Audit
Report
Corporate Governance for Contractors
Performing Iraq Reconstruction Efforts
Report Number 04-006 July 21, 2004
Office of the Inspector General
Coalition Provisional Authority

Acronyms
AMEX American Stock Exchange
CPA Coalition Provisional Authority
CPA-IG CPA Inspector General
DCAA Defense Contract Audit Agency
DFARS Defense Federal Acquisition Regulations
DoDIG Department of Defense Inspector General
FAR Federal Acquisition Regulation
GAAP Generally Accepted Auditing Principles
GAO Government Accountability Office
NASDAQ National Association of Security Dealers Automated Quotation System
NYSE New York Stock Exchange
PCO Project and Contracting Office
PMO Iraq Program Management Office

C O A L I T I O N P R O V I S I O N A L O F F I C E O F T H E I N S P E C T O R A U T H O R I T Y
G E N E R A L
July 21, 2004
MEMORANDUM FOR AMBASSADOR TO IRAQ
DEPUTY ASSISTANT SECRETARY OF THE ARMY
(POLICY AND PROCURMENT)
IRAQ RECONSTRUCTION MANAGEMENT OFFICE
SUBJECT: CORPORATE GOVERNANCE FOR CONTRACTORS PERFORMING IRAQ
RECONSTRUCTION EFFORTS
We are providing this audit report for your information and use. We performed the audit
in accordance with our statutory duties contained in Public Law 108-106 which mandates the
conduct of audits relating to the treatment, handling, and expenditure of funds by the Coalition
Provisional Authority or its successor entities on Iraq reconstruction, and of the programs,
operations, and contracts carried out in utilizing such funds. We considered comments from the
contractors we visited on a draft of this report in preparing the final report.
This final report contains no recommendations. Therefore, no additional comments are
required. As no recommendations were made in this report, audit follow-up will not be
performed.
We appreciate the courtesies extended to the staff. Questions should be directed to
Mr. Michael J. Guagliano at (703) 428-0244. Management may request a formal briefing on the
results of this audit. The report distribution is shown at Appendix E.
Stuart W. Bowen, Jr.
Inspector General
Coalition Provisional Authority
400 Army Navy Drive • Arlington, Virginia 22202

Office of the Inspector General
Coalition Provisional Authority
Report Number 04-006 July 21, 2004
Corporate Governance for Contractors Performing Iraq
Reconstruction Efforts
Executive Summary
Introduction: The Coalition Provisional Authority, Office of the Inspector General
(CPA-IG), pursuant to Public Law 108-106, “The Emergency Supplemental
Appropriations Act for the Defense and Reconstruction of Iraq and Afghanistan,”
November 6, 2003, is conducting a series of reviews related to the contracts awarded in
support of the Iraq relief and reconstruction efforts. The review of corporate governance
is an element of the CPA-IG efforts to deter and detect any fraud, waste, and abuse within
the Iraq reconstruction efforts. We judgmentally selected five contractors performing
work in Iraq for our audit of corporate governance programs.
As part of the CPA-IG efforts to deter and detect any fraud, waste, and abuse within the
Iraq reconstruction efforts, this audit directly reviewed corporate governance programs.
Future audits will include an assessment of corporate governance programs in the audit
scope once a particular review identifies weaknesses in corporate internal controls.
Public Law 108-106 authorized $18.4 billion for security, relief, rehabilitation, and
reconstruction in Iraq. The Project and Contracting Office∗ manages all activities
associated with program, project, asset, construction, and financial management of the
reconstruction efforts undertaken by the United States. The Project and Contracting
Office established six sectors for the reconstruction effort: Building/Education/Health,
Communications/Transportation, Electrical, Oil, Public Works/Water, and
Security/Justice.
While the Project and Contracting Office is responsible for the overall Iraq reconstruction
program, the contractors have an important responsibility for executing programs and
projects in the most economical and efficient manner in compliance with laws and
regulations.
Corporate governance touches all aspects of the way business activities are structured,
objectives established, and risks assessed. Effective corporate governance fosters an
enterprise-wide attitude of integrity and control consciousness and implements senior
management’s commitment to ethical business practices and behavior. Key tenets of
corporate governance are integrity and ethical values, codes of conduct, and management
support of the program. Corporate governance becomes a key internal control to help
∗ The Coalition Provisional Authority Program Management Office was re-designated as the Project and
Contracting Office on June 28, 2004.

ensure that the country and people of Iraq receive the greatest benefit from the funds
provided for reconstruction.
Objective: The objective of this audit was to determine the adequacy and effectiveness
of corporate self-governance programs of contractors awarded contracts or task orders
funded by the “Emergency Supplemental Appropriation Act for the Defense and
Reconstruction of Iraq.”
Conclusion: Our review of the governance programs of five major contractors involved
in reconstruction projects in Iraq disclosed that viable programs existed at each of those
contractors. Governance policies and programs resonate from the most senior officers of
those companies and all five companies demonstrated a commitment to ethics and
corporate excellence for their reconstruction projects in Iraq. Using their collective past
experiences in Iraq and the Middle East, the five contractors were taking unique measures
to adapt their respective governance programs to reduce the risk of fraud, waste, and
abuse. We believe that governance programs are fundamental to ensuring that companies
effectively and efficiently perform on government contracts. Challenges remain as the
pace of reconstruction in Iraq continues and we believe that this results in a heightened
necessity for governance programs to be in place and to be effective. Addressing those
challenges is fundamental to the application of efficient systems of governance.
Recommendations: We make no recommendations in this report because viable
corporate governance programs existed at each of the five contractors reviewed.
ii

Table of Contents
Executive Summary
Background 1
Objective 3
Finding
Corporate Governance Programs 4
Appendix
A. Scope and Methodology 13
B. Contractor Profiles 15
C. The Sarbanes-Oxley Act of 2002 - Overview and Securities
Exchange Requirements 17
D. Defense Federal Acquisition Regulations Subpart 203.70 -
Contractor Standards Of Conduct 19
E. Report Distribution 20

