Audit
Report
Oil for Food Cash Controls for the
Office of Project Coordination in Erbil, Iraq
Report Number 04-007 July 26, 2004
Office of the Inspector General
Coalition Provisional Authority

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 26, 2004
MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ
SUBJECT: Oil for Food Cash Controls for the Office of Project Coordination in
Erbil, Iraq
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 management comments on a draft of this report in preparing the
final report.
Comments on the draft of this report were not responsive to our
recommendations. However, because the transition to Iraqi sovereignty has been
completed, any corrective action is now an Iraqi Interim Government responsibility.
Therefore, no additional comments are required. Further, due to the transition, audit
follow-up will not be performed.
We appreciate the courtesies extended to the staff. Questions should be directed
to Mr. Brian Flynn at (703) 343-9230 or Mr. William Whitehead at (703) 343-9229.
Management may request a formal briefing on the results of this audit. See Appendix D
for the report distribution.
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 04-007 July 26, 2004
Oil for Food Cash Controls for the
Office of Project Coordination in Erbil, Iraq
Executive Summary
Introduction. United Nations Security Council Resolution 687 (Resolution 687) was
issued April 3, 1991, after the conclusion of the first Gulf War. Resolution 687
established the cease fire in Iraq and also established an oil embargo on the country. It
prevented Iraq from legally selling any oil until August 1991. United Nations Security
Council Resolution 706 (Resolution 706) was issued August 15, 1991. The purpose of
Resolution 706 was to allow Iraq to sell oil in order to purchase goods and services for
essential human needs. This became known as the Oil for Food (OFF) program.
In November 2003, the United Nations officially withdrew from operating the OFF
program and the management of the program transitioned to the Coalition Provisional
Authority (CPA). To do so, the Office of Project Coordination located in Erbil, Iraq,
needed to obtain funds from the CPA in order to complete the planned and in-progress
projects. Approximately $1.5 billion was needed to complete those planned and in-
progress projects.
However, the funds had to be transferred in cash from one bank to another for use by the
Kurdish Regional Government because the banks in Iraq are not electronically connected.
Due to the amounts of those cash transfers, the CPA requested that the Office of the
Inspector General, Coalition Provisional Authority to perform a review.
Objective. The objective of the audit was to determine whether the CPA had established
and implemented appropriate policies and procedures for the accounting, controlling, and
monitoring of the transfer of approximately $1.5 billion in cash to the Kurdish Regional
Government as part of the OFF program.
Conclusion. We determined that the CPA had established and implemented appropriate
policies and procedures for the accounting, controlling, and monitoring of the transfer of
approximately $1.5 billion in cash to the Kurdish Regional Government as part of the
OFF program. We also determined that the process to make payments satisfied
Government Accountability Office standards. We commend the Office of Project
Coordination management for their attention to this area.
However, the Office of Project Coordination did not obtain, review, validate, and approve
cash transfer procedures for using foreign-national couriers to transfer cash within Erbil,
Iraq. As a result, there was an increased risk for the loss or theft of the cash.
Recommendations. We recommend that the Deputy General of the Office of Project
Coordination obtain, review, validate, and approve cash transfer procedures for the use of
local foreign-national couriers before contracting for those types of services.
i

Management Comments. The Chief Financial Officer of the Office of Project
Coordination Erbil, Iraq did not concur with the recommendation because no problems
were incurred with the two couriers that had been previously used by the UN and the
Kurdistan Regional Government. The management comments are shown at Appendix B.
Audit Response. We continue to believe that it would have been prudent to review,
validate, and approve cash transfer procedures for the use of local foreign-national
couriers before contracting for those types of services. However, because the transition
to Iraqi sovereignty has been completed, any corrective action is now an Iraqi Interim
Government responsibility. Therefore, this report makes no further recommendations.
ii

