O OF FF FI IC CE E O OF F T TH HE E S SP PE EC CI IA AL L I IN NS SP PE EC CT TO OR R G GE EN NE ER RA AL L F FO OR R I IR RA AQ Q R RE EC CO ON NS ST TR RU UC CT TI IO ON N
G G GR R RD T T TR R - -P P D D-
PC C CO O O M M MA A AN N NA A RA A AN N NS S SF F FE E ER R R O O OF F F I A A AS S SS S SE E ET T TS S S G G GO O OV T T TO O O V VE E ER R RN AG G GE E EM M ME E EN N NT I IR R RR R RF F F-
- -F F FU T T U UN T T TH H HE E E I I N NM M ME E EN IR R RA A AQ Q QI N NT T T
O O OF N ND I I
F F D DE T T E ED TH H HE E E
D D
S S SI I IG G GI I IR R R-
- -0 0 05 5 5-
- -0 0 02 2 28 8 8
J J JA A AN N NU U UA A AR R RY Y Y 2 2 24 4 4, , , 2 2 20 0 00 0 06 6 6

SPECIAL INSPE CTOR GENE RAL FOR IRAQ RECONSTRUCTION
January 24, 2006
MEMORANDUM FOR U.S. AMBASSADOR TO IRAQ,
COMMANDING GENERAL, GULF REGION DIVISION, U.S.
ARMY CORPS OF ENGINEERS
SUBJECT: GRD-PCO Management of the Transfer of IRRF-funded Assets to the Iraqi
Government (SIGIR-05-028)
We are providing this report for your information and use. We performed the audit in
accordance with our statutory duties contained in Public Law 108-106, as amended, which
mandates the independent and objective conduct of audits relating to the programs and
operations funded with amounts appropriated or otherwise made available to the Iraq Relief
and Reconstruction Fund. Public Law 108-106, as amended, requires that we provide for the
independent and objective leadership and coordination of, and recommendations on, policies
designed to promote economy, efficiency, and effectiveness in the administration of such
programs and operations and to prevent and detect waste, fraud, and abuse.
We considered comments from the U.S. Army Corps of Engineers, Gulf Region Division, on
a draft of this report when preparing the final report. Their comments on the draft of this
report conformed to requirements and left no unresolved issues. Therefore, no additional
comments are required.
We appreciate the courtesies extended to the staff. For additional information on this report,
please contact Mr. Clifton Spruill by email at clifton.spruill@iraq.centcom.mil or at
(703) 343-8817, or Mr. Glenn Furbish by email at glenn.furbish@iraq.centcom.mil or at
(703) 343-8817. For the report distribution, see Appendix C.
Stuart W. Bowen, Jr.
Inspector General
400 Army Navy Drive • Arlington, Virginia 22202

Special Inspector General for Iraq Reconstruction
SIGIR-05-028 January 24, 2006
GRD-PCO Management of the Transfer of IRRF-funded Assets
to the Iraqi Government
Executive Summary
This report is one of a series of reports addressing the management, by U.S. government
organizations, of the transfer of completed reconstruction projects to the Government of
Iraq.
Introduction. In November 2003, the United States Congress appropriated $18.4 billion
for the Iraq Relief and Reconstruction Fund (IRRF) to support security, relief,
rehabilitation, and reconstruction projects in post-war Iraq. The Gulf Region Division
(GRD) of the U.S. Army Corps of Engineers and the Project and Contracting Office
(PCO) have managed the completion of 1,692 projects valued at approximately $1.4
billion through December 28, 2005, but the largest projects will not be finished until
2006-2007. Thousands of completed projects funded by the IRRF and other programs
will be transferred to the Government of Iraq during 2006-2007. These projects
combined represent the eventual transfer of billions of dollars of assets. A formal asset
transfer process is necessary to enable the Government of Iraq to integrate the completed
project assets into a nation-wide infrastructure management plan; adequately budget for
sustaining the transferred project assets; account for the assets; and leverage the project
assets to obtain financing for additional projects from world markets.
Objectives. The overall objective of this audit was to determine whether the U.S.
government organizations responsible for managing IRRF projects have developed and
approved policies and procedures for transferring the billions of dollars of assets
purchased, renovated and constructed with IRRF funds to the Iraqi Government and its
citizens. This audit focused specifically on asset recognition and transfer policies and
procedures used by two organizations managing IRRF projects; the GRD and PCO. The
responsibilities of the GRD were consolidated with those of the PCO on December 4,
2005. This report uses the term GRD-PCO for the consolidated entity. We will report on
other U.S. government organizations in future reports.
Results. The GRD-PCO has recognized the need for formal asset recognition and
transfer policies and procedures, and is working, in coordination with the Iraq
Reconstruction Management Office and others, to resolve the issue. However, current
GRD-PCO policies and procedures are geared toward asset transfer to Iraqi government
representatives at the local level, and do not address the information needs of the
Government of Iraq and the Iraqi Ministries responsible for planning the integration and
sustainment of completed projects. The GRD-PCO has acknowledged the problem and is
participating in two multi-agency working groups to develop a common policy and
process for facilitating the legal, financial, and logistical transfer of assets to the
Government of Iraq.
Management Actions. During the course of this audit, the GRD-PCO acknowledged the
need to further address the asset recognition and transfer issue, and dispatched a team to
i