Background
The Coalition Provisional Authority, Office of the Inspector General (CPA-IG), pursuant
to Public Law 108-106, “The Emergency Supplemental Appropriations Act for the
Defense and Reconstruction of Iraq and Afghanistan,” November 6, 2003, is conducting
a series of reviews related to the contracts awarded in support of the Iraq relief and
reconstruction efforts. The review of corporate governance is an element of the CPA-IG
efforts to deter and detect any fraud, waste, and abuse within the Iraq reconstruction
efforts. The scope and methodology used to perform this audit are discussed at
Appendix A. Profiles of the contractors selected for our review are at Appendix B.
As part of the CPA-IG efforts to deter and detect any fraud, waste, and abuse within the
Iraq reconstruction efforts, this audit directly reviewed corporate governance programs.
Future audits will include an assessment of corporate governance programs in the audit
scope once a particular review identifies weaknesses in corporate internal controls.
Appropriations Act for Reconstruction. Public Law 108-106 authorized $18.4 billion
for security, relief, rehabilitation, and reconstruction in Iraq. Of the $18.4 billion,
approximately $12.6 billion is for construction efforts and approximately $5.8 billion is
for non-construction efforts. The Coalition Provisional Authority (CPA) and its Project
and Contracting Office1 (PCO) are responsible for rebuilding Iraq through the execution
of those funds appropriated on behalf of the CPA.
The PCO manages all activities associated with program, project, asset, construction, and
financial management for the reconstruction efforts undertaken by the United States. The
PCO established six sectors for the reconstruction effort: Building/Education/Health,
Communications/Transportation, Electrical, Oil, Public Works/Water, and
Security/Justice. Some contractors have received multiple awards and some awards were
made to companies that formed joint ventures to compete for the contracts.
While PCO is responsible for the overall Iraq reconstruction program, the contractors
have an important responsibility for executing programs and projects in the most
economical and efficient manner in compliance with applicable laws and regulations.
Corporate governance becomes a key internal control to help ensure that the country and
people of Iraq receive the greatest benefit from the funds provided for reconstruction.
Corporate Governance. Corporate governance (governance) touches all aspects of the
way commercial business activities are structured, objectives established, and risks
assessed. Effective governance fosters an enterprise-wide attitude of integrity and control
consciousness and implements senior management’s commitment to ethical business
practices and behavior. The necessity for self-governance in Iraq is, in fact, increased by
the risks associated with the performance of the work and the importance of imparting
transparent business practices to Iraq-based commercial partners whose experiences in
this regard are likely to have been limited by the years of one-party rule in the country.
Moreover, a healthy system of internal controls, ethics, and compliance provides a level
of attestation with respect to the use of U.S. dollars that is expected by American
taxpayers. Effective governance programs address a code of business ethics, attention to
1 The Coalition Provisional Authority Program Management Office was re-designated as the Project and
Contracting Office on June 28, 2004.
1

systems of internal control, commitment to compliance requirements, and adaptation to
the changing business environments.
Code of Business Ethics. Integrity and ethical values are the product of the
entity’s ethical behavior standards, how those standards are communicated, and how
those standards are reinforced in practice. Contractor management should establish and
maintain a written code of conduct addressing ethical business practices, conflicts of
interests, and the expected standards of ethical and moral behavior. Management also
should establish and maintain an effective system of internal controls and self-
governance. Management should continually demonstrate through words and actions a
commitment to high ethical standards and should convey the message that integrity and
ethical values cannot be compromised. Management should ensure that employees
receive and understand that message and should not condone signs of inappropriate
practices.
Effective Internal Control Systems. Recent events involving alleged misdeeds
by corporate executives and independent auditors have damaged investor confidence in
the financial markets. Those events have highlighted the need for strong, competent, and
vigilant audit committees with effective authority. In response to the threat to domestic
financial markets posed by those events, Congress passed, and on July 30, 2002, the
President signed into law the Public Law 107-204 that may be cited as the “Sarbanes-
Oxley Act of 2002” (the Sarbanes-Oxley Act). Pertinent extracts of the Sarbanes-Oxley
Act (15 U.S.C. 7201) are discussed at Appendix C.
The Sarbanes-Oxley Act mandates sweeping corporate disclosure and financial reporting
reform to improve the responsibility of public companies for their financial disclosures.
In addition, Sarbanes-Oxley requires corporations to document and certify to the
effectiveness of their internal control systems. Among the areas of enhanced
transparency and accountability, the Sarbanes-Oxley legislation and the subsequent
Security and Exchange Commission regulations:
• require corporate officers to certify that they are responsible for establishing,
maintaining, and regularly evaluating the effectiveness of the issuer's internal
controls;
• provide for improved transparency in financial reporting and independent audits
and accounting services;
• increase corporate responsibility through the promotion of ethical codes; enhance
conflict of interest standards and disclosures; and improve management’s
assessment of internal controls.
Academic research has suggested that the creation and enforcement of effective systems
of governance may provide substantial benefits to companies in terms of both legal and
financial measurements. Conversely, the absence of an ethical tone and systems of
governance to support its vigilance may negatively affect a company’s reputation and
result in legal difficulties. The tie between the “tone at the top,” the executable company
function, and the checks and balances in between is clearly a product of a company’s
culture of governance.
Government Compliance. The Federal Acquisition Regulation (FAR), Part 3,
prescribes policies and procedures for avoiding improper business practices and personal
conflicts of interest and for dealing with their apparent or actual occurrence. The
2

Defense Federal Acquisition Regulations (DFARS) section 203.7000 concerning policy
states “Government contractors must conduct themselves with the highest degree of
integrity and honesty.” The FAR, Part 3, and the corresponding provisions of DFARS,
concern topics that may be addressed by the CPA-IG initiative on governance. DFARS
“Subpart 203.70 – Contractor Standards of Conduct” is discussed in more detail at
Appendix D.
Performing U.S. government contract work requires that contractors provide strict
adherence to prescribed compliance standards. Specifically, the contractors must take
measures to ensure adherence to government compliance in areas such as billing systems,
cost accounting standards, labor records, purchasing systems, and flow-down clauses for
subcontracting. Strong governance in those defined areas is essential to maintain
compliance with government requirements in the interests of the public trust.
Government oversight agencies such as the CPA-IG and the Defense Contract Audit
Agency (DCAA) are focused on such efforts.
Objective. The objective of this audit was to determine the adequacy and effectiveness
of corporate self-governance programs of contractors awarded contracts or task orders
funded by the “Emergency Supplemental Appropriation Act for the Defense and
Reconstruction of Iraq.”
3