Table of Contents
Executive Summary i
Introduction
Background 1
Objectives 2
Findings
A. Cash Transfer Procedures in Erbil, Iraq 3
B. Internal Controls Over Cash Management 5
Appendices
A. Scope and Methodology 9
B. Management Comments 10
C. Acronyms 12
D. Report Distribution 13
E. Audit Team 14

Background
United Nations (UN) Security Council Resolution 687 (Resolution 687) was issued
April 3, 1991, after the conclusion of the first Gulf War. Resolution 687 established the
cease fire in Iraq and also established an oil embargo on the country. It prevented Iraq
from legally selling any oil until August 1991. The scope and methodology used to
perform this audit are discussed at Appendix A. The acronyms used in this report are
shown at Appendix C and the audit team members are shown at Appendix E.
Oil for Food Program. UN Security Council Resolution 706 (Resolution 706) was
issued August 15, 1991. The purpose of Resolution 706 was to allow Iraq to sell oil in
order to purchase goods and services for essential human needs. This became known as
the Oil for Food (OFF) program. This UN managed program continued to operate in
accordance with Resolution 706 until November 2003. UN Security Council Resolution
1483 (Resolution 1483) was issued May 22, 2003, and lifted the sanctions previously
imposed against Iraq. Resolution 1483 also called for an end of the UN-managed OFF
program in November 2003. However, it gave the occupying countries the opportunity to
continue the OFF program.
Transition from the United Nations to the Coalition Provisional Authority. In
November 2003, the UN officially withdrew from operating the OFF program and the
management of the program transitioned to the Coalition Provisional Authority (CPA).
However, although the UN withdrew from operating the program, it had not completed
many of the contracts, projects, and purchases that had been started. Further, the UN
departed without providing all documentation as to the contracts issued, projects
completed, and warehouse locations of items purchased using OFF funds.
The OFF program had been divided into two regions, the northern and southern, and
those regions were known as OFF North and OFF South. The Office of Project
Coordination (OPC) located in Erbil, Iraq, was formed by CPA to ensure the completion
of all projects left uncompleted by the UN in the northern section of Iraq.
OFF North. The UN operated the OFF program in the northern regions of Iraq.
The Kurdistan Democratic Party and Patriotic Union of Kurdistan requested projects for
the UN to complete through the program. If a project was one that could not be
completed by the UN, then the UN would contract others to complete the project.
According to the OFF Administrator, the program in the north appeared to have been
managed without any signs of corruption.
OFF South. Various ministries in Baghdad operated the OFF program in the
southern regions of Iraq but let contracts under the supervision of the UN. Those
contracts were to be for the purchase of goods and services as outlined in the OFF
program. The Offices of the United Nations Under Secretary General for Internal
Oversight Services and the Iraqi Board of Supreme Audit have opened investigations due
to allegations of widespread corruption throughout the southern region.
Office of Project Coordination. The first issue for the OPC was to inventory the
warehouses utilized by the UN and disburse as much of the perishable items as possible.
Once the OPC disbursed the perishable items, the OPC began an inventory of the
remaining assets in OFF warehouses. The next task for OPC was to oversee completion
of all projects in the north, both in-process and planned. The estimated cost to complete
all projects in the three northern governorates of Iraq, according to the Counselor for the
Ministry of Trade and Standards, was approximately $1.5 billion.
1

The OPC first estimated that were approximately 30 warehouses, but the final count
increased to 57 warehouses by February 2004. The warehouses were built on six acre
compounds. Personnel at OPC found various items from medicine to bulldozers in each
compound. Many items were intended for projects that were either in the planning or
execution phase.
Funding OFF North. According to the OFF Administrator, the CPA wanted to
complete the OFF program. To do so, the OPC needed to obtain funds from the CPA in
order to complete the planned and in-progress projects. According to the Counselor for
the Ministry of Trade and Standards, approximately $1.5 billion was needed to complete
those planned and in-progress projects.
Transfers of Funds. However, the funds had to be transferred in cash from one bank to
another for use by the Kurdish Regional Government because the banks in Iraq are not
electronically connected. Due to the amounts of those cash transfers, the CPA requested
that the Office of the Inspector General, Coalition Provisional Authority review the
policies and procedures for controlling, handling, and monitoring the transfer of cash.
Objective
The objective of the audit was to determine whether the CPA had established and
implemented appropriate policies and procedures for the accounting, controlling, and
monitoring of the transfer of approximately $1.5 billion in cash to the Kurdish Regional
Government as part of the OFF program.
2