Iraq in November 2005 to provide an in-depth assessment of the current contract close-
out and asset-transfer processes. In addition, it participates in two multi-agency working
groups, the Information Technology Working Group and the Asset Recognition and
Transfer Team Working Group, comprised of representatives from the principal U.S.
government agencies charged with the relief and reconstruction effort in Iraq.
The Information Technology Working Group was formed to consolidate all U.S.
government funded and managed relief and reconstruction project asset information
across all infrastructure sectors and organizations throughout Iraq into one database. The
name for this consolidated database is the “Iraq Reconstruction Management System”.
One of the intended goals for the Iraq Reconstruction Management System is the
capability to turn over to the Iraqi government an archive of the U.S. government’s relief
and reconstruction project information, which will help the Iraqi government in its
budgeting for sustainment of transferred facilities and future master planning.
The U.S. Department of State’s Iraq Reconstruction and Management Office established
the Asset Recognition and Transfer Team Working Group, which includes
representatives from the GRD-PCO, Iraq Reconstruction Management Office, U.S.
Agency for International Development, Multi-National Security Transition Command-
Iraq, Multi-National Force-Iraq, Joint Contracting Command-Iraq/Afghanistan and
others, to develop a common policy and process for the represented agencies to facilitate
the legal, financial and logistical transfer of assets to the Government of Iraq.
Recommendations. We recommend that the Commanding General, Gulf Region
Division, U.S. Army Corps of Engineers direct the GRD-PCO, in coordination with the
Iraq Reconstruction Management Office, to complete the development of a common
policy and process facilitating the transfer of completed project assets to the Government
of Iraq. That process should, at a minimum, provide formal notification of the project
asset transfer to the Iraqi Ministry of Planning, Ministry of Finance, and the appropriate
operating ministry central headquarters (Electricity, Water, Oil, Health, Education,
Transportation, Roads, Communications, Justice, Interior and Defense). Notification
should also include, at a minimum, relevant data such as operation start date, asset cost,
estimated short-term and long-term sustainability costs, terms of warranties, and the
location of maintenance and systems manuals and instructions.
Management Comments and Audit Response. The Commanding General, Gulf
Region Division, U.S. Army Corps of Engineers concurred with the finding and
recommendations; and the comments to all recommendations are fully responsive.
Additional Observations. In the course of our review, we also noted that in addition to
the IRRF, Iraq reconstruction activities are also being funded by the Development Fund
for Iraq, the Commander’s Emergency Response Program, and the Commander’s
Humanitarian Relief and Reconstruction Program as well as various other U.S.
government administered funding sources. As with IRRF-funded projects, formal asset
recognition and transfer policies and procedures are similarly needed for the transfer of
additional billions of dollars worth of assets. We believe that the transfer of all assets
developed or funded by U.S. government programs should be governed by a common set
of policies and procedures.
ii