Corporate Governance Programs
Our review of the governance programs of five major contractors involved
in reconstruction projects in Iraq disclosed that viable programs existed at
each of those contractors. Governance policies and programs resonate
from the most senior officers of those companies and all five companies
demonstrated a commitment to ethics and corporate excellence for their
reconstruction projects in Iraq. Using their collective past experiences in
Iraq and the Middle East, the five contractors were taking unique measures
to adapt their respective governance programs to reduce the risk of fraud,
waste, and abuse. We believe that governance programs are fundamental
to ensuring that companies effectively and efficiently perform on
government contracts. Challenges remain as the pace of reconstruction in
Iraq continues and we believe that this results in a heightened necessity for
governance programs to be in place and to be effective. Addressing those
challenges is fundamental to the application of efficient systems of
governance.
Code of Business Ethics
The Sarbanes-Oxley Act, section 406, requires public companies to institute a code of
ethics for senior financial officers to promote “honest and ethical conduct, including the
ethical handling of actual or apparent conflicts of interest between personal and
professional relationships and full, fair, accurate, timely, and understandable disclosure
and compliance with applicable governmental rules and regulations.”
Each of the contractors we visited had established a code of business ethics that had been
approved by the company’s board of directors, members of the board of director’s ethics
committee, or senior management. Each of the contractors was providing training to its
employees on its respective code of business ethics. The content of the respective code
of business ethics was unique to each of those contractors. However, each code of
business ethics covered similar issues such as equal employment opportunities, antitrust
and competition laws, and standards of conduct that included ethics provisions. For
example, one contractor’s Code of Business conducts states:
“The [contractor] Code of Business Conduct is a guide for every Company Director,
officer, employee and agent in applying legal and ethical practices to their everyday
work. The Code describes not only our standards of integrity, but also some of the
specific principles and areas of the law that are most likely to affect us. There is no
quality more important than integrity. Integrity is a core value in our Code of Business
Conduct. Compliance with the law and honesty and integrity in our dealings with others
are not to be sacrificed in the name of profits. Management does not and will not
condone any such actions.”
While a code of business ethics sets the broad and general tone for the contractors
employees, the companies’ attention to internal control systems, commitment to
government compliance, and adaptation to changing business environments further
refined the corporate governance programs of those contractors.
4

Reviews of Internal Controls
The Sarbanes-Oxley Act focuses companies on the need for external audit and internal
review of company policies and procedures and places a premium on strengthening
internal control systems. Each of the contractors we visited was adopting comprehensive
programs to comply with the Sarbanes-Oxley Act.
Board of Directors. The Sarbanes-Oxley Act restructured the roles of the board of
directors and audit committees for public corporations. Specifically, the Sarbanes-Oxley
Act requires specific accountability actions by the board of directors as well as placing
the board of directors at risk for actions taken. The board of directors, elected by and
accountable to shareholders, is the focal point of the governance system. We found that
senior officers of the five companies routinely reported to and were accountable to their
boards of directors.
Audit Committee. Sarbanes-Oxley Act, section 301, requires that audit committees of
public companies establish “...procedures for the receipt, retention, and treatment of
complaints received by the issuer regarding accounting, internal accounting controls, or
auditing matters, as well as the confidential and anonymous submission by employees of
the issuer of concerns regarding questionable accounting or auditing matters.”
Audit committees for the five companies exercised an active oversight role. For
example, at two companies, the audit committees, comprised of members of the board of
directors, provided oversight and served as a check and balance on the companies’
financial reporting systems. The audit committees also provided independent review and
oversight of their companies’ financial reporting processes, internal controls, and
independent auditors. The audit committees provided a forum separate from
management in which auditors and other interested parties could candidly discuss
concerns. By effectively carrying out their functions and responsibilities, the audit
committees helped to ensure that their managements’ properly developed and adhered to
a sound system of internal controls, procedures were in place to objectively assess
managements’ practices and internal controls, and independent auditors objectively
assessed the companies’ financial reporting practices.
Another strength we noted was that each company’s internal audit function reported to
the company’s audit committee on a regular basis to discuss ongoing work. The internal
audit functions responded to tasks assigned by the audit committees and sought approval
for planned future audits. For example, at one company, the Director of the Internal
Audit Department reported to the Chief Executive Officer as well as to the Director of the
Audit Committee. In another example, one contractor required its corporate officers to
provide the internal audit department a list of topics that should be reviewed within its
respective global business units. At another contractor, the audit committee established
requirements and provided directions for audits that the internal audit department was to
perform and approved the proposed annual audit plan.
Hotline. All five companies had means for employees and others to report allegations of
fraud, waste, and abuse. For several of the contractors, the audit committee or the
general counsel provided oversight for the hotline functions. Three of the contractors
used an outside party to operate the hotline function which the contractors promoted
using e-mail, posters, and training courses. The outside parties reported the results of the
hotline to the responsible corporate official. In some cases, either a member of the audit
5

