Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements
For the period from 1 January 2004 to 28 June 2004
KPMG Bahrain
September 2004
This report contains 27 pages

KPMGF8kIvo
AucIt
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Ch8n'i)er of Commerce BUking
PO Box 710, Minami
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Telephone +97317224807
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Report of Factual Findin2s
in connection with Disbursements
To the International Advisory and Monitoring Board of the
Development Fund for Iraq
To Project and Contracting Office
(successor to the Coalition Provisional Authority)
We have perfOrDled the procedures enumerated in the attached Appendix. which were agreed
with the International Advisory and Monitoring Board of the Development Fund for Iraq and
the Coalition Provisional Authority, solely to assist you in evaluating the Development Fund
for Iraq's compliance with United Nations Sccwity Council Resolution (UNSCR) 1483
paragraph 14, for the period from 1 January 2004 to 28 June 2004. The Coalition
Provisional Authority was responsible for the Development Fund for Iraq's compliance with
UNSCR 1483.
This Agreed-Upon Procedures engagement was conducted in accordance with the
International Standard on Related Services 4400: Engagements to Perform Agreed-Upon
Procedures Regarding Financial Information and with the International Organization of
Supreme Audit Institutions (INTOSAI) Standards on Government Auditing.
The sufficiency of these procedures is solely the responsibility of those parties specified in
this report. Consequently, we make no representation regarding the sufficiency of the
procedures descn"bed in the Appendix, either for the purpose for which this report has been
requested or for any other purpose.
I

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements
For the period from 1 JaDuary 2004 to 28 JUDe 2004
(all amounts ~ in US dollm)
1 Key internal controls at the CPA over disbursements to, and on
behalf of, Iraqi Ministries
1.1 Procedure
We documented the key internal controls implemented by the Coalition Provisional
Authority (CPA) over the disbursement of rcsourocs to, and on bcbalf of, the Iraqi
Ministries. Iraqi Ministries consist of Ministries and other governmental organizations
responsible for implementing programs for which disbursements from the Development
Fund for Iraq (the "Fund" or "DFIj arc made.
1.2
1.2.
1.2.2 Key internal controls
The 2004 Iraqi National Budget was issued in October 2003 for the period from January to
December 2004 and subsequently revised in March 2004. The budget was prepared using
existing systems, forms and formats b'aditionally used in Iraqi budgets and prepared by each
Ministry, in consultation with CPA Senior Advisors. The proposed budget was then
reviewed by appropriate officials from the Iraqi Ministries of Finance and Planning.
recommended for approval by the CPA Program Review Board (pRB) and approved by the
CPA Administrator.
The PRB was respoDSlole for recommending expenditure of resources from the Fund and
other sources to the CPA Administrator for projects not included in the 2004 Iraq National
Budget. The PRB was also responsible for reviewing all identified resource requirements,
and their subsequent prioritization and integration intO a funding plan. The funding plan
forecasts available resources, recommends allocation of these resources and justifies the
proposed expenditures and the recommended manner of expenditures. All funding plans and
programs were to be recommended for approval by the PRB prior to approval by the CPA
Administrator.
A Program Review Committee was established by the PRB to assist the CPA and Iraqi
officials in coordinating programs prior to submission to the PRB. However, minutes of the
meetings were not kept
CPA Regulation 3 dated IS June 2003, stated that all programs were to be approved, on a
majority basis, by eleven voting members of the PRB, including one Iraqi representative
from the Ministry of Finance (MOF). During 2004, one additional Iraqi voting member was
added to the PRB. CPA Regulation 3 also stated that the PRB could only take official
actions in fonnal sessions at which no fewer than 70% of the voting members of the Board
are present.
2

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US do//ars)
1.2.10 1.2.1 All programs recommended by the PRB, approved by the CPA Administrator.and requiring
contractual assistance, were to be transferred to the CPA Contracting Unit (CU): The role of
the cu was to issue a Request for Proposal, evaluate bids received, award the ~ntract and
subsequently monitor performance of the contractor as set out in CPA Memorandum 4.
Competition for contracts in excess of $500,000 was mandatory and three bids were to be
obtained, unless circumstances required the award of a contract without competition, in
which case written justification was to be documented in the contract file. A Technical
Committee appointed by the CU officu, consisting of three or more officials, was to review
the technical aspects of bids received.
PRB programs approved by the CPA Administrator and disbursements made by the CPA on
behalf of the Iraqi Ministries under the 2004 Iraqi National Budget were subject to prior
approval by Contracting Officers or other CPA officials.
Prior to contracting and disbursement by the CPA on behalf of the Iraqi Ministries, CPA
Senior Advisors to the Iraqi Ministries were to authorize Allocations of Funds from the 2004
Iraqi National Budget, stating the budget line item from which funds were to be allocated.
Disbursements were to be made to the MOF in accordance with the 2004 Iraqi National
Budget. Prior to disbursing funds to the MOF. final approval was required by the CPA
Administrator. The MOF is responsible for disbursing funds to the Iraqi Ministries and
Provincial Treasuries.
Disbursements for irrevocable docwnentary letters of credit (LCs) were to be organi~ by
the Trade Bank of Iraq. CPA Senior Advisors were to approve funding requests and submit
them to the Comptroller's Office for authorization to disburse funds.
~nder's Emergency Response Program (CERP) funds approved under PRB programs
were subject to control under CPA Memorandum 4 - Appendix E (Fragmentary Order
(FRAOO) 89), supplemented under additional FRAGOs issued by the United States Armed
Forces and "Guidance on the use of the DFI in Support of the CERP" issued by the CPA.
Rapid Regional Response Program (RRRP) funds approved under PRB programs were
subject to control under PRB Guidance 6 issued by the CPA and Funding Guidance issued
by the CPA Comptroller's Office.
1.3 Findings
1.3.1
Key internal controls tested with our fmdings are noted in sections 2 and 6.