Table of Contents
Executive Summary i
Introduction
Background 1
Objectives 2
Finding
Asset Recognition and Transfer Policies and Procedures 3
Appendixes
A. Scope and Methodology 6
B. Acronyms 7
C. Report Distribution 8
D. Audit Team Members 10
Management Comments
Commanding General, Gulf Region Division, U.S. Army Corps of Engineers 11

Introduction
Background
On November 6, 2003, the U.S. Congress appropriated $18.4 billion, through Public Law
108-106, for the Iraq Relief and Reconstruction Fund (IRRF) to fund Iraq reconstruction
requirements that had been identified by the Coalition Provisional Authority during the
summer and fall of 2003. The Coalition Provisional Authority identified thousands of
projects within various infrastructure sectors in Iraq, such as electricity, water, oil, health
care, transportation, and education. Although this audit focuses on the IRRF, there are
additional programs such as the Commander’s Emergency Response Program, the
Development Fund for Iraq, the Commander’s Humanitarian Relief and Reconstruction
Program and other sources that are funding thousands of additional reconstruction
projects.
The Gulf Region Division (GRD) of the U.S. Army Corps of Engineers and the Project
and Contracting Office (PCO) have managed the completion of 1,692 projects valued at
approximately $1.4 billion through December 28, 2005, but the largest projects will not
be finished until 2006-2007. Thousands of additional completed projects funded by the
IRRF and other programs will be transferred to the Government of Iraq during 2006-
2007. As a result of these projects, billions of dollars worth of assets will be transferred
to the Government of Iraq Therefore, it is imperative the transfer process be
accomplished in a manner that enables the Government of Iraq to integrate the completed
project assets into a nation-wide infrastructure plan for future capital projects, assure
adequate budgeting for sustainability of the transferred project assets, and leverage those
project assets to obtain financing for additional projects from world markets.
Responsibilities
According to National Security Presidential Directive 36, entitled, “United States
Government Operations in Iraq,” the Chief of the U.S. Mission in Iraq, under guidance
from the Secretary of State, is responsible for the direction, coordination, and supervision
of all United States government employees, policies, and activities in country, except
those under the command of an area military commander. This includes the continuous
supervision and general direction of all assistance for Iraq. The Directive also creates a
temporary organization within the Department of State, called the Iraq Reconstruction
Management Office to facilitate the reconstruction in Iraq.
The PCO was also created by National Security Presidential Directive 36. It is a
temporary Department of Defense organization whose staff was assigned under Chief of
the U.S. Mission in Iraq authority. It provides program management services for
Department of Defense contracts and for contracts managed by the Department of State
and other departments and agencies.
The GRD provides engineering and construction services to the Multi-National Force-
Iraq and the Iraqi government in support of military and civil construction. This is
accomplished through its Baghdad headquarters, three district offices, and numerous field
offices located throughout Iraq.
The responsibilities of the PCO were consolidated with those of the GRD on
December 4, 2005. Planners anticipated that the GRD would have a longer-term
1

presence in Iraq to support Multi-National Force-Iraq and there were potential
organizational efficiencies to downsize and restructure PCO functions while GRD
continued its presence in Iraq. This report will use GRD-PCO as the name for the
consolidated entity.
Objectives
The overall objective of this audit was to determine whether the U.S. government
organizations responsible for managing IRRF projects have developed and approved
policies and procedures for transferring the billions of dollars worth of assets purchased,
renovated and constructed with IRRF funds to the Government of Iraq and its citizens.
This audit focused specifically on asset recognition and transfer policies and procedures
used by two organizations managing IRRF projects; the GRD and PCO. We will report
on other U.S. government organizations in future reports.
For a discussion of the audit scope and methodology, see Appendix A. For definitions of
the acronyms used in this report, see Appendix B. For a list of the audit team members,
see Appendix D.
2