committee or the office of general counsel reviewed each allegation and determined the
appropriate course of action to take. At one company, the audit committee assigned the
internal auditor to review selected hotline cases and required the internal auditor to report
their findings to the audit committee.
Disclosure and Exchange Requirements. Sarbanes-Oxley Act, section 404 requires the
certifying officers of listed public companies are required to certify to the existence and
effectiveness of internal controls of the company. Specifically, the rule requires
certifying officers to evaluate and express their opinions on the effectiveness of their
company’s internal controls and procedures for financial reporting for the period
covering each quarterly and annual report. In addition, Sarbanes-Oxley Act, section 404,
requires that company’s external public accounting firms attest to and report on
management’s assessment of the effectiveness of internal controls.
The Exchanges2 require each issuer to adopt and disclose a code of business conduct and
ethics for directors, officers, and employees and disclose any waivers of the code for
directors or executive officers in an 8-K filing. The NYSE requires that each issuer must
have an internal audit function. NASDAQ requires that an issuer must provide for an
enforcement mechanism that ensures clear and objective standards for compliance, a fair
process by which violations are determined, prompt and consistent enforcement of the
code, and protection for persons reporting questionable behavior.
Three of the four companies we visited that were subject to the disclosure requirements
had established comprehensive programs to review and strengthen internal controls to
ensure that the senior officials of the companies would be able to positively assert to the
state of the company’s internal controls. The fourth company was finalizing its draft
plan.
Compliance with Government Contracting Policy and Procedures
Several of the companies took actions to improve their compliance with federal
requirements for contractors due to the increase in the amount of federal work that is
being offered, especially the Iraq reconstruction efforts. Aside from Iraq-specific work,
the contractors performed federal work for other Department of Defense (DoD)
components, the Department of Energy, the Department of State, and other government
organizations.
Government Compliance. All five companies had recently strengthened or emphasized
the importance of government compliance to their workforces. The companies had
established federal compliance units, hired consultants with expertise in federal system
requirements, restructured organizational units for government related operations, and
were actively working with the DCAA to make their systems compliant with government
requirements.
At all five companies, the government compliance officer was at the board director, vice
president, or office of the general counsel level within the corporation. Those positions
provided appropriate authority to enforce the responsibilities of the government
6
2 For the purposes of this report, “exchanges” means the New York Stock Exchange (NYSE), American
Stock Exchange (AMEX), and the National Association of Security Dealers Automated Quotation
System (NASDAQ).

compliance officer without risk of undue influence from corporate personnel or lack of
response by employees.
At one company, a consulting firm was hired to assist in developing and refining policies,
procedures, and processes to ensure compliance with pertinent federal requirements.
Another company established additional policies to address the laws and regulations
governing business and contracting with the federal government.
One company with a large government business unit, restructured its procurement
division to provide a more robust procurement capability by adding a compliance
division with five locations throughout the Middle East, including an office in Baghdad.
Specifically, the company added additional procurement management staff, established a
procurement academy, hired senior procurement officials with extensive federal
procurement experience, and provided on-sight procurement training for its personnel
deployed to Iraq. In addition, the procurement division and government compliance
division of that company were working on resolving past discrepancies identified by
DCAA. Another company developed a 2-day government contracting training course to
familiarize its employees with government contracting.
Several of the companies established compliance groups to provide an additional internal
measure of oversight of their company’s efforts. For example, during March 2004, one
company established a compliance group to provide internal oversight for its Iraq
reconstruction contracts. That compliance group, among other things, conducted pre-
submission reviews of the company’s billings to the U.S. Government to ensure that the
submitted billings had adequate supporting documentation and were in accordance with
prescribed contractual requirements and regulations. As of June 2004, the company had
hired five people for the compliance unit, three of whom are former DCAA auditors. In
addition to those five members, the company was in the process of hiring an additional
compliance group member to be deployed to Iraq.
Defense Contract Audit Agency. DCAA has established 10 different Accounting and
Management Internal Control Audits for evaluating contractor internal controls and
assessing related risk at large contractors. The DCAA Internal Control Audits include
“Control Environment and Overall Accounting Controls,” which is a part of governance.
According to a DCAA memorandum to the CPA-IG, “Draft Audit Report, Corporate
Governance for Contractors Performing Iraq Reconstruction Efforts,” July 16, 2004,
DCAA Control Environment and Overall Accounting Controls audits were in process at
the majority of the contractors visited by the CPA-IG. DCAA noted that their audits may
identify internal control deficiencies related to the contractors’ self-governance programs
that are not reflected in the CPA-IG draft report.
DCAA had noted in an audit report that certain aspects of DFARS requirements for
standards for conduct were not addressed in one company’s policy (one of the companies
included in our audit). The company stated that it would evaluate the DCAA
recommendations for possible incorporation into updated company policies and
procedures. That company, to address the DCAA concern, had established a formal
ethics training program for its employees in addition to the ethics requirements
documentation the company provides to its employees. DCAA acknowledged that the
company was taking aggressive action to resolve those issues. We observed the same
actions on the part of that particular company.
7

Overall, we observed that the companies we visited were working closely with DCAA to
ensure that management processes and systems were in accordance with applicable
federal and DoD standards. For example, one company we visited used personnel
experienced in government procurement to oversee a corrective action plan to address
deficiencies identified by the DCAA. In our opinion, the governance programs of the
companies we reviewed, as those programs pertained to the Iraq reconstruction efforts,
were adequate.
Contractor Actions Taken for Efforts in Iraq
The requirement for effective self-governance for companies performing work in Iraq is,
in fact, increased by the risks associated with the performance of the work and the
importance of imparting transparent business practices to Iraq-based commercial partners
whose experiences in this regard are likely to have been limited by the years of one-party
rule in the country.
Business Risks. Doing business in Iraq presents a myriad of challenges to the
governance programs of the companies involved in the reconstruction of Iraq. Generally,
there is an increased business risk attendant to operations involving numerous
commercial entities with wide-ranging occupational, ethical, and corporate practices and
co-mingled spheres of contractual authority. Those potential problems present challenges
to the integration of self-governance mechanisms. Under current circumstances in Iraq,
where such challenges are further influenced by a dearth of recent historical reference to
transparency in business operations, language barriers, the magnitude of the enterprise,
and the overarching impact of security on the conduct of work performance; self-
governance risk is further heightened. Addressing these risks, however, is fundamental
to the application of efficient systems of self-governance.
All five contractors were developing and implementing various governance measures
applicable to their reconstruction efforts in Iraq. Specifically, the contractors had
established compliance units, hired additional corporate officers to assist in oversight,
hired external auditors for reviews of Iraq work, provided daily or weekly updates on Iraq
efforts, revised their internal audit functions, and were using their past experiences in Iraq
or the Middle East to determine what key governance related documents should be
translated into Arabic for Iraqi subcontractors.
Corporate Officer Involvement. Iraq reconstruction efforts were receiving the attention
of senior corporate officers. In some instances, senior corporate officers were kept
apprised of the Iraq reconstruction efforts on a daily basis. For example, according to the
President and Chief Operating Officer of one company, he and the Chief Executive
Officer were being provided updated reports daily from all business units performing Iraq
efforts. In addition, that company’s corporate officers discussed Iraq reconstruction
efforts and current news events concerning governance issues related to Iraq. The senior
officers of that company, in anticipation of contract awards, discussed establishing a
compliance group for providing internal oversight functions for future Iraq efforts.
To improve corporate level oversight of their Iraq efforts, several of the companies hired
individuals with extensive government contracting experience. For example, one
company hired additional corporate officers to aide in providing corporate level oversight
of Iraq efforts. In addition, corporate officers and management staff used situational
awareness information such as government reports, industry information, media reports,
8

