Audit
Report
Cost-to-Complete Estimates and
Financial Reporting for the Management of the
Iraq Relief and Reconstruction Fund
Report No. SIGIR-05-011 July 26, 2005
Office of the Special Inspector General for Iraq Reconstruction

SP E CIAL INSPECT O R GE NE RAL F O R IRAQ RE CONST RUCT ION
July 26, 2005
MEMORANDUM FOR DIRECTOR, IRAQ RECONSTRUCTION MANAGEMENT
OFFICE
DIRECTOR, PROJECT AND CONTRACTING OFFICE
SUBJECT: Cost-to-Complete Estimates and Financial Reporting for the Management of the
Iraq Relief and Reconstruction Fund (Report No. SIGIR-05-011)
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, 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 the comments from the Acting Director, Iraq Reconstruction Management
Office, and the Director, Project and Contracting Office, when preparing the final report.
We appreciate the courtesies extended to the staff. For additional information on this report,
please contact Mr. James P. Mitchell at jim.mitchell@sigir.mil or at (703) 428-1100. For the
report distribution, see Appendix C.
Stuart W. Bowen, Jr.
Inspector General
400 Army Navy Drive • Arlington, Virginia 22202

Office of the Special Inspector General
For Iraq Reconstruction
Report No. SIGIR-05-011 (Project No. D2005-DCPAAI-0004.1)
July 26, 2005
Cost-to-Complete Estimates and Financial Reporting for the
Management of the Iraq Relief and Reconstruction Fund
Executive Summary
Introduction. In March 2005, we initiated an audit to determine whether the information
systems used by U.S. government organizations resulted in the effective management of
Iraq Relief and Reconstruction Fund programs. This audit report is the first of a series of
reports addressing management controls over information systems used by U.S.
government organizations within Iraq to manage Iraq Relief and Reconstruction Fund
programs. This report discusses the Project and Contracting Office systems used to
develop cost-to-complete estimates for Iraq Relief and Reconstruction Fund projects and
report financial obligation data.
In November 2003, $18.6 billion was appropriated by the Congress under the Emergency
Supplemental Appropriations Act for Defense and the Reconstruction of Iraq and
Afghanistan (Public Law 108-106). The law created the Iraq Relief and Reconstruction
Fund, of which $18.4 billion of the appropriation was designated for Iraq.
Section 2207 of Public Law 108-106, November 6, 2003, required the Director of the
Office of Management and Budget, in consultation with the Administrator of the
Coalition Provisional Authority, to submit a report to Congress every three months that
updated the proposed uses of all Iraq Relief and Reconstruction Fund funds on a project-
by-project basis, including estimates of the costs required to complete each project. The
Section 2207 Report on Iraq Relief and Reconstruction (Section 2207 Report) is now the
responsibility of the Iraq Reconstruction Management Office due to the dissolution of the
Coalition Provisional Authority on June 28, 2004.
The Iraq Reconstruction Management Office collates the Iraq Relief and Reconstruction
Fund management information from all agencies apportioned Iraq Relief and
Reconstruction Fund funds, primarily the Department of State, the Department of
Defense, and the U.S. Agency for International Development and prepares the Section
2207 Report for transmission by the Department of State to the Congress. The Project
and Contracting Office prepares the Secretary of the Army Report, which is incorporated
into the Section 2207 Report, consolidating Department of Defense information for the
reporting of Iraq Relief and Reconstruction Fund funds.
Objective. The specific objective of this first audit in this series was to determine
whether those information systems and the data contained in those systems used by the
Iraq Reconstruction Management Office and the Project and Contracting Office to
monitor Iraq Relief and Reconstruction Fund projects were adequately reliable and
sufficiently coordinated among those organizations to ensure the accurate, complete, and
timely reporting to senior government officials and the Congress on the use of Iraq Relief
and Reconstruction Fund funds.
i

Results. The Section 2207 Report for April 2005, compiled by the Iraq Reconstruction
Management Office, did not meet the congressionally mandated requirement to include
estimates, on a project-by-project basis, of the costs required to complete each project.
As a result, without current and accurate cost-to-complete data, it is difficult to determine
whether funds are available to complete ongoing Iraq Relief and Reconstruction Fund
projects and for the initiation of new projects (finding A).
The accuracy of the $7.9 billion of Department of Defense obligations reported on the
Secretary of the Army Report issued March 27, 2005, could not be verified. Further,
information that was incorporated into the Section 2207 Report, including the Secretary
of the Army Report, was not required to be verified for accuracy by the U.S. government
organizations providing that information. As a result, our audit was unable to verify the
accuracy of the data submitted through the Secretary of the Army Report to Iraq
Reconstruction Management Office. Further, without a requirement to verify the
submitted data, U.S. government organizations could submit unverified data to Iraq
Reconstruction Management Office for inclusion in the Section 2207 Report. Finally,
because no verification was required or performed by the Project and Contracting Office,
including information submitted by other organizations through the Project and
Contracting Office, there is no assurance that Congress was provided valid information
through the Section 2207 Report that is needed to exercise oversight of the reconstruction
efforts in Iraq (finding B).
Management Actions. During our audit, the Iraq Reconstruction Management Office
initiated procedures for preparing and reporting cost-to-complete estimates and will begin
reporting that information in the Section 2207 Report for September 2005. On June 10,
2005, the Project and Contracting Office began reporting cost-to-complete estimates to
the Iraq Reconstruction Management Office.
Recommendations. We recommended that the Director, Iraq Reconstruction
Management Office require that current and best estimate for cost-to-complete
information be provided for inclusion in the Section 2207 Report on Iraq Relief and
Reconstruction (Recommendation A.2.). We also recommended that the Director, Iraq
Reconstruction Management Office require that the data provided by U.S. government
organizations responsible for managing the Iraq Relief and Reconstruction Fund for the
purposes of inclusion in the Section 2207 Report be verified for accuracy before
submission (Recommendation B.2.).
Further, we recommended that the Director, Project and Contracting Office:
• Complete the integration of the U.S. Army Corps of Engineers Financial
Management System database with the Project and Contracting Office Oracle Project
Accounting interface (Recommendation A.1.a.)
• Finalize and update, on a project-by-project basis, the accurate and complete costs
required to complete each project (Recommendation A.1.b.)
• Ensure that management controls over the Secretary of the Army Report, such as
reconciliation procedures, result in verifying the accuracy of the submitted data
(Recommendation B.1)
ii