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 Jannary 2004 to 28 June 2004
(all amounts are in US dollars)
2 Authorization by the CPA of disbursements to Iraqi Ministries
2.1 Procedure
For all disbursements to the Iraqi Ministries, we detennincd whether DFI funds disbursed by
the CPA were properly authorized in accordance with the CPA's policies and procedures and
whether there was documentation of receipt of such disbursements by each Iraqi Ministry.
2.2
2.2.
Findings
28 June 2004.
Iraqi Ministries were primarily funded by the DFI during the period from 1 January 2004 to
The CPA distnouted DFI funds directly to the MOF in accordance with monthly funding
requirements agreed by the CPA and the MOF. Thereafter, DFI funds were redistnouted by
the MOF to other Iraqi Ministries in accordance with the 2004 Iraqi National Budget. We
agreed the following disbursements from the DFI to the MOF accounting records during the
period from 1 January 2004 to 28 June 2004:
January $ 727,775,529
February 508,812,129
March 900,000,000
April 600,000,000
May 530,000,000
June 1.791.400.000
S 5.057.987.658
We also agreed these disbursements (11 in total) to the MOF bank account. denominated in
US dollars, at the Central Bank of Iraq
We were informed by the CPA that transfers in June 2004 were larger than previous months
to ensure the Interim Government of Iraq had sufficient funds to meet obligations subsequent
to the transfer of authority. Included in the June disbursement is $766,400,000 for the July
budget.
The individual disbursements to the MOF were auth~ CPA Chief of Staff.
by the CPA Comptroller and the
The CPA Administrator approved 5193,412,342 more than was disbursed to the MOF due to
disbursements also being made by the CPA on behalf of the MOF to third parties requiring
wire transfers. We were not provided with a reconciliation of the total funds disbursed on
behalf of the MOF to amounts deducted from the monthly budget authorizations. We were
not provided with the monthly budget authorization, which was to be approved by the CPA
Administrator, for May 2004.
A

2.2.8 2.2.10
2.2.11 Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
2.2.5 As noted above, we were able to agree amounts transferred from the DFI to the MOF bank
account and accounting records. We were also able to agree funds transf~' byfue MOF
to bank accounts and accounting records at three of the five Iraqi Ministries visited (Oil,
Housing & COnstTUction, and Trade). We reconciled funds transferred by theMOF to the
bank accounts and accounting records at the Ministry of Electricity. We were unable to
reconcile a difference of approximately $610,000 of funds transferred by the MOF to the
Ministry of Health. We noted additional issues in the internal control systems over
accounting and financial reporting at the haqi Ministries, as detailed in section 4.
The Kurdish Regional Government (KRO) was primarily funded by the MOF during the
period from 1 January 2004 to 28 June 2004. In addition, the CPA made direct
disbursements to the KRO (including the Office of Project Coordination (OPC» from the
DFI, as follows:
January $ 21,300,000
May 120,000,000
June 235,500,000
June 1.400.000.000
$ 1.776.800.000
We were infOrDled by the CPA that transfers in June 2004 were larger than previous months
to ensure the KRO had sufficient funds to meet obligations subsequent to the transfer of
authority.
During our procedures in Erbil, we were denied access by the KRG to their accounting
records. However, we held meetings with the KRG Minister of Finance from Erbil and
performed certain limited procedures at the OPC in Erbil as detailed below.
The OPC was established by the CPA to act as an intermediary body between the CPA and
the two regional administrations fomling the KRO, and was responsible for managing funds
under the UN Oil For Food program.
We were able to agree $355,500,000 of disbursements made by dIe CPA to dIe accounting
records and bank statements of dIe OPC.
We were provided with a deposit slip for a Kurdish Bank by the OPC for the receipt of
$1,400,000,000. We were infonned by the CPA Inspector General's Office that they were
present during the delivery of the cash to Erbil as part of their audit procedures.
The January 2004 disbursement of $21.300.000 to the KRO represented the correction of an
arithmetical error in the 2003 Iraqi National Budget. We agreed this disbursement to
supporting documentation.
The individual disbursements to the KRG were also authorized by the CPA Comptroller and
the CPA Chief of Staff.
oS

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(aLl aln()Wlts are in US doLlars)
2.2.12 2.2.13 2.2.14 We found that payments made to the KRG were approved by the CPA Senior Advisor to the
MOF rather than the CPA Administrator. We were informed by the CPA Senio~ Advisor to
the MOF that disbursements from the 2004 lr3qi National Budget did not require additional
approval from the CPA Administrator.
The 22 June 2004 disbursement made by the CPA for $1,400,000,000, was allocated to the
MOF operating budget line item 'transfer payments', as approved by the CPA Senior
Advisor to the MOF. We were unable to obtain further analysis or information regarding the
intended utilization of this budget line item.
The May and June 2004 disbursements ofS355.s00,000 represent part of the KRO's share of
the 2003 UN Oil for Food program transfers (S5,600,000,000) to the DFI.
In addition, the CPA disbursed approximately 5259,000,000 on behalf of the KRO to support
ongoing UN Oil for Food projects. These transfers were allocated under the budget line
'KRO Ongoing Projects' in the 2004 Iraqi National Budget.
6

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
3
Key internal controls at the CPA over the monitoring process of
disbursements made by Iraqi Ministries
3.1 Procedure
We documented the key internal controls implemented by the CPA over the monitoring
process of disbursement of resources made by Iraqi Ministries.
3.2.1
Key internal controls
Each Iraqi Ministry was supplemented by a CPA Senior Advisor and their CPA staff, to
oversee the Ministries' activities.
The disbursement of salaries was to be made in accordance with CPA Order 30 dated
8 September 2003, as supplemented by monthly ins1ructions issued by the CPA and the
MOF. Any action causing the increase of a Ministry's payroll costs over the previous month
was to be approved by the CPA Senior Advisor to the MOF.
We were inforDled that the CPA mainly relied on the internal controls established at the Iraqi
Ministries, including the work performed by the internal auditors of the MOF and the Iraqi
Board of Supreme Audit (BSA), to ensure funds disbursed to Iraqi Ministries were utilized
as budgeted
3.3 Findings
Our findings are noted in sections 5 and 6.