and press articles to identify governance related issues that occurred in Iraq. Company
officials stated that they used the reports and information to assess governance issues
against the company’s own performance.
Audit Oversight. Several of the companies were increasing their internal and external
audit capabilities to provide additional oversight of their Iraq reconstruction efforts.
Internal Audit. Several companies were increasing the size of their internal
audit departments and revising their audit plans to include audits of the Iraq
reconstruction efforts. For example, one company hired an additional auditor for its
internal audit department because of the anticipated additional oversight workload.
Officials of the internal audit departments for the five companies stated that they were
incorporating internal oversight for their Iraq efforts. The internal audit departments of
two companies had already deployed personnel to either Iraq or Kuwait to review their
companies’ operations. Another companies had planned to deploy its internal auditors to
Iraq in April 2004 but due to security concerns the trip was postponed until August 2004.
External Audit. External auditor oversight provides a measure of independent
scrutiny of a company’s performance. For example, one of the companies hired external
auditors to augment the indigenous internal audit capabilities. In another example, a
company engaged a major accounting and auditing firm to provide additional audit
oversight and, as of June 2004, the external auditors were performing a risk analysis for
the company’s Iraq reconstruction efforts. The risk analyses was to form the basis for
additional specific audit and oversight actions that need to be taken.
Iraq Orientation Guide. One company developed a tailored Iraq Employee Orientation
Guide to assist its employees deploying or working in Iraq. The orientation guide
addressed the ethical responsibilities and obligations of its personnel and provided other
pertinent information that the company deemed necessary for deployment of its
personnel. Specifically, the guide stated:
“recent newspaper articles that described problems with billings and potential ethical
lapses on Iraqi contracts... [Contractor] operates all of its business under a Business
Ethics Code that makes it quite clear that all employees, agency employees, and agents
must comply with all applicable laws and must report information accurately and
honest1y. There are further duties to ...avoid conflicts of interest and not to give or
receive gifts in the course of business. Clearly, bribery and kickbacks are strictly
prohibited and may even be criminal offenses. [Contractor] has a zero tolerance for legal
and ethical violations of any type... it is never worth it to jeopardize your employment
and reputation, and the reputation of [Contractor], regardless of the circumstances. You
must read (or re-read) the Business Ethics Code in the next 14 days.”
Training. All five companies had developed training and orientation courses that were
to be presented to employees prior to their deploying to Iraq. However, one company
was not able to ensure that it had provided all deploying employees compliance training
during the initial mobilization process. The company deployed a training instructor to
Iraq in May 2004 for targeted compliance training to resolve the situation. In addition,
the company prepared an 8-hour compliance training videotape and packets of required
reading material to be distributed to its employees in Iraq.
Another company had developed a 5-day new-employee orientation program for Iraq
operations. This program included ethics and hotline awareness, human resource
9

briefings, proper recording of timesheets using realistic Iraq work environments, and
training for preparing expense reports. The company also provided briefings of Iraq
operations by company employees who already have experience working in Iraq.
Hiring. Several companies established specific new hire programs for their Iraq efforts
and three company’s programs included criminal investigations and drug testing for new
hires. One of the three companies also performed a psychological screening of the new
employees.
Translation. Several of the companies had already developed, or were in the process of
developing, translation services for employees as well as translation of key governance
and code of conduct policies to impart to Iraqi subcontractors. For example, one
company provided a translator for pre-bid meetings and job-site visits. Subcontractors
who were not familiar with the contracting process were able to ask for and receive one-
on-one assistance with deliverables, invoice requirements, payment terms, and other
contract terms and conditions. In addition, the company provided technical and
procurement staff and a translator, if necessary, during the project execution phase.
Further, the company was translating its contracts into Arabic as well as screening the
contracts for compliance with Shari’ah3
.
Another company was assessing key governance related documents for translation into
Arabic for its future subcontracts to Iraqi companies. The company had planned to
translate key corporate governance documents for distribution to two distinct levels of the
Iraqi workforce. At one level, the company would provide specific policy and
procedures in English and translate those documents into Arabic. At the other level, the
company was developing one to two pages of key elements of governance that a common
laborer would need to know. Those pages would also include a statement to seek out an
Iraqi manager if there were questions on acceptable actions, code of conduct, ethics, or
other governance matters.
Management Support. Management support for governance is critical for success of
company programs. The companies we reviewed demonstrated considerable
management support for governance programs. The main concern for management was
that unethical or liability-creating conduct by company employees would decrease the
company’s reputation and/or shareholder value. According to officials of one company,
two employees working in Iraq were terminated from service with the company because
the military believed that communications send or received were inappropriate. In
another example, two companies developed videos for ethics-training that featured the
Chief Executive Officer discussing the importance of employees maintaining a high level
of ethical conduct.
Challenges to Corporate Governance
An effective governance system is constantly adapted to its environment when company
officials recognize challenges and implement measures to reduce the risks to an
acceptable level. When we discussed the challenges of governance with officials of the
3 Shari’ah is the revealed and the canonical laws of the religion of Islam. The legislative power in the
government lies in the hands of legislative assembly. The legislators are to make rules and regulations
within the scope and dimensions of the Qur'an and the Sunnah of the Prophet (s.a.w.). These rules
constitute the Shari'ah.
10

