] We will rely on
those statistics as they become available.
Finally, we are concerned with the draft report's assessment that U.S.
and international assistance efforts have not borne fruit. Based on
recent data, it is clear that the intense focus on budget execution in
2007 has increased the technical ability of ministry and provincial
officials to perform tasks necessary to execute their budgets. In
addition to the various U.S. assistance efforts mentioned in the
report, the U.S. Embassy is currently working with the MoF, the
Ministry of Planning, and others to develop methods of tracking capital
budget execution by project. This will help address the lack of
performance measures the report identifies. [Footnote 24]
In addition to analyzing budget execution data, PRT and Embassy
officers observe and report tangible projects, levels of services, and
public opinion of the Government's ability to deliver services. These
'data points' confirm that the Iraqis are improving both ministerial
and provincial capital budget execution.
Based on the above considerations, we recommend that GAO reconsider the
draft's report's focus to ensure a more accurate characterization of
the GOI's improvements on budget execution. We would be happy to
discuss the matter further or provide you with any additional
assistance.
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Joseph Christoff, (202) 512-8979 or [email protected]:
Staff Acknowledgments:
In addition, Steve Lord, Acting Director; Lynn Cothern; Howard Cott;
Martin De Alteriis; Timothy Fairbanks; Victoria H. Lin; Bruce Kutnick;
Mary Moutsos, and Sidney Schwartz made key contributions to this
report.
[End of section]
Footnotes:
[21] Although Iraq's $41 billion budget in 2007 includes $10.1 billion
for capital projects, the government's official expenditure data do not
break out capital projects expenditures in 2007. Ministries report
their capital projects expenditures together with expenditures for
capital goods under the heading of "nonfinancial assets," which we
refer to as "investment" expenditures.
[22] State's quarterly 1227 reports are submitted pursuant to section
1227 of the National Defense Authorization Act for Fiscal Year 2006
(P.L. 109-163).
[23] Page 9, paragraph 2.
[24] Page 15, paragraph 2.
[End of section]
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(320484)
To view the full product, including the scope
and methodology, click on [34]GAO-08-153 .
For more information, contact Joseph A. Christoff at (202) 512-8979 or
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Highlights of [35]GAO-08-153 , a report to congressional committees
January 2008
IRAQ RECONSTRUCTION
Better Data Needed to Assess Iraq's Budget Execution
The President's New Way Forward in Iraq identified Iraq's inability to
spend its resources to rebuild infrastructure and deliver essential
services as a critical economic challenge to Iraq's self-reliance.
Further, Iraq's ability to spend its $10.1 billion capital projects budget
in 2007 was one of the 18 benchmarks used to assess U.S. progress in
stabilizing and rebuilding Iraq.
This report (1) examines data the U.S. embassy used to determine the
extent to which the government of Iraq spent its 2007 capital projects
budget, (2) identifies factors affecting the Iraqi government's ability to
spend these funds, and (3) describes U.S. government efforts to assist the
Iraqi government in spending its capital projects funds.
For this effort, GAO reviewed Iraqi government budget data and information
on provincial spending collected by the U.S. Provincial Reconstruction
Teams. GAO also interviewed officials from the departments of the
Treasury, Defense, State, and other agencies and organizations.
[36]What GAO Recommends
We recommend that the Secretary of Treasury work with the government of
Iraq and relevant U.S. agencies to enhance the department's ability to
report accurate and reliable expenditure data from Iraq's ministries and
provinces. Treasury agreed with our recommendation.
U.S. and Iraq reports show widely disparate rates for Iraqi government
spending on capital projects. Accordingly, GAO cannot determine the extent
to which the Iraqi government is spending its 2007 capital projects
budget. In its September 2007 Iraqi benchmark assessment, the
administration reported that Iraq's central government ministries had
spent 24 percent of their 2007 capital projects budget, as of July 15,
2007. However, this report is not consistent with Iraq's official
expenditure reports, which show that the central ministries had spent only
4.4 percent of their investment budget as of August 2007. The
discrepancies between the official and unofficial data highlight
uncertainties about the sources and use of Iraq's expenditure data.
The government of Iraq faces many challenges that limit its ability to
spend its capital project budget. Violence and sectarian strife delay
capital budget execution by increasing the time and cost needed to
implement contracts. Recent refugee flows and the de-Ba'athification
process have contributed to the exodus of skilled labor from Iraq. In
addition, U.S. and foreign officials also noted that weaknesses in Iraqi
procurement, budgeting, and accounting procedures impede completion of
capital projects. For example, according to the State Department, Iraq's
Contracting Committee requires about a dozen signatures to approve
projects exceeding $10 million, which slows the process.
U.S. agencies have undertaken a variety of programs to help Iraq execute
its capital projects budget, although it is not clear what impact these
efforts have had to date. U.S. agencies supported new efforts in 2007
targeting Iraq's ability to spend capital budget funds, including an
office to provide procurement assistance to ministries and provinces and a
new position in the U.S. Embassy to coordinate with senior Iraqi
government officials on budget execution and oversee related U.S.
assistance efforts. In addition, improving Iraqi government budget
execution is part of a broader U.S. assistance effort to improve the
capacity of the Iraqi government. For example, the U.S. Agency for
International Development (USAID) has trained 500 ministry officials in
procurement or budget execution. USAID also led an effort to implement an
automated financial management information system for the Iraqi
government, although this program was suspended in June 2007 following the
kidnapping of five contractors involved in the project. In addition, U.S.
advisors work directly with key Iraqi ministries to assist with budget
execution and procurement, among other responsibilities.
References
Visible links
23. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1195
24. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1195
25. http://www.iamb.info/pdf/unsc1483.pdf
26. http://www.gao.gov/cgi-bin/getrpt?GAO-08-117
27. mailto:[email protected]
28. http://www.gao.gov/
29. http://www.gao.gov/
30. http://www.gao.gov/fraudnet/fraudnet.htm
31. mailto:[email protected]
32. mailto:[email protected]
33. mailto:[email protected]
34. http://www.gao.gov/cgi-bin/getrpt?GAO-08-153
35. http://www.gao.gov/cgi-bin/getrpt?GAO-08-153
*** End of document. ***