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
4 Key internal controls at Iraqi Ministries over disbursements
4.1 Procedure
We visited management and Inspector Generals of six Iraqi Ministries (Finance. Oil,
Electricity. Trade. Health and Construction & Housing) and documented key intcmal
controls. designed to ensure disbursement of resources from the DFI were u~ as
intended.
Key internal controls
The MOF was responsible for redistn"buting OF! funds to Iraqi Ministries and Provincial
Treasuries in accordance with their monthly individual budgets. Excess expenditure over
monthly individual budgets was subject to authorization by the MOF Budget DeparbDent.
On a monthly basis, each Iraqi Ministry and Provincial Treasury was required to prepare a
trial balance, revenue and disbursement reports, and bank reconciliations. These reports
were to be submitted to the MOF Consolidation Department for review and consolidation.
The disbursement of salaries was to be made in accordance with CPA Order 30 dated
8 September 2003, as supplemented by monthly instructions issued by the CPA and the
MOF. Any action causing the increase of a Ministry's payroll costs over the previous month
was to be approved by the CPA Senior Advisor to the MOF.
Each Iraqi Ministry consists of a headquarter and several divisions, which include a number
of departments (e.g. Accounting, Administration, Legal, Internal Audit &. Planning). For
each division, monthly payroll sheets were to be prepared by the Accounting Deparbnent
with amendments to be approved by the HR Deparbnent, reviewed by the Internal Audit
Deparbnent and approved by the bead of department
The Accounting Deparbnent was to prepare a summary of the monthly payroll sheets, which
was to be reviewed by the Head of the Accounting Department The summary was to be
forwarded to the Minister or the Head of Division for approval.
After the summary was approved, a fund request letter was to be prepared by the Ministry or
Division and sent to the MOF for authorization.
The payroll was to be disbursed, with each employee acknowledging receipt of salary by
way of signature.
Disbursements for goods and services require different levels of authorization according to
value. For disbursements in excess of Iraqi Dinars 10,000,000 ($6,600) a tender process was
to be undertaken, whereby three bids were to be received and the successful bidder was to be
.

4.2.5
4.3
4.3.1
Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US do//ars)
approved by an Award Committee and authorized by the Head of the Division. For requests
in excess of Iraqi Dinars 75,000,000 ($50,000) a public tender was to be required,
Technical and Financial Committees were to be appointed by the Minister. ~ding on
the contract value, the successful bidder was to be approved by the Head of the DiVision, the
Deputy Minister or the Minister.
Complete disbursements to contractors were to be made only after goods were received or
services rendered were approved.
Individual Iraqi Ministries and Provincial Treasuries were subject to audits by the audit
function of the MOF (over 60 auditors) and the BSA (over 800 auditors).
Findings
The MOF maintained two sets of accounting records, manual records for transactions post-
hostilities and computerized records representing the continuation of the official records. A
reconciliation between these two sets of accounting records was not prepared and the
difference was significant. The accounting systems at the Iraqi Ministries, including their
divisions, were primarily manual based with limited computerization.
The current MOF accounting software bas limited reporting capabilities, for example the
MOF Accounting Department could not provide us with a consolidated disbursement report
for each Ministry. We were informed by the MOF that a new financial management
information system will be implemented as from 2005.
We found that reconciliations between amounts transferred from the MOF and amounts
received by the Iraqi Ministries visited were not prepared The MOF relies on the MOF
Consolidation Department to detect unreconciled items and accounting errors. However, we
found this control was not fully effective as we identified errors when reconciling MOF
funds transferred to the Iraqi Ministry of Electricity (MOE) and to the Ministry of Health
(MOH).
We performed reconciliation procedures at dle MOE and we noted that seven disbursements
were recorded incorrectly at dle MOF willi an absolute value of $45,000,000. These
accounting errors consisted of five incorrect postings, one unrecorded disbursement and one
disbursement which was cancelled yet still recorded.
Disbursements from the MOF to the MOH for the period from I
28 June 2004 were lower than receipts recorded at the MOH by $610,000.
January 2004 to
We found that the MOH's trial balance did not balance by approximately $1,300,000 at
28 June 2004.
9

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
4.3.8 4.3.9
4.3.11
We noted the two MOF bank accounts, denominated in US dollars and Iraqi Dinars, at the
CBI, and the main accounts at AI-Rasheed and AI-Rafidain banks, were not reconciled to the
accounting records and differences were significant.
For disbursements to Provincial Treasuries, we were informed by the MOF that, due to
security issues, Provincial Treasuries did not submit their monthly trial balances, revenue
and disbursement reports, and bank reconciliations on a timely basis.
For disbursements made by the CPA on behalf of the Iraqi Ministries, we were informed by
the MOF that the CPA provided them with disbursement reports, including supporting
documentation, on a monthly basis. The MOF and other Iraqi Ministries did not record these
payments in their own records.
We were informed by the MOF that there is an internal policy manual detailing the
responsibilities of departments and accounting procedures. We were informed that the
manual is not widely distn"buted to staff and there is limited fOmlal training provided.
especially for new staff.
Additional findings are noted in section 5.
10