Finding A. Erbil, Iraq
Cash Transfer Procedures in
OPC did not obtain, review, validate, and approve cash transfer procedures for using
foreign-national couriers to transfer cash within Erbil, Iraq. This occurred because OPC
changed part of its procedures from using its own staff for the transfer of cash within
Erbil to using a local courier to transfer the cash before obtaining, reviewing, validating,
and approving cash transfer procedures for using foreign-national couriers. As a result,
there was an increased risk for the loss or theft of the cash.
Government Accountability Office Standards
Guidance for internal control standards are contained in the Government Accountability
Office (GAO) publication, “Standards for Internal Control in the Federal Government,”
November 1999. We used the GAO standards because CPA had no internal control
guidance. The GAO sets forth five main areas within its standards. The five areas are:
(1) the Control Environment, (2) Risk Assessment, (3) Control Activities, (4) Information
and Communication, and (5) Monitoring.
Management of Cash Transfers
Although overall sufficient controls were in place to handle cash without a high risk of
loss (see Finding B), OPC did not obtain, review, validate, and approve cash transfer
procedures for using foreign-national couriers to transfer cash within Erbil, Iraq.
Transfer of Cash. The cash available in Erbil for OFF projects had been transported
from the Central Bank of Baghdad to the Kurdistan Regional Bank. The transfers of cash
to pay for projects were then executed from the Kurdistan Regional Bank. We reviewed
the written procedures for cash transfers made by OPC personnel in Erbil.
Local Courier. OPC changed part of its procedures from using its own staff for the
transfer of cash within Erbil to using a local courier to transfer the cash before obtaining,
reviewing, validating, and approving cash transfer procedures for using foreign-national
couriers. After the initiation of our audit work to review procedures for the transfer of
cash by OPC personnel, we were informed that the procedures had changed. No longer
were OPC personnel transporting cash within Erbil, instead, a local courier was being
used.
After developing acceptable procedures, in our opinion, for the transfer of cash by its
own personnel, OPC contracted with a local courier to perform the transfer of cash on its
behalf. The cash was transported by a professional local courier and OPC believed that
this method would be more secure. OPC personnel counted and signed for all funds
transferred from the CPA comptroller and also had a second employee at the bank
recount the cash once it arrived.
Conclusion
We believe that the use of a foreign-national courier without appropriate procedures in
place before the initiation of service resulted in an increased risk for the loss or theft of
the cash.
3

Recommendations, Management Comments, and Audit
Response
We recommend that the Deputy General of the Office of Project Coordination obtain,
review, validate, and approve cash transfer procedures for the use of local foreign-
national couriers before contracting for those types of services.
Management Comments. The Chief Financial Officer, OPC, stated that OPC takes
issue with the recommendation since the two couriers were previously used by the UN
and the Kurdistan Regional Government. Since both couriers were recommended by the
Kurdistan Regional Government and had reliable and satisfactory records, OPC felt it
unnecessary to review the policies and procedures that will be used by the courier.
Audit Response. We continue to believe that it would have been prudent to review,
validate, and approve cash transfer procedures for the use of local foreign-national
couriers before contracting for those types of services. However, because the transition
to Iraqi sovereignty has been completed, any corrective action is now an Iraqi Interim
Government responsibility. Therefore, this report makes no further recommendations.
In response to management comments, we should note that the numbers used in the draft
report have been changed. Originally the funds to be transferred were expected to be as
much as $1.9 billion, but the amount of the funds that were actually transferred was
$1.545 billion. The amounts in the report were changed from the $1.9 to $1.5 billion.
In addition, comments on the report from OPC asked that paragraphs be changed to
provide better clarity. The “Transition from the United Nations to Coalition Provisional
Authority” paragraph in background was changed from “not leaving any documentation”
to “the UN departed without providing all documentation.”
The final clarification requested by OPC was the wording of a transition paragraph that
talked of Oil-for-Food North and Oil-for-Food South. OPC felt it was confusing since
the two area situations were not similar. We deleted the sentence “The south had signs of
corruption and north had inadequate records of what was scheduled to be completed,
what was due in, or where items were stored.” from the background in order to clarify the
paragraph.
4