Asset Recognition and Transfer Policies and
Procedures
Effective asset recognition and transfer requires that assets be properly accepted by the
U.S. government, accounted for, and then formally transferred to the Government of Iraq.
PCO-GRD officials told us they are in the process of developing, in coordination with the
Iraq Reconstruction Management Office and others, a common process and policy
facilitating the transfer of assets to the Government of Iraq and estimate that these
policies and plans will be completed by March 31, 2006, contingent upon the
Government of Iraq’s participation and concurrence.
Coordination of Iraqi Responsibility
Asset recognition and transfer is the final step in a process which should begin with
Government of Iraq involvement in the programming and design of the project and
continue through the inspection process and development and receipt of the contract
deliverables necessary for operations and maintenance of the completed project. The
final acceptance and transfer of the project assets should be the culmination of a
collaborative process between the appropriate United States and Government of Iraq
representatives. An effective transfer process will help GRD-PCO, in coordination with
others, prepare the Government of Iraq to sustain completed project assets after transfer.
In addition, proper recognition of the completed project assets will enable the
Government of Iraq to leverage those assets to obtain financing from world markets,
including the International Monetary Fund, World Bank, non-governmental organizations
and donor nations.
Asset recognition and turnover is important because the Government of Iraq needs to
plan for and fund infrastructure and sustainment of completed projects on a nation-wide
basis. This requires a comprehensive knowledge by all appropriate ministries of assets
being transferred to its control. According to a senior Iraq Reconstruction Management
Office official, an effective asset recognition and transfer program in the current Iraqi
political and security environment should include notification of the transfer to the
Ministry of Planning, Ministry of Finance, and appropriate operating ministry
(Electricity, Water, Oil, Health, Education, Transportation, Roads, Communications,
Justice, Interior and Defense) at the central government level in Baghdad.
The Ministry of Planning has final planning responsibility for all capital assets.
Recognition of transferred assets by the Ministry of Planning is necessary in order to
integrate them into a nation-wide infrastructure plan for future capital projects that will
best serve the people of Iraq. The Ministry of Finance is responsible for the overall Iraqi
budget. Recognition by the Ministry of Finance is necessary to assure adequate
budgeting for sustainability of the transferred assets. In addition, proper recognition of
the completed projects will enable the Ministry of Finance to leverage those assets to
obtain financing from world markets, including the International Monetary Fund, World
Bank, non-governmental organizations and donor nations.
Coordination of U.S. Responsibility
The GRD-PCO has developed standard operating procedures for transferring assets, but
these policies and procedures are geared towards the turnover of projects and facilities to
3

Iraqi government representatives at the local level. This was because the GRD-PCO saw
its role as limited to what was needed for successful transition of its infrastructure
projects to the Iraqis at the local system or facilities level. The GRD-PCO has written
procedures requiring Iraqi government involvement in the asset inspection and turnover
process, but lacks specific procedures requiring notification of the asset transfer to the
operating ministry headquarters in Baghdad or to the Ministry of Planning or Ministry of
Finance.
GRD-PCO officials also recognized the need to improve their policies and procedures for
closing contracts and transferring IRRF funded assets to the Government of Iraq. In
November 2005, the U.S. Army Corps of Engineers dispatched a team to Iraq to assess
the current contract close-out and asset-transfer processes. A senior GRD-PCO official
told us the team concluded that, in general, contracts were being closed out and assets
transferred by the local GRD field offices to the Government of Iraq in accordance with
GRD-PCO standard operating procedures. However, to enhance these processes as the
reconstruction effort matures, GRD-PCO plans to establish dedicated contract close out
teams to work at field offices and achieve greater consistency in the processes by
providing additional training to field office personnel.
The GRD-PCO also participates in two multi-agency working groups, the Information
Technology Working Group and the Asset Recognition and Transfer Team Working
Group, comprised of representatives from the principal agencies of the U.S. government
charged with the relief and reconstruction effort in Iraq. These agencies include, among
others, GRD-PCO, the Iraq Reconstruction Management Office, Multi-National Force-
Iraq, Multi-National Security Transition Command-Iraq, Joint Contracting Command-
Iraq/Afghanistan, and the U.S. Agency for International Development.
The Information Technology Working Group was formed in August 2005 to consolidate
all U.S. government funded and managed relief and reconstruction project information
across all sectors and organizations throughout Iraq into one database. The name for this
consolidated database is the Iraq Reconstruction Management System. One of the
intended goals for the Iraq Reconstruction Management System is the capability to turn
over to the Government of Iraq an archive of the total U.S. government’s relief and
reconstruction project information, which will help the Iraqi government in its budgeting
for sustainability of transferred facilities and future master planning.
In addition, the GRD-PCO is a member of the Asset Recognition and Transfer Team
Working Group which held its first formal meeting in December 2005. This Working
Group was started to build on earlier informal efforts by representatives from the Iraq
Reconstruction Management Office, Joint Contracting Command-Iraq/Afghanistan and
others to develop a common policy and process for all U.S. agencies to use in transferring
assets to the Government of Iraq. In September 2005, their effort resulted in a draft for
common policy and process, but further progress on the issue was limited until the formal
Working Group began work in December 2005.
The Working Group includes, among others, representatives from GRD-PCO, Iraq
Reconstruction and Management Office, U.S. Agency for International Development,
Multi-National Security Transition Command-Iraq, Multi-National Force-Iraq, and Joint
Contracting Command-Iraq/Afghanistan. The purpose of the Working Group is to
complete the development of a common policy and process for the represented agencies
to facilitate the legal, financial and logistical transfer of assets to the Government of Iraq.
In its written response to the draft of this audit report, GRD-PCO stated that they
anticipate having written policies and procedures in place by March 31, 2006, contingent
upon the Government of Iraq’s participation and concurrence.4