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
5
Procedures undertaken over disbursements made directly by Iraqi
Ministries
5.1 Procedures
For a sample of disbursements for the period from I January 2004 to 28 June 2004 we
visited the MOF, five Iraqi Ministries and the Office of Project Coordination in Broil,
performing the following procedures:
S.l
5.1.2
Compared payroll details for each employee to the accounting records and personnel file;
Detemlined whether the key internal controls, noted in section 4.2.5, for approving, bidding
and awarding of contracts to which disbursements relate were followed;
Observed whether the contract and purchase invoice were signed and approved by an
authorized person in accordance with the CPA's and the Iraqi Minisbies' policies and
procedures; and
Compared expenditure to goods received notes or other supporting documentation
evidencing services rendered
5.2 Findings
5.2.1
We performed procedures at the MOF (see our findings in section 4.3), five other Iraqi
Ministries (Electricity (MOE), Health (MOH), Oil (MOO), Trade (MOT) and Construction
& Housing (MOC» and the OPC. We were only able to obtain approval from the Iraqi
Government to access the Iraqi Ministries on 16 August 2004 and were denied access by the
KRG to their accounting records.
Due to security issues, we were unable to perfOrD1 procedures at the Ministries of Education
and Interior. Additionally our procedures at the Ministry of Electricity were limited due to
security threat. Other problems encountered at the Iraqi Ministries included limited
resources due to security issues and limited working hours. These obstacles further limited
our procedures.
5.2.2
We performed procedures covering approximately $577,000,000 of disbursements made by
the Ministries' Headquarters and Divisions visited. Additionally, we performed procedures
for a sample of 20-30 employee salaries at a number of divisions.
11

5.2.4 Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period (rom 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
For our sample of disbursements from the Iraqi Ministries visited, we found that all payroll
disbursements were in accordance with the accounting records and other supporting
documentation.
For our sample of disbursements from the Iraqi Ministries visited, we found that all key
internal controls over the approval of, bidding for and awarding of contracts, as noted in
section 4.2.5, were followed, except for the following deviations:
. MOE - We found one case where a large contract ($339,141,000) was not publicly
tendered. We were unable to obtain evidence of how many contl'acton were invited to
tender for this contract or bids received.
We also noted that the technical panel bad less than two days to complete their review of
bids received and produce an assessment We were informed by the Ministry that the
contractor with the shortest performance period was selected.
. MOO - We found that divisions performing construction projects did not have
significant contracting activity, as projects were performed intemally.
. MOH - We found d1ree cases where contracts were not publicly tendered. In two cases,
we were informed by the MOH that bids were sent to the CPA Senior Advisor to the
MOH nthQ' d1an the MOH.
. MOC - We found 14 cases where we were unable to obtain evidence of bidding
procedures or sole-source justification. We were informed by the MOC that 11 of these
contracts had been issued pre-hostilities and documentation had been 'lost or bumt'.
. MOC - We found one case where a lawsuit far $667,000 bad been brought against a
division for breach of contract.
. MOT - We were not provided with a complete list of contracts issued by the Ministry
during the period from I Janumy 2004 to 28 June 2004.
For our sample of disbursements from the Iraqi Ministries visited. we found that all contracts
and purchase invoices were signed and approved by an authorized person, except for the
following deviations:
. MOH - We found that checks were made payable to the CPA Senior Advisor to the
MOH, rather than suppliers. Reconciliation between payments made and contracts or
evi~ce of goods received were not provided to us.
. MOB - We were infOrDled by the MOB that cash was held with an Iraqi bank
($4,988,086 as at 28 June 2004) to pay international suppliers. This account was funded
by the MOB, managed by the CPA Senior Advisor to the MOB, but was recorded as an
expendiblrc in the MOB accounting records.
12

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 Jannary 2004 to 28 June 2004
(all amounts are in US dollars)
. We found three disbursements were made on the basis of requests for payment by the
Senior Advisor to the MOH, without purchase invoices, goods recei~m notes or
contracts.
For om sample of disbursements from the Iraqi Ministries visited, we found adequate
supporting documentation for goods received or evidencing services rendered, except for the
following deviations:
. MOH - We found six cases where we were unable to obtain goods received notes for
deliveries.
Office of Project Coordination / Kurdish Regional GoVenlmellt
During our procedures in the Kurdish region in Northern Iraq, we were denied access by the
KRG to their accounting records. Accordingly, we were unable to perfonn the procedures
required in section 5.1. However, we held meetings with the KRG Minister of Finance from
Erbil and performed certain limited procedures at the OPC in Erbil, as detailed below:
. We were informed by the KRG that there were no disbunements from the
$1,400,000,000 transferred to the KRG on 22 June 2004. We were not provided with
documentation to verify that these funds remained unspent at 28 June 2004.
. Of the 5355,500,000 noted in section 2.2.8, om procedures covered approximately
$62, I 00,000 of disbunements made by the OPC to the KRO under Memoranda of
Understandina (MoU).
These disbursements were made regarding contracts transferred from die UN Oil for
Food program to the DFI. We did not perform procedures over contracting activities for
those contracts transferred from the UN Oil for Food program to die DFI on 22
November 2003.
The OPC established a control system for the MoU with the KRO, notably the receipt of
monthly reports and the KRO being subject to periodic OPC audits. We noted that only
one monthly report had been received and one audit had been undertaken during the
period from the establishment of the OPC (22 November 2003) to 28 June 2004. We
were unable to obtain the audit report.
On the dissolution of the CPA and the OPC, the remaining cash at the OPC
($275,421,686) was transferred to the KRO.
13