companies we visited, those officials identified several issues that they believed needed
to be addressed as the Iraq reconstruction program moved forward. They believed that
the government and the companies involved in Iraq will need to work together to
effectively meet these challenges.
Several of those company officials stated that they were looking to the government to set
the tone for conducting business in Iraq. While all applauded the goals established by the
CPA to provide transparency and large scale involvement of Iraqi companies and U.S.
small businesses in the reconstruction program, they believed that those goals should be
tempered with the realities of operating in a high risk, hostile, overseas environment.
They also believed that extending their corporate values to international subcontractors
would be a significant challenge.
Further, company officials were looking for a more orderly process for the awarding of
government task orders. Invariably, company officials believed that when task orders are
awarded, those orders will require a company to respond quickly and deploy large work
forces to accommodate the work. They believed that this immediate and significantly
increased amount of work effort can cause strain to the implementation of governance
programs. They believed that a more balanced and planned distribution of task orders
would allow a company to develop a more well-developed plan to ensure that governance
was adequately and effectively instilled into their efforts. Other risks that company
officials were concerned about included applying government contracting procedures to
the unusual circumstances in Iraq, incorporating new Iraqi government requirements,
maintaining controls in a dynamic environment, subcontracting with Iraq companies, and
sustaining a high level of Iraqi employment to avoid the incitement of the local
population provided employment levels could not be maintained.
Lastly, company officials believed that working in a hostile environment that lacks basic
amenities afforded to domestic programs also strains governance programs. Specifically,
staff levels are smaller than usual, the hours worked are longer, and critical decisions and
actions performed in some instances are required within very short timeframes. They
believed that such a fast paced rapid environment is conducive to employees doing things
that may not comport with accepted governance policies.
Conclusion
Each company we reviewed demonstrated a viable governance program. Those
companies had taken actions to identify and eliminate liability-creating conduct.
Officials of each company had designed and implemented governance policies in unique
approaches to best meet the needs of their companies.
Governance consists predominantly of an attention to systems of internal controls, a code
of business ethics, and a commitment to compliance requirements. Sound governance
provides reasonable but not absolute assurance that a company and its employees will not
engage in liability-creating conduct. However, sound governance should deter and detect
such instances and adapt itself to mitigate the chance of the instance from reoccurring.
Effective governance facilitates an enterprise-wide attitude of integrity and control
consciousness, implements upper management’s commitment to ethical business
practices and behavior, and adapts to a changing business environment.
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We believe that strong internal controls are key to the furtherance of an effective
governance program. We further believe that compliance with the Sarbanes-Oxley Act
and the extensive disclosure requirements placed on companies strengthens governance
programs and provides an additional check and balance to ensure that companies
effectively and efficiently perform on government contracts. Moreover, a healthy system
of internal controls, ethics, and compliance provides a level of attestation with respect to
the use of taxpayer dollars that is expected by the providers of such sources of funds.
The U.S. government relies on its contractors’ governance programs as the first line of
defense to deter and detect fraud, waste, and abuse. Taxpayers, our coalition partners,
and Iraqi citizens are the shareholders with a vested interest in the company’s efforts to
implement effective governance programs for the Iraq reconstruction efforts.
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Appendix A. Scope and Methodology
We performed this audit from April to July 2004 in accordance with generally accepted
government auditing standards.
We judgmentally selected five contractors for our review. The criteria for selecting the
contractors were the aggregate contract award amount and the particular Program
Management Office (PMO - the Coalition Provisional Authority Program Management
Office was re-designated as the Project and Contracting Office on June 28, 2004) sector
for which the work was to be performed. The contractors were selected from a list of
reconstruction Indefinite Deliver/Indefinite Quantity contracts awarded on behalf of the
CPA as of March 27, 2004. Our intent was to provide coverage of high-dollar contracts
and provide oversight in as many of the sectors as possible. We performed our audit work
at the following contractors:
• Fluor-AMEC LLC, Greenville, South Carolina
• Halliburton, Houston, Texas
• Parsons Corporation, Pasadena, California
• Perini Corporation, Boston, Massachusetts
• Washington Group International, Boise, Idaho
We examined the applicability of defense-specific contractor requirements contained in
the DFARS; Sarbanes-Oxley Act requirements (with respect to governance and
transparency); and tested the impact of other attendant laws, regulations (such as the
FAR), and systems as they applied to effective self-government mechanisms. In
particular, we examined the FAR and DFARS requirements related to governance and
internal controls and compliance in the performance of a contract.
We conducted interviews with corporate officers and managers in human resources,
government compliance, government operations, internal audit, and procurement
functions who are responsible for the management and oversight of the companies’ Iraq
reconstruction efforts. We identified and reviewed the contractors’ various policies and
procedures concerning governance in areas such as codes of business ethics, codes of
conduct, compliance manuals, corporate policy manuals, internal controls mechanisms
and compliance systems, new employee information packages, and training
documentation; as well as specific guidance and direction for Iraq operations. We
documented the policies and procedures established and compared them to the actions
and statements of the corporate officers and managers.
In addition to the companies’ policies and procedures that were reviewed, we compiled
publicly available data pertaining to governance issues within corporate America, as well
as alleged unethical/criminal actions reported to have occurred by companies performing
reconstruction efforts in Iraq.
Scope Limitation. This review contained scope limitations that could materially impact
the results.
• We did not perform detailed testing in Iraq of the companies’ field-level
compliance with governance policies and procedures.
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• The DCAA Control Environment and Overall Accounting Control audits
currently in process may identify issues we did not detect in our review that relate
to corporate governance that could impact the Iraq reconstruction efforts.
Use of Computer-Processed Data. We did not use computer-processed data to perform
this audit.
Prior Audit Coverage
During the last 5 years, the Government Accountability Office (GAO) and the Inspector
General of the Department of Defense (IG DoD) have issued two reports discussing
corporate governance. Unrestricted GAO reports can be accessed over the Internet at
http://www.gao.gov. Unrestricted IG DoD reports can be can be access at
http://www.dodig.osd.mil/audit/reports.
Government Accountability Office
GAO-02-494SP, “Highlights of GAO’s Corporate Governance, Transparency and
Accountability Forum,” March 5, 2002
DoD Inspector General
IG DoD Report No. 2000-6-006, “Evaluation Report on Contractor Self-
Governance Programs,” April 25, 2000
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Appendix B. Contractor Profiles
The following provides a synopsis of each contractor judgmentally selected for our
review, including prior experience with DoD and other federal agencies:
Fluor-AMEC LLC. Fluor-AMEC LLC is a joint venture between Fluor Corporation
(USA) and AMEC plc (United Kingdom). Fluor Corporation provides services on a
global basis in the fields of construction, engineering, maintenance, operations,
procurement, and project management. AMEC provides design, engineering,
maintenance support, and project delivery to clients in the industrial, infrastructure, oil
and gas, and transport sectors. AMEC works at the local, national and international
levels and employs 45,000 people in some 40 countries worldwide. Of the $18.4 billion
appropriated for the Iraq reconstruction efforts, Fluor-AMEC LLC has been awarded
contracts for Iraq reconstruction projects as follows:
Electrical $500M
Public Works and Water (NORTH) Public Works and Water (SOUTH) $600M
$500M
Total $1,600M
Halliburton. Founded in 1919, Halliburton is one of the world's largest providers of
products and services to the oil and gas industries. The company adds value through the
entire lifecycle of oil and gas reservoirs. It provides and integrates products and services;
starting with exploration and development, moving through production, operations,
maintenance, conversion and refining, to infrastructure and abandonment. Halliburton
employs more than 100,000 people in over 120 countries working in five major operating
groups. The Engineering and Construction Group, known as Kellogg Brown & Root,
serves the energy industry by designing and building liquefied natural gas plants,
production facilities and pipelines, and refining and processing plants, both onshore and
offshore. The Kellogg Brown & Root non-energy business meets the engineering and
construction needs of governments and civil infrastructure customers. Kellogg Brown &
Root also provides operations and maintenance for a wide variety of facilities. Of the
$18.4 billion appropriated for the Iraq reconstruction efforts, Halliburton has been
awarded contracts for Iraq reconstruction projects as follows:
Oil (SOUTH) $412M
Prior to the Coalition Provisional Authority (CPA) contracts, Halliburton was awarded
the Logistic Civil Augmentation Program and Restore Iraqi Oil contracts.
Parsons Corporation. Parsons Corporation was founded in 1944 and currently has over
9,000 employee-owners engaged in executing more than 5,000 projects in 46 States and
37 foreign countries. The Parsons Infrastructure and Technology Group – International
Division is responsible for Iraq reconstruction efforts. Of the $18.4 billion appropriated
for the Iraq reconstruction efforts, Parsons Corporation, including its joint venture
partnerships, has been awarded contracts for Iraq reconstruction projects as follows:
Buildings, Education, and Health $500M
Security and Justice $900M
Security and Justice (Iraqi Military Bases) $31M
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Oil (NORTH) $415M
Sector PMO Public Works and Water $55M
Total 1,901M
Prior to the CPA contracts, Parsons Corporation was awarded the Captured Enemy
Ammunition Projects and Tadji Military Base Reconstruction contracts. Parsons has
been performing construction efforts in Iraq from the 1950s through the mid-1980s in oil,
transportation, and water projects.
Perini Corporation. Perini Corporation was founded in 1894 and is ranked fourth
among the top 10 power contractors performing operations and maintenance. This
ranking reflects the operations of the Perini Corporation Power Group and the company’s
ongoing relationship with Exelon Nuclear to provide operations and maintenance support
services at 10 power generating stations, consisting of 17 operating units in the United
States. Of the $18.4 billion appropriated for the Iraq reconstruction efforts, Perini
Corporation has been awarded contracts for Iraq reconstruction projects as follows:
Electrical (Transmission and Distribution SOUTH) $500M
Prior to the CPA contracts, Perini Corporation was awarded Restore Iraqi Electricity
under a U.S. Central Command contract. Perini is the prime contractor of a fasttrack,
design/build project for the U.S. Army Corps of Engineers, Transatlantic Programs
Center near Kabul, Afghanistan. Perini has begun construction of a 6,000-man training
camp for the First Brigade of the Afghanistan National Army. The scope of work
includes site development and infrastructure, including electrical power distribution,
storage and distribution, waste water treatment, and water supply. Perini also performs
contract work for the Department of State for upgrading embassies.
Washington Group International. The Washington Construction Company was
founded in 1964 and is an integration of more than 16 companies, each with a different
niche or specialty. Washington Group International has over 26,000 employees working
in 30 countries around the world and focuses on construction, engineering, and
management solutions. Currently, the company has six business units; including defense,
energy & environment, industrial/process, infrastructure, mining, and power.
Washington Group International has been contracted by the CPA to build and repair
electrical, water, and other infrastructure. Of the $18.4 billion appropriated for the Iraq
reconstruction efforts, Washington Group International has been awarded contracts for
Iraq reconstruction projects as follows:
Electrical (Transmission and Distribution NORTH) $500M
Public Works and Water $600M
Total $1,100M
Aside from the CPA contracts, Washington Group International is supporting the
U.S. Central Command and the U.S. Army Corps of Engineers in Afghanistan in the
construction of a number of administration facilities - including a new base to support
that country’s military, located south of Kabul, Afghanistan.
16