Conclusion
Current GRD-PCO policies and procedures are insufficient to assure the successful
recognition and transfer of assets to the Government of Iraq because they do not require
the provision for notification and sufficient information to the appropriate Iraqi Ministries
to enable adequate long-term, nation-wide planning for the integration and sustainability
of completed projects transferred to the Government of Iraq. To its credit, GRD-PCO has
acknowledged the problem and is working to resolve the asset recognition and transfer
issue.
Recommendations, Management Comments, and Audit
Response
We recommend that the Commanding General, Gulf Region Division, U.S. Army Corps
of Engineers direct the GRD-PCO, in coordination with the Iraq Reconstruction
Management Office, to complete the development of a common policy and process
facilitating the transfer of completed project assets to the Government of Iraq. That
process should, at a minimum, provide formal notification of the project asset transfer to
the Iraqi Ministry of Planning, Ministry of Finance, and the appropriate operating
ministry central headquarters (Electricity, Water, Oil, Health, Education, Transportation,
Roads, Communications, Justice, Interior and Defense). Notification should also include,
at a minimum, relevant data such as operation start date, asset cost, estimated short-term
and long-term sustainability costs, terms of warranties, and the location of maintenance
and systems manuals and instructions.
Management Comments. The Commanding General, Gulf Region Division, U.S. Army
Corps of Engineers, concurred with the finding and recommendations.
Audit Response. The management comments to the recommendations are fully
responsive.
Additional Observations
In the course of our review, we also noted that in addition to the IRRF, Iraq
reconstruction activities are also being funded by the Development Fund for Iraq, the
Commander’s Emergency Response Program, and the Commander’s Humanitarian
Relief and Reconstruction Program as well as various other U.S. government
administered funding sources. As with IRRF-funded projects, formal asset recognition
and transfer policies and procedures are similarly needed for the transfer of additional
billions of dollars worth of assets. We believe that the transfer of all assets developed or
funded by U.S. programs should be governed by a common set of policies and
procedures.
5