5.2.8
Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
BSA Audit Reports on Provincial Treasuries
We engaged the Iraqi Board of Supreme Audit (BSA) to perfOrIn similar procedures as
detailed in section 5.1 at eight of the 17 Iraqi Provincial Tfeasurles for the period from 22
May 2003 to 28 June 2004. The BSA was unable to obtain information from one of the
Provincial Treasuries (Ramadi) due to severe security issues in the region. The main
findings noted by the BSA are as follows:
. The BSA reported that total disbursements for the Provincial Treasuries visited during
the period amounted to approximately $1,000,000,000.
. There was no supporting documentation available at Provincial Treasuries for
disbursements made by the CPA on behalf of the Provincial TreaSuries.
. The BSA visited a number of project sites and verified existence of work performed by
contractors.
.
A number of projects were awarded at one Provincial Treasury on a sole source basis
without justification.
. A number of goods received notes or evidence of services rendered were not available.
. Numerous disbursements to and from die Provincial Treasuries and diek divisions were
not recorded or incorrectly recorded by either party.
. Salary payments during 2003 were not consistently documented, particularly in the early
months post-hostilities. The lack of appropriate documentation at the Provincial
Treasuries resulted in employees not signing their payroll sheets upon receipt of salary
and of employees being paid twice. The employees' grade I salary were not consistently
documented.
. MOF instructions were to use an exchange rate of Iraqi Dinars 1,500 I $1 and not actual
rates. Certain transactions were recorded using rates other than the MOF rate.
1.

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
6
Testing of disbursements made on behalf of Iraqi Ministries
6.1 Procedures :.
For our samples of disbursements made by the CPA on behalf of the Iraqi Minis1ries. we
performed the following procedures:
6.1.1
6.1.2
6.1.3
Determined whether the key internal controls, noted in section 1.2, for approving, bidding
and awarding of contracts to which disbursements related to were being followed;
Observed whether the contract and purchase invoice were signed and approved by an
authorized person in accordance with the CPA's policies and procedures; and
Compared expenditure to goods received notes or other supporting documentation
evidencing services rendered.
6.2 Findings
6.2.:
Our procedures cover four categories of disbursements made by the CPA during the period
from I January 2004 to 28 June 2004. Our findings, as detailed below, are split between
these categories to enhance clarity. These include disbursements made under projects
administered by the CPA (pRBs and other disbursements made on behalf of the Iraqi
Ministries), letters of credit, the CERP program and the RRRP program.
t~

6.2.2 Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
DFI payments made on behalf of the Iraqi Ministries to 28 June 2004 were as follows:
Ministry of:
Oil
Oil
Oil
Oil
Oil
Electricity
Electricity
Electricity
Electricity
Trade
Trade
Trade
Trade
Trade
Finance
Finance
Finance
Finance
Finance
National Security and Defense
National Security and Defense
Agriculture
Agriculture
Agriculture
Planning
Awqaf (Religion)
Various ministries
Project:
Import of petroleum products
Emergency pipeline repair
Restoration of oil infrastructure
Oil Infrastructure
Security
Restoration of Iraqi electricity
Reconstruction of power plants
Purchase of electricity from Turkey
Security of power lines
UN WFP food procurement
Food procurement
OFF - Wheat purchase
OFF - Certification
OFF - Coordination centers (refund)
OFF - Northern program
Iraqi media network
Iraqi banknote program
External debt reconciliation
Election assistance
W capons & equipment
Firefighter equipment
Fertilizer
Credit program for local farmers
OFF-Equipment
PMO office construction
Hajj pilgrimage
40 programs
Other:
Commander's Emergency Response Program (CERP)
Rapid Regional Response Program (RRRP)
Letters of Credit (LCs)
Payments on behalf of Iraqi Ministries (mainly by LCs)
$ 1;89il,058,000
81,842,000
67,593,000
62,857,000
42,811,000
551,295,000
126,969,000
31,350,000
8,968,000
910,000,000
33,500,000
28,241,000
6,294,000
(25,000,000)
118,483,000
37,464,000
26,970,000
13,216,000
9,599,000
43,257,000
5,206,000
18,942,000
10,000,000
8,047,000
5,558,000
50,633,000
64,877,000
354,781,000
308.857.000
4,893,668,000
725,730,000
558.540.000
$ 6.177.938.000
16

6.2.6
Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amoWits are in US dollars)
Projects administered by the CPA
Our sample comprised 58 funding plans (programs) and payments made on behalf of the
Iraqi Ministries, which included 96% of the total value. . .
Further to the transfer of power from the CPA to the new Interim Government of Iraq, most
CPA Senior Advisors and their staff left Iraq. Consequently, in certain cases we encountered
difficulties in gathering evidence for the completion of our procedures, including obtaining
supporting documentation for funding programs, projects or contracting files, and meeting
with former staff responsible for these programs.
For our sample of project disbursements we found that all key internal controls for the
funding approvals to which disbursements related were followed, except for the following
deviations:
. We found one case where the approval of funds took place the day after the contract was
signed ($7,050,000).
For our sample of project disbursements we found that all key internal controls for the
bidding on and awarding of contracts to which disbursements related were followed, except
for the following deviations:
. We found 34 cases where disbursements and advance payments had been made to the
United States Army Corps of Engineers (USACE) for import of petroleum products
($983,704,969), restoration of oil infrastructure ($67,573,813), restoration of Iraqi
electricity ($606,739,525) and other projects ($41,482,614).
We noted that disbursements to the USACE were authorized by the PRB and approved
by the CPA Administrator, under a series of Memoranda of Understanding (MoU).
Under these MoU the USACE utilized DFI funds for new work approved by the CPA
Administrator. We were informed by the USACE that the contract vehicle was several
task orders added to existing contracts that had been openly competed well before the
start of the CPA and also issued new contracts.
We had limited access to contracting procedures and documentation for contracts
awarded by the USACE. However, we were informed by the USACE that their
contracts were awarded with limited competition from the largest US construction
companies. In one case, we were provided with written justification for the limited
competition on the electricity contracts.
We noted that two contracts related to the restoration of oil infrastructure were
transferred from the USACE to the Project Management Office, a US Government
agency.
17