Finding B. Management
Internal Controls over Cash
We determined that the CPA had established and implemented appropriate policies and
procedures for the accounting, controlling, and monitoring of the transfer of
approximately $1.5 billion in cash to the Kurdish Regional Government as part of the
OFF program. We also determined that the process to make payments satisfied GAO
standards.
Government Accountability Office Standards
Guidance for internal control standards are contained in the GAO publication, “Standards
for Internal Control in the Federal Government,” November 1999. We used the GAO
standards because CPA had no internal control guidance. The GAO sets forth five main
areas within its standards. The five areas are: (1) the Control Environment, (2) Risk
Assessment, (3) Control Activities, (4) Information and Communication, and (5)
Monitoring.
Internal Controls over Cash Management
OPC established written policies and procedures for four types of payments or transfers
made in Erbil, Iraq. Those consisted of cash transfers, check payments, petty cash
payments, and wire transfers. We evaluated the four types of payments or transfers using
the five main areas of the GAO standards as those pertained to cash management.
Control Environment. The GAO standards concerning the control environment state
“Management and employees should establish and maintain an environment throughout
the organization that sets a positive and supportive attitude toward internal control and
conscientious management.” The standards also explain that having appraisals,
competent employees, counseling, established goals, and regular training are ways of
establishing a good control environment.
OPC staff had attended higher education institutions and had either received degrees in
accounting or similar areas such as finance or business. The Chief Financial Officer was
responsible for counseling and reviewing the performance of OPC accounting staff and
all OPC personnel had received counseling and reviews both formal and informal. The
Chief Financial Officer also provided training to the OPC accounting staff so that the
individuals remained current on policies and issues relating to their positions. In our
opinion, the actions taken within OPC were conducive to ensuring a beneficial control
environment.
Risk Assessment. The GAO standards concerning risk assessment state “Internal
controls should provide for an assessment of the risks the agency faces from both external
and internal sources.” The standards also explain that the risks both internal and external
should be evaluated. Although no formal qualitative or quantitative risk assessments
were performed, the evaluations made by OPC staff were helpful in identifying and
determining the types of procedures to utilize to minimize risks.
Control Activities. The GAO standards concerning control activities state “Internal
control activities help ensure that management’s directives are carried out. The control
activities should be effective and efficient in accomplishing the agency’s control
objectives.” Control activities include the approvals and authorizations, physical
controls, policies and procedures, separation of duties, verifications, and other aspects5