Appendix C. The Sarbanes-Oxley Act of 2002 -
Overview and Securities Exchange
Requirements
Recent events involving alleged misdeeds by corporate executives and independent
auditors have damaged investor confidence in the financial markets. Those events have
highlighted the need for strong, competent, and vigilant audit committees with effective
authority. In response to the threat to domestic financial markets posed by those events,
Congress passed, and on July 30, 2002, the President signed into law the Sarbanes-Oxley
Act of 2002. The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) is codified at
15 U.S.C. 7201.
Audit Committees: Functions and Role Requirements to be Effected Through
Listing Standards. Sarbanes-Oxley Act, sections 204 and 301, directs the New York
Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the National
Association of Security Dealers Automated Quotation System (NASDAQ) to issue
certain listing standards that impose the following requirements on audit committees’
functions and role:
• Independence. Sarbanes-Oxley Act, section 301, requires audit committees must
be composed entirely of independent directors. To be “independent” under the
Sarbanes-Oxley Act, an audit committee member may not accept any consulting,
advisory, or other compensatory fee from the company, except in his or her
capacity as a board or board committee member.
• Authority to Engage Advisors. Sarbanes-Oxley Act, section 301, requires audit
committees must have the authority and any funding it finds appropriate; to
engage an outside auditing firm, independent counsel, and other advisers as it
determines necessary to carry out its duties.
• Employee Complaint Procedures. Sarbanes-Oxley Act, section 301, requires
audit committees must establish procedures for the receipt, retention, and
treatment of complaints regarding accounting, internal accounting controls, or
auditing matters and for the confidential, anonymous submission by employees of
concerns regarding questionable accounting or auditing matters.
• Auditor Reports to Audit Committees. Sarbanes-Oxley Act, section 204,
requires registered public accounting firms to make timely reports to the audit
committee of:
o all critical accounting policies and practices to be used;
o all alternative treatments of financial information within General Accepted
Accounting Principles that have been discussed with management,
ramifications of the use of such alternatives, and the treatment preferred
by the accounting firm; and
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o other material written communications between the accounting firm and
management, such as any management letter or schedule of unadjusted
differences.
All companies with securities registered pursuant to the Securities Act of 1933 and/or the
Securities Exchange Act of 1934 are subject to the Sarbanes-Oxley Act. However, in
addition to the corporate governance (governance) standards of the Sarbanes-Oxley Act
set forth above, each of the Exchanges (for purposes of this memorandum, “Exchange”
means the NYSE, AMEX or NASDAQ) is to require each listed issuer to meet various
governance standards, most of which go above and beyond the requirements of the
Sarbanes-Oxley Act. The rules of each Exchange with respect to these governance
standards vary to certain degrees and there are exceptions for certain foreign private
issuers and small business issuers. However, for purposes of this report, a brief
explanation of the material governance standards required by the Exchanges is set forth
below.
Internal Audit Function
The NYSE requires that each issuer must have an internal audit function.
Corporate Governance Guidelines
The NYSE requires that each issuer must adopt and disclose governance
guidelines, which include: director access to management, director qualification
standards, director responsibilities, and, as necessary and appropriate, annual
performance evaluation of the board, director compensation, director orientation and
continuing education, independent advisors, and management succession.
Code of Business Conduct and Ethics
The Exchanges require each issuer to adopt and disclose a code of business
conduct and ethics for directors, officers, and employees and to promptly disclose any
waivers of the code for directors or executive officers in an 8-K filing. NASDAQ
requires that an issuer must provide for an enforcement mechanism that ensures prompt
and consistent enforcement of the code, protection for persons reporting questionable
behavior, clear and objective standards for compliance, and a fair process by which to
determine violations.
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Appendix D. Defense Federal Acquisition
Regulations Subpart 203.70 -
Contractor Standards Of Conduct
203.700 Policy.
Government contractors must conduct themselves with the highest degree of integrity and
honesty. Contractors should have standards of conduct and internal control systems that:
(1) Are suitable to the size of the company and the extent of their involvement in
Government contracting,
(2) Promote such standards,
(3) Facilitate timely discovery and disclosure of improper conduct in connection
with Government contracts, and
(4) Ensure corrective measures are promptly instituted and carried out.
203.7001 Procedures.
(a) A contractor's system of management controls should provide for:
(1) A written code of business ethics and conduct and an ethics training
program for all employees;
(2) Periodic reviews of company business practices, procedures, policies,
and internal controls for compliance with standards of conduct and the
special requirements of Government contracting;
(3) A mechanism, such as a hotline, by which employees may report
suspected instances of improper conduct, and instructions that encourage
employees to make such reports;
(4) Internal and/or external audits, as appropriate;
(5) Disciplinary action for improper conduct;
(6) Timely reporting to appropriate Government officials of any suspected
or possible violation of law in connection with Government contracts or
any other irregularities in connection with such contracts; and
(7) Full cooperation with any Government agencies responsible for either
investigation or corrective actions.
(b) Contractors who are awarded a DoD contract of $5 million or more must
display DoD Hotline Posters prepared by the DoD Office of the Inspector General
unless:
(1) The contract will be performed in a foreign country; or
(2) The contractor has established an internal reporting mechanism and
program, as described in paragraph (a) of this section.
19