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
. We found four cases where advance payments had been made to the Defense Energy
Support Center (DESC) for fuel imports ($645,000,000). We were not provided with
access to contracting procedures, documentation or details of monitoring for contracts
awarded by DESC. .."
. We found 37 cases where contracting files could not be located ($185,039,313).
. We found one case where we were unable to obtain evidence of a tendering process
(contract value of $95,560,000). We were informed by the PCO (Project Contracting
Office) that this contract was originally solicited on an openly competitive basis by the
CPA in Washington DC, using Appropriated Funds. Additionally, we found that a
progress payment of $29,000,000 was made on 24 June 2004 with written justification
dated on 21 July 2004.
. We found one contract where only two bids were received. We found that the respective
CPA Contracting Officer was not aware of key elements of CPA Memorandum 4,
notably the restrictions regarding a minimum of three bids on contracts ($84,357,625).
. We found two cases where the Request for Proposal was publicized with a short deadline
(less than five working days), resulting in only two bids being received We noted
documentation from other suppliers requesting extensions to the deadline. In both cases
there was a one to three month delay between the deadline for submission of bids and the
award of the contract to the successful bidder ($10,689,547).
. We found two cases where documentation of the contract award decision was not
available in the contracting file ($97,574,185).
. We found four cases where the CPA Contracting Officer modified the CPA Standard
Terms and Conditions to limit the effects of the CPA's standard indemnification clause.
No documentation of the written justification for these alterations was found
($102,237,185).
. We found six cases where purchase orders had been assigned to the CPA by the UN
Food Agricultural Organization. We noted appropriate transfer documents for each case,
however contracting files were not available at the CPA (total value $36,772,526).
. We were unable to obtain an Availability of Funds document or contracts for the Hajj
payments ($50,633,000).
. We found one case where the CPA requested the acceleration of food shipment
deliveries. Consequently, demurrage costs of $12,400,000 (caused by the harbor
operating at maximum capacity and being unable to unload the 12 ships) were incurred.
. We found one case where a contract was entered into despite the specific objections of
the Iraqi representative to the PRB. No evidence of a bidding process was available, the
18

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
contract was inappropriately signed by the CPA Senior Advisor (rather than a
Contracting Officer) and an advance payment ($2,915,000) paid with9ut j~fication.
The contract was later cancelled and the CPA Senior Advisor subsequently left the CPA
. During om procedures at the OPC, we found fom cases where contracts had been
modified (for a total increase of $39,740,993). These increases included $33,223,596 for
secmity costs in the Kmdish region, which was considered by the OPC to be relatively
secme. We were informed by the OPC that they did not agree with these modifications.
We were unable to obtain supporting documentation for the tender and award of these
contract modifications.
. We found four cases where we were not provided with contract details or approval of
funds for disbursements regarding letters of credit (LCs). However, we perfonned
additional procedures at the Trade Bank of Iraq, the facilitator for LCs, and were able to
obtain contract details and approval of funds for three cases. We were unable to obtain
contract details for one disbursement of $70,257,520.
For our sample of project disbursements we found that purchase invoices were signed and
approved by an authorized person in accordance with CPA policies and procedures, except
for the following deviations:
. We found seven cases where purchase invoices were not on file ($6,935,786).
. We found two cases (55,070,000) where payments were made in full and contract files
closed prior to the completion of the contract. In one of these cases, the file was closed
before the commencement of the contract We noted one additional case where an
advance was made to a contractor without wrlttenjustification (51,200,000).
. We found one case where a payment ($2,600,000) was authorized by the CPA Senior
Advisor to the Ministry of Oil. We were unable to obtain an underlying contract,
evidence of tendering procedures or evidence of services being rendered. We have been
infOmled by the PCO that this matter is under investigation.
. We found one case where we were unable to obtain evidence for the disbursement to the
Iraqi Ministry of Agriculture for the credit program for local fanners ($10,000,000).
For our sample of project disbursements we found adequate supporting documentation for
goods received or evidencing services rendered, except for the following deviations:
. We found S2 cases where goods received notes or other supporting documentation were
not on file ($97,979,888).
. We found three cases where we were unable to obtam evidence of contract monitoring
($22,136,560).
19

6.2.1
Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 Jannary 2004 to 28 June 2004
(all amounts are in US dollars)
. We found one case where a Contracting Officer Representative signed receiving reports
for work carried out without verification of the services (security seryi~ tbcroughout
Iraq) actually provided ($5,894,568).
Payments under Letters of Credit
Our sample comprised of 91 disbursements from the CPA to JP Morgan for 346 LCs
($1,183,207,635). Each LC has a corresponding contract. We noted the following
deviations:
. We were unable to obtain contracts or Approval of Funds, at the CPA, for 90 of 91
disbursements.
However, we performed additional procedures at the Trade Bank of Iraq. We were
unable to obtain 14 contracts ($209,088,466) for our sample of 81 ($1,072,316,434)
from 346 contracts.
Commanders Emergency Response Program
During the course of our ~ures on the CERP program we noted the following:
. We noted that disbursements of $350,482,493 were advanced to 21 Disbursing Agents,
representing 11 military divisions. We noted an additional $4,298,203 was directly
disbursed to contractors.
.
As of 13 August 2004, $256,299,673 of paid vouchers had been cleared (i.e. returned
remaining funds and I or vouchers to support disbursements) with the CPA Comptroller.
For each of the 11 divisions, we tested 20 to 30 disbursements, covering 25% by value
(245 of 7,784 disbursements) of total cleared disbursements.
. We noted that the CPA Comptroller's Office recorded only advance payments made to
the Disbursing Agents. Detailed payment vouchers cleared by the Disbursing Agents
were not entered into the CPA Comptroller's accounting database. We noted that a
database was maintained by the United States Armed Forces, which contained detailed
information on payment vouchers. However, we found that this database was not
reconciled to the CPA Comptroller's accounting records.
During our procedures we found one case where a payment was recorded twice in the
United States Armed Forces database ($500,000).
For our sample of CERP disbursements tested we found that all key internal controls for the
funding approvals to which disbursements related were followed, except for the following
deviations:
20