associated with decreasing the risk of loss of funds. The standards pertaining to
information systems were not discussed because OPC did not use any information
systems in the cash management processes. The strengths of the control activities at OPC
and examples of the controls in place and functioning include:
Authority and Approval. A strength of the OPC internal control system was the
authority and approval process for cash payments. We reviewed transactions and
interviewed OPC staff in order to ensure that transactions were supported as well as being
approved for payment prior to the release of funds regardless of the method of payment.
All payments selected for review had satisfactory support.
For example, disbursement CD #00099, a wire transfer, included the invoice from the
company stamped for review by the Accounts Payable Manager to ensure that the
payment did not exceed the contract price. The package also included payment approvals
from the Chief Financial Officer and the Deputy Director General. The Chief Financial
Officer’s signature indicated the funds were available for the payment and the Deputy
Director General’s signature signified the authority to make the payment. We found that
similar procedures were followed for making check payments with only a minor
deviation. The only difference was that a check had to be dually signed by the Chief
Financial Officer and the Deputy Director General to be valid. The approval process for
petty cash payments (payments under $200) were approved by the Chief Financial
Officer and certified by the Accounts Payable Manager.
Physical Controls. Physical controls over cash and blank checks reduce the risk
of the loss of funds. Specifically, the petty cash and blank check stocks maintained
within OPC were properly safeguarded. Those items were maintained in a two-key safe
and the keys were kept by two different individuals. Additionally, the office had
controlled entry. Guards controlled personnel entering the OPC compound and it was
surrounded by a fence. The OPC physical controls were satisfactory.
We also reviewed the security controls over OPC funds held in the Kurdistan Regional
Bank. Based on our review of security procedures at OPC and the Kurdistan Regional
Bank, physical controls appeared to be satisfactory and minimized the risk of funds loss.
We considered the bank’s security to be satisfactory.
Policies and Procedures. Written policies and procedures are management
directives addressing how functions should be performed. The four written policies
provided to the auditors were for cash transfers, check payments, petty cash payments,
and wire transfers. Each procedure explained the process to be performed by each
member of the OPC staff involved.
Separation of Duties. Separation of duties is critical in the reduction of funds
lost due to theft. If one individual has the sole function to approve and disburse funds,
the risk of loss increases. In each of the payment areas, at least three individuals were
involved in the payment process and no one individual was able to process a payment
alone. For example, for payment CD #00162, the payment invoice was paid with the
approval of the Accounts Payable Manager. He ensured that the payment did not exceed
the contract price. The disbursing voucher was then prepared by the Financial Reporting
Manager and approved by the Chief Financial Officer. Once the package was approved
and the Chief Financial Officer had signed the check, the Deputy Director General signed
the check to make it valid. Once the check was completed, the cashier mailed the check,
and the Financial Reporting Manager recorded the transaction in the accounting system
and filed the voucher. The duties of preparing, authorizing, approving, mailing, and
recording the funds were all handled by different members of OPC. We found the
separation of duties within OPC were sufficient.
6

Information and Communication. The GAO standards concerning information and
communication state “Information should be recorded and communicated to management
and others within the entity who need it and in a form and within a time frame that
enables them to carry out their internal control and other responsibilities.” The staff
understood their chain-of-command and how to contact their supervisor if there were any
problems that needed to be addressed. The communication lines within the OPC were
satisfactory.
Monitoring. The GAO standards concerning monitoring state “Internal control
monitoring should assess the quality of performance over time and ensure that the
findings of audits and other reviews are promptly resolved.” The OPC monitoring was
two fold. First, there was management supervision of the employees, as discussed earlier
under Control Environment. Second, there was the internal auditing performed by OPC
staff in order to minimize the possibility of funds loss due to theft.
Cash Count. The ability to detect misplaced funds and calculation errors falls
under the internal control area of monitoring. In order to detect missing funds, OPC
personnel performed two key internal control functions. The first was the daily cash
count that was performed at the end of the business day at OPC in Erbil, Iraq. The petty
cash funds were counted and reconciled with the morning petty cash fund balance by
using paid invoices. The cash count was performed in tandem by the Accounts Payable
Manager and the cashier, and it was balanced prior to the close of business.
Bank Reconciliation. The bank reconciliation was performed by the Financial
Reporting Manager on the actual bank statement. The Financial Reporting Manager
attached copies of outstanding checks to the bank statement to support the reconciliation.
After the Financial Reporting Manager completed the bank reconciliation, it was given to
the Chief Financial Officer for verification. The Chief Financial Officer reviewed,
verified and signed the bank reconciliation. Our review of the process showed it to be
adequate.
Conclusion
We believe that authority and approval, internal auditing, physical control, and separation
of duties are integral parts of an internal control system and vital to help reduce the risk
of funds loss. In our review of those attributes, we determined that the CPA had
established and implemented appropriate policies and procedures for the accounting,
controlling, and monitoring of the transfer of approximately $1.5 billion in cash to the
Kurdish Regional Government as part of the OFF program. We also determined that the
process to make payments satisfied GAO standards. Therefore, we have no
recommendations for improving internal controls over cash management and commend
OPC management for their attention to this area.
7