Appendix E. Report Distribution
Office of the Secretary of Defense
Under Secretary of Defense (Comptroller)/Chief Financial Officer
Director, Defense Procurement and Acquisition
Department of the Army
Assistant Secretary of the Army, Acquisition, Logistics & Technology
Auditor General, Department of the Army
Other Defense Organizations
Director, Defense Contract Audit Agency
Inspector General, Department of Defense
Administrator, Coalition Provisional Authority
Director, Coalition Provisional Authority Program Management Office
Non-Defense Federal Organizations
Department of State
Office of Management and Budget
General Accounting Office
U.S. Agency for International Development
Inspector General, Department of Health and Human Services
Inspector General, Department of Commerce
Congressional Committees and Subcommittees, Chairman and
Ranking Minority Member
Senate Committee on Appropriations
Senate Subcommittee on Defense, Committee on Appropriations
Senate Committee on Armed Services
Senate Committee on Governmental Affairs
Senate Committee on Foreign Relations
House Committee on Appropriations
House Subcommittee on Defense, Committee on Appropriations
House Committee on Armed Services
House Committee on Government Reform
House Subcommittee on Government Efficiency and Financial Management, Committee
on Government Reform
House Subcommittee on National Security, Emerging Threats, and International
Relations, Committee on Government Reform
House Subcommittee on Technology, Information Policy, Intergovernmental Relations,
and the Census, Committee on Government Reform
20

Audit Team Members
This report was prepared by the Office of the Assistant Inspector General for
Auditing, Coalition Provisional Authority.
John Betar
Brian Flynn
Robert Murrell
Michael Guagliano
Gerald Montoya
Michael Roark
Kristin Caskey
Mackensie Ryan