6.2.12
6.2.13
Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 Jannary 2004 to 28 June 2004
(all amounts are in US dollars)
. We found four cases where we were unable to obtain formal, signed letters of
appointment for Disbursing Agents. : .
. We found one case where the Allocation of Funds docUDlent did not specify .the source
of funding ($123,000,000).
. We found nine cases where projects were not authorized at an appropriate level, as
required under FRAGO ($8,406,350).
For our sample of CERP disbursements tested we found that all key internal controls for the
bidding on and awarding of contracts to which disbursements related were followed, except
for the following deviations:
. We found 42 cases where there were no contracts on file for projects in excess of
$100,000, as required under FRAGO ($13,283,352).
. We found 22 cases where we were unable to obtain evidence of monitoring by the CPA
Regional Contracting Offices for contracts in excess of $100,000, as required under
FRAGO ($6,086,776).
. We found 128 cases where we were unable to obtain evidence that three bids were
obtained or sole-source justification for projects in excess of $10,000, as required under
FRAGO ($31,682,067).
For our sample of CERP disbursements tested we found that purchase invoices were signed
and approved by an authorized person in accordance with the CPA Memorandum 4 policies
and procedures, except for die following deviations:
. We found 54 cases where we were unable to obtain either a purchase invoice or a
payment voucher for a disbursement. Additionally, we found one case for which we
were unable to obtain any supporting documentation for the disbursement. ($7,190,944)
. We found a number of cases where weapons were paid for under a weapons buy-back
program ($1,400,000). The use of DFI funds for weapons buy-back programs was
specifically proht"bited by CERP rules and regulations.
. We found a number of cases where Iraqi Police salaries and Police Academy Student
stipends were paid ($220,000). The use of DFI funds to pay salaries for the civil work
force was specifically prohibited by CERP rules and regulations.
. We found eight cases where advance payments, including advance payment of 100% of
the contract value, were made for projects ($3,450,000). CERP rules and regulations
state that units were only to make progress payments based on contract perfonnance.
21

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
. We were informed by the CPA Comptroller of one case where $774,300 was stolen from
a division's vault We were informed that a police investigation is ongoing. .
6.2.14
6.2.15
For our sample ofCERP disbursements tested, we found adequate supporting dOCUmentation
for goods received or evidencing services rendered, except for the following deviations:
. We found 142 cases where we were unable to obtain receiving reports or other
supporting documentation evidencing services received for payments made
($39,957,782).
Rapid Regional Response Program
During the course of our procedures on the RRRP program we noted the following:
. We were provided with RRRP guidance subsequent to the completion of our ~dures
in Iraq. We were informed, as descn"bed in this guidance, that certain documents were to
be retained at the CPA Regional Offices. Our procedures were performed only at the
CPA Comptroller's Office in Baghdad and findings may not consider evidence that
should have been retained by the CPA Regional Offices.
However, we noted that the RRRP funding guidance required contract / grant agreement,
purchase invoice, receiving report and payment receipt to be submitted to the CPA
Comptroller in Baghdad in order to clear funds advanced.
. We noted dlat disbursements of $261,109,620 were advanced to 36 Disbursing Agents.
We noted an additional $47,747,259 was directly disbursed to contractors.
. As of 13 August 2004, $163,831,650 of paid vouchers had been cleared with die CPA
Comptroller. We tested 490/0 (466 of 3,063 disbursements) of total cleared
disbursements by value.
. We noted that the CPA Comptroller's Office recorded only advance payments made to
the Disbursing Agents. Detailed payment vouchers cleared by the Disbursing Agents
were not entered into the CPA Comptroller's accounting database.
We were informed that the CPA Comptroller's office has begun the reconciliation of
disbursements cleared by the Disbursing Agents. As of the date of this report, a
complete database of disbursements was not available. We were informed that
preparation of this database is in process.
. We found one case where we were unable to select a sample for an agent's
disbursements due to the lack of organization in his cleared disbursement vouchers
($1,033,684).
22

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are ill US dollars)
6.2.16 6.2.17 6.2.18 For our sample of RRRP disbursements tested we found that all key internal controls for the
funding approvals to which disbursements related were followed, except for the following
deviations:
. We found one case where the Allocation of Funds document did not specify the source
of funding (518,000,000).
. We were Dot provided with 13 of 36 signed letters of appointment for Disbursing
Agents.
. We found one case where the remaining funds returned by the agent did not match the
accounting database ($35,294).
. We found one case where a Disbursing Agent left Iraq without clearing his advance
($1,400,000). We were informed by the CPA Comptroller that supporting
documentation was believed to be in Iraq. The CPA Comptroller's Office is in process
of obtaining the documentation.
For our sample of RRRP disbursements tested we found that all key internal conwls for the
bidding on and awarding of contracts to which disbursements related were followed, except
for the following deviations:
. We found lSS cases where supporting documentation for d1C bidding on and awarding of
contracts were available at the CPA Comptroller's Office in Baghdad. We were
informed by the CPA that supporting documentation for the remAining 311 cases should
be avai1able in CPA Regional Offices in accordance with PRB Guidance.
. We found 12 cases where contracts were not signed by suppliers ($6.452,570).
. We found III cases where contracts were not on file for payments made ($13,445,965).
For our sample of RRRP disbursements tested we found that purchase invoices were signed
and approved by an authorized person in accordance with the PRB Guidance and Funding
Guidance issued by the CPA Comptroller, except for the following deviations:
. We found one case wh~ a Disbursing Agalt returned supporting documentation in
excess of funds advanced to him ($10,900,000). Of this amount, we found eight cases
wh~ advances to Pay Agents from the Disbursing Agent w~ incorrectly recorded as
con1ractor payments rather than advances to Pay Agents ($3,237,872) and one case
wh~ the supporting docwnentation for a disbursement was recorded twice ($369,000).
We were informed by the CPA Comptroller dlat this issue is under investigation by the
CPA Inspector General.
. We found a second case where a Disbuning Agent returned supporting documentation in
excess of funds advanced to him (53,596,650). Of this amount, we found nine cases
23