Appendix A. Scope and Methodology
We initiated this review in November 2005 (Project No. SIGIR-2005-21) to determine if
the Gulf Region Division (GRD) of the U.S. Army Corps of Engineers, and the Project
and Contracting Office (PCO) had adequate policies and procedures in place to manage
the transfer of assets to the Government of Iraq. We interviewed GRD-PCO
representatives, including the Director, Program Management and Integration Division.
We also interviewed representatives from the Joint Contracting Command-
Iraq/Afghanistan to discuss the legal requirements for closing out contracts and
transferring assets to a foreign government. We also interviewed representatives from
the Iraq Reconstruction Management Office to gather information about how the asset
transfer process affects planning and budgeting at the Iraqi central government level.
We reviewed GRD-PCO policies and procedures regarding the contract close-out and
asset transfer process. We did not visit GRD field offices to review completed contract
close-out and asset transfer documentation to determine if they were accomplished in
accordance with GRD-PCO policies and procedures. We plan to address this issue in a
future audit.
We conducted this audit from November 2005 through December 2005, in accordance
with generally accepted government auditing standards.
Use of Computer-Processed Data. We did not use computer-processed data to
perform this audit.
Prior Coverage. There have been no audits performed concerning the Iraq Relief and
Reconstruction Fund with the same or similar objectives as this audit.
6

Appendix B. Acronyms
GRD IRRF Gulf Region Division (U.S. Army Corps of Engineers)
Iraq Relief and Reconstruction Fund
PCO Project and Contracting Office
7

Appendix C. Report Distribution
Department of State
Secretary of State
Senior Advisor to the Secretary and Coordinator for Iraq
U.S. Ambassador to Iraq
Director, Iraq Reconstruction Management Office
Inspector General, Department of State
Department of Defense
Secretary of Defense
Deputy Secretary of Defense
Director, Defense Reconstruction Support Office
Under Secretary of Defense (Comptroller)/Chief Financial Officer
Deputy Chief Financial Officer
Deputy Comptroller (Program/Budget)
Inspector General, Department of Defense
Department of the Army
Assistant Secretary of the Army for Acquisition, Logistics, and Technology
Principal Deputy to the Assistant Secretary of the Army for Acquisition,
Logistics, and Technology
Deputy Assistant Secretary of the Army (Policy and Procurement)
Director, Project and Contracting Office
Commanding General, Joint Contracting Command – Iraq/Afghanistan
Assistant Secretary of the Army for Financial Management and Comptroller
Chief of Engineers and Commander, U.S. Army Corps of Engineers
Commanding General, Gulf Region Division
Auditor General of the Army
U.S. Central Command
Commanding General, Multi-National Force – Iraq
Commanding General, Multi-National Security Transition Command – Iraq
Commander, Joint Area Support Group – Central
Other Defense Organizations
Director, Defense Contract Audit Agency
8

Other Federal Government Organizations
Director, Office of Management and Budget
Comptroller General of the United States
Inspector General, Department of the Treasury
Inspector General, Department of Commerce
Inspector General, Department of Health and Human Services
Inspector General, U.S. Agency for International Development
Mission Director – Iraq, U.S. Agency for International Development
Congressional Committees and Subcommittees, Chairman and
Ranking Minority Member
U.S. Senate
Senate Committee on Appropriations
Subcommittee on Defense
Subcommittee on State, Foreign Operations and Related Programs
Senate Committee on Armed Services
Senate Committee on Foreign Relations
Subcommittee on International Operations and Terrorism
Subcommittee on Near Eastern and South Asian Affairs
Senate Committee on Homeland Security and Governmental Affairs
Subcommittee on Federal Financial Management, Government Information and
International Security
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia
U.S. House of Representatives
House Committee on Appropriations
Subcommittee on Defense
Subcommittee on Foreign Operations, Export Financing and Related Programs
Subcommittee on Science, State, Justice and Commerce and Related Agencies
House Committee on Armed Services
House Committee on Government Reform
Subcommittee on Management, Finance and Accountability
Subcommittee on National Security, Emerging Threats and International
Relations
House Committee on International Relations
Subcommittee on Middle East and Central Asia
9

Appendix D. Audit Team Members
This audit report was prepared and the audit work was conducted under the
direction of Joseph T. McDermott, the Assistant Inspector General for Auditing,
Office of the Special Inspector General for Iraq Reconstruction. The staff members
who contributed to the report include:
Glenn Furbish
Robert Gabriel
John Morrell
10

Management Comments
Commanding General, Gulf Region Division, U.S.
Army Corps of Engineers
11

12