Appendix A. Scope and Methodology
We performed this audit from March 2004 through May 2004 in accordance with
generally accepted government auditing standards.
We reviewed cash transfer procedures at the Office of Project Coordination (OPC),
located in Erbil, Iraq. Erbil is located in the northern portion of Iraq. We reviewed the
following OPC policies:
• 04-01.01 “Check Preparation Procedures,” March 31, 2004
• 04-02.01 “Wire Transfer Procedures,” March 31, 2004
• 04-07.01 “Petty Cash Procedures,” March 31, 2004
• 04-10.01 “Cash Transfer Procedures,” April 12, 2004
We reviewed each type of payment or transfer for the following four aspects: authority
and approval, internal auditing, physical control, and separation of duties. We also
evaluated the four types of payments or transfers using the five main areas of the
Government Accountability Office standards as those pertained to cash management.
We interviewed OPC staff responsible for conducting the cash transactions. We asked
questions pertaining to their levels of continued training, counseling, and education. We
judgmentally selected samples of payments to ensure that the written procedures had
been implemented and were being followed. We also interviewed personnel at OPC and
the Kurdistan Regional Bank to ensure that the procedures were understood and
followed. We also interviewed the bank manager at the Kurdistan Regional Bank to
review the security procedures.
Scope Limitation. Our scope was limited due to time and resource constraints.
Specifically, the lack of security prevented us from meeting with personnel from the OPC
located in Sulaymaniyah, Iraq, to observe and review the office procedures.
Use of Computer-Processed Data. We did not use computer-processed data to perform
this audit.
8

Appendix B. Management Comments from the
Chief Financial Officer, Office of Project
Coordination
9

10

11

Appendix C. Acronyms
CPA Coalition Provisional Authority
GAO Government Accountability Office
OFF Oil for Food
OPC Office of Project Coordination
UN United Nations
12

Appendix D. Report Distribution
Office of the Secretary of Defense
Under Secretary of Defense (Comptroller)/Chief Financial Officer
Director, Program Analysis and Evaluation
Deputy Chief Financial Officer
Deputy Comptroller (Program/Budget)
Inspector General, Department of Defense
Director, Defense Procurement and Acquisition
Office of the Secretary of State
Inspector General, Department of State
Director, Iraq Reconstruction Management Office
Department of the Army
Assistant Secretary of the Army, Acquisition, Logistics & Technology
Assistant Secretary of the Army for Policy and Procurement
Auditor General, Department of the Army
Other Defense Organizations
Director, Defense Contract Audit Agency
Director, Iraq Project and Contracting Office
Other Federal Government Organizations
Office of Management and Budget
Government Accountability Office
Inspector General, Department of Commerce
Inspector General, Health and Human Services
Inspector General, U.S. Agency for International Development
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
13

Appendix E: Audit Team Members
The Financial Management Division, Office of the Assistant Inspector General for
Auditing, Coalition Provisional Authority, prepared this report. Personnel of the Office
of the Assistant Inspector General for Auditing, Coalition Provisional Authority, who
contributed to the report are listed below.
John Betar
Brian Flynn
Robert Murrell
William Whitehead
Jeff Marshall
Ramon B. Miller Jr.
14