6.2.19
Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
where advances to Pay Agents from the Disbursing Agent were incorrectly recorded as
contractor payments rather than advances to Pay Agents ($ ($3,437,500).: We were
informed by the CPA Comptroller that this issue is under investigation by the CPA
l
Inspector General. :
. We found 40 cases where we were unable to obtain any supporting documentation for
payments ($178,500). We also found 25 cases where the nature of a payment was
unclear due to incomplete supporting documentation ($8,567,481). In addition, we
found 108 cases where we were unable to obtain purchase invoices for payments made
($22,998,842).
. We found one case where payment was made in full before the contract was signed
($500,000).
. We found two cases where purchase invoices from suppliers were of a lower value than
payments made ($53,000 difference).
. We were informed by the CPA Comptroller that there was an ongoing investigation on
$100,000 of unsupported disbursements of one Disbursing Agent. We are unaware of
the outcome of this investigation.
For our sample of RRRP disbursements tested we found adequate supporting documentation
for goods received or evidencing services rendered, except for the following deviations:
. We found 111 cases where we were unable to obtain receiving reports or other
supporting documentation evidencing services received, for payments made
($19,647,865).
24

Development Fund for Iraq
Report of Factual Findings
in connection with Disbursements, continued
For the period from 1 Jannary 2004 to 28 June 2004
(all amounts are in US dollars)
Because the above procedures do not constitute either an audit or a review made in
accordance with International Standards on Auditing or International Standards on Review
Engagements, we do not express any assurance on the disbursements for the period from
1 January 2004 to 28 June 2004. Had we performed additional procedures, other matters
might have come to our attention that would have been reported to you.
We have performed an examination of the statement of cash receipts and payments of the
Development Fund for Iraq for the period from I January 2004 to 28 June 2004, with our
audit report issued thereon on 30 September 2004. We expressed a qualified audit opinion
on the completeness of cash receipts. We further expressed a qualified audit opinion on the
completeness of export sales of petroleum and petrolemn products.
This report is intended solely for the inforDlation and use of the International Advisory and
Monitoring Board of the Development Fund for Iraq and the Project and Contracting Office
and is not intended to be, and should not be, used by, or relied upon by, anyone other than
these specified parties. However, this report is a matter of public record and its distribution
is not limited. We do not accept or assume responsibility for any other purpose or to any
other person to whom this statement is shown or into whose hands it may come save where
expressly agreed by our consent in writing.
Manama, Kingdom of Bahrain
30 September 2004
25

Development Fund for Iraq
Agreed-Upon Procedures
in connection with Disbursements
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
Appendix
Procedures
To assist the IAMB and the CPA in determining whether the disbursement of resources
from the DEI is in accordance with the provision of United Nations Security Council
Resolution 1483 paragraph 14 and that DEI funds are used in transparent manner and for
the purposes' for which they were disbursed, you have requested us to perform the
following procedures for the period from 1 January 2004 to 28 June 2004:
I. Document the key internal controls at the CPA over the disbursement of resources to
the Iraqi Ministries and list any deficiencies in those controls. Iraqi Ministries
consist of Ministries and other governmental organizations responsible for
implementing programs for which disbursements from the DEI are made.
2. For all disbursements to Iraqi Ministries, observe funds disbursed by the DEI were
properly authorized, in accordance with the CPA's policies and procedures, and that
there was documentation of receipt of such disbursements by each Iraqi Ministry.
3. Document the key internal controls over the monitoring process implemented by the
CPA on disbursement of resources made by the Iraqi Ministries and list any
deficiencies in those controls.
4. Visit management and Inspector Generals of the Iraqi Ministries to document the key
internal controls at the Iraqi Ministries (as established by the CPA and the Iraqi
Ministries) designed to ensure that disbursement of resources from the DEI are
utilized as intended and list any deficiencies in those controls.
S. For a sample (scope to be determined at a future stage) of disbursements for the
visited Iraqi Ministries' own disbursement transactions, perfonn the following work:
. Compare payroll details for each employee to the accounting records and
personnel file,
- Determine whether the key internal controls, for approving, bidding and awarding
of contracts to which disbursements related to were being followed;
. Observe whether contracts and purchase invoices are signed and approved by an
authorized person in accordance with the CPA's and the Iraqi Ministries' policies
and procedures,
- Compare expenditure to goods received notes or other supporting documentation
evidenCing services received.
26

Development Fund for Iraq
Agreed-Upon Procedures
in connection with Disbursements, continued
For the period from 1 January 2004 to 28 June 2004
(all amounts are in US dollars)
For a sample (scope: to be determined at a future stage) of disbursements made on behalf
of the Iraqi Ministries, perform the following work:
- Determine whether the key internal controls, for approving, bidding an4 awarding
of contracts to which disbursements related to were being followed;
- Observe that contracts and purchase invoices are signed and approved by an
authorized person in accordance with the CPA's and the Iraqi Ministries' policies
and procedures,
. Compare expenditures to goods received notes or supporting documentation
evidencing services received.
27