Evidence of Fraud Found by Iraq Audit

An American initiative to use private security companies to protect Iraq’s oil and power infrastructure collapsed amid reports of possible fraud, missing weapons and destroyed documents, according to a federal audit released Saturday.

Under a program named Task Force Shield, the U.S. paid two security firms $147 million to train and equip tens of thousands of Iraqis to safeguard oil pipelines and transmission towers, the audit found.

The U.S. government’s efforts “ultimately proved to be unsuccessful,” says the report by the Special Inspector General for the Reconstruction of Iraq, a U.S. government watchdog agency. “The lack of records and equipment accountability raises significant concerns about possible fraud, waste and abuse of Task Force Shield program by U.S. and Iraqi officials.”

Task Force Shield was disbanded in April 2005. Its former commanders could not be reached for comment Saturday.

Iraqi insurgent attacks on oil pipelines drain as much as $8 million a day from the Iraqi treasury, and strikes against electrical towers are among the primary reasons that power production remains below prewar levels.

The chief executive of Erinys, the company responsible for training guards to protect Iraq’s oil system, strenuously defended its work, saying it had fulfilled all the terms of its contract and delivered a functioning security force.

The oil protection force “was an extraordinary achievement established under conditions never before seen,” said Jonny Garratt, who founded the London-based security company.

Officials with ASARS, a Greenbelt, Md., company hired to protect Iraq’s electrical grid, could not be reached for comment.

The audit is the latest account of poor oversight by the United States in the reconstruction of Iraq, an effort plagued by reports of billions of dollars of waste, fraud and abuse.

The U.S. Army Corps of Engineers also blocked efforts by the inspector general to obtain documentation on the program, the audit found. An unnamed Army officer who ran the task force destroyed some documents, the report says.

“It is clear that [the oil and electricity program was] beset with confusing management and inconsistent oversight from its inception,” it says.

Under the oil contract, Erinys-Iraq was paid $104 million to train at least 14,400 guards. Government auditors could find evidence of only 11,400 guards who had been trained. They could not determine the location of more than 6,000 AK-47s purchased for the guards.

The entire force was turned over to the Iraqis in April 2005. There have been reports since then that vehicles and computers given to the Iraqis had disappeared, presumably stolen.

Garratt, however, said his company had trained 16,000 guards and turned over boxes of documentation to the Iraqi Oil Ministry detailing weapons, training and inventory purchased under the contract. Although the company still has contracts in Iraq, it no longer works to protect the oil fields.

Garratt’s firm produced a report about its experiences that provides a revealing look at the chaotic and ever-changing nature of the government’s directions to protect the oil pipeline.

The report says Erinys management had continual problems with the ownership, contractual oversight and tasking of the oil security force.

The company was financed with the help of A. Huda Farouki, a Virginia businessman and close friend of Ahmad Chalabi, the former Pentagon favorite linked to faulty intelligence that helped lead the U.S. into the war.

Farouki, Chalabi and Erinys officials have denied that Chalabi played any role in awarding the contract, which was won in competitive bidding against scores of other companies in August 2003. Farouki’s firm, Nour USA, declined to comment Saturday.

ASARS was paid $42.8 million to train and equip 6,000 guards to protect Iraq’s electrical infrastructure. The audit found that it could not be determined whether any of the objectives were met because the “program barely got started before it was canceled” in March 2005.

The audit report criticizes the company’s construction of what was supposed to be a classroom and auditorium for the security guards at the Taji military base outside Baghdad. Instead, the company erected an open-air pavilion and charged the government $1.4 million. The audit said the pavilion should have cost $50,000 to $100,000.

Sen. Ted Stevens (R-Alaska) has been criticized for his ties to the parent company of ASARS, Arctic Slope Regional Corp., an Alaska Native firm.

As chairman of the Senate Appropriations Committee, Stevens spearheaded the creation of special contracting privileges that allowed small businesses owned by Alaska Native firms to receive government contracts of unlimited value without competitive bidding.

Arctic Slope Regional benefited from those privileges and rented office space in a building in Anchorage that Stevens partly owned. Stevens denied wrongdoing, but sold his share for an $822,000 profit last year, citing the controversy generated by his ownership.

The Government Accountability Office released a report Friday criticizing the Small Business Administration’s oversight of the contracts awarded to the Alaska Native companies, which exploded from a total of $265 million in 2000 to $1.1 billion in 2004.