Management Comments and Audit Response. The Acting Director, Iraq
Reconstruction Management Office, concurred with Recommendation A.2. We agreed.
The Acting Director, Iraq Reconstruction Management Office, also concurred with
Recommendation B.2. but qualified his concurrence with an alternative approach to the
recommended action. We agreed and changed our report accordingly.
The Director, Project and Contracting Office, concurred with Recommendations A.1.a.
and A.1.b. We agreed. The Director, Project and Contracting Office, did not concur with
Recommendation B.1. and provided reasons for the nonconcurrence. We agreed and
changed our report accordingly.
We plan to perform follow-up audits of the estimates of cost-to-complete prepared by the
Project and Contracting Office. We also plan to perform follow-up audits on the
accuracy of the data reported in the Secretary of the Army Report and the Section 2207
Report and on management controls over the data reported.
iii

Table of Contents
Executive Summary i
Introduction
Background 1
Objective 2
Findings
A. Undeveloped Cost-to-Complete Estimates for Iraq Reconstruction Projects 3
B. Accuracy of the Secretary of the Army Report 6
Appendixes
A. Scope and Methodology 10
B. Acronyms 11
C. Report Distribution 12
D. Audit Team Members 14
Management Comments
Director, Project and Contracting Office – Iraq 15

Introduction
Background
In March 2005, we initiated an audit to determine whether the information systems used
by U.S. government organizations resulted in the effective management of Iraq Relief
and Reconstruction Fund (IRRF) programs. This audit report is the first of a series of
reports addressing management controls over information systems used by U.S.
government organizations within Iraq to manage IRRF programs. This report discusses
the Project and Contracting Office (PCO) systems used to develop cost-to-complete
estimates for IRRF projects and report financial obligation data.
Appropriation for the Iraq Relief and Reconstruction Fund. In November 2003,
$18.6 billion was appropriated by the Congress under the Emergency Supplemental
Appropriations Act for Defense and the Reconstruction of Iraq and Afghanistan (Public
Law 108-106). The law created the IRRF, of which $18.4 billion of the appropriation
was designated for Iraq.
Project and Contracting Office. National Security Presidential Directive 36, “United
States Government Operations in Iraq,” May 11, 2004, established the PCO. National
Security Presidential Directive 36 directed the PCO to provide acquisition and project
management support with respect to activities in Iraq. On June 22, 2004, the Deputy
Secretary of Defense established the PCO within the Department of the Army and
directed the PCO to provide support related to the close-out of the Coalition Provisional
Authority. The PCO was made responsible for all activities associated with asset,
financial, program, and project management and for managing both construction and
non-construction activities
Corps of Engineers Financial Management System. The PCO uses the U.S. Army
Corps of Engineers Financial Management System (CEFMS) for IRRF financial
accounting. The CEFMS was designed as a single entry system so that transactions
update the general ledger and subsidiary ledgers in real time. In CEFMS, as in other
financial accounting systems, general ledger amounts should be in agreement with and
supported by subsidiary ledgers and transactions detail amounts.
Cost-to-Complete Estimates. Developing a cost-to-complete estimate is an integral
component of cost management. Cost-to-complete estimates should be made on an
iterative basis, taking into account the reasons for variances from initial estimates. Cost-
to-complete estimates should be developed as follows:
• Determine the progress toward contract completion to date
• Determine the cost of the contract work completed to date
• Determine the reasons for variances from initial estimates
• Estimate the amount of work remaining to be completed
• Estimate the cost of the work remaining to be completed
Management Information Systems. Public Law 108-106 provided $50 million to
develop and deploy management information systems capable of satisfying congressional
expectations. According to the PCO chief technology officer, approximately $16 million
of the $50 million was used to develop what is called the “PCO-solution.” The PCO-
solution was designed and developed based upon analysis conducted by the Naval
1

Facilities Engineering Command and the U.S. Army Corps of Engineers. The analysis
reviewed various configurations of construction program management software
applications to determine which application would be best suited for use in the
management of construction projects located in the operating environment in Iraq. The
Office of the Special Inspector General for Iraq Reconstruction is currently reviewing the
development and operational functionality of the PCO-solution and will determine how
the remaining $34 million was used to fulfill the reporting and monitoring requirements
of Public Law 108-106.
Objectives
The overall objective of this audit was to determine whether information systems used by
U.S. government organizations result in the effective management of IRRF programs.
An additional objective was to determine whether those information systems used by
U.S. government organizations were adequately reliable and sufficiently coordinated
among those organizations to ensure accurate, complete, and timely reporting to senior
government officials and the Congress on the use of IRRF funds.
The specific objective of this first audit in this series was to determine whether those
information systems and the data contained in those systems used by the Iraq
Reconstruction Management Office (IRMO) and the PCO to monitor IRRF projects were
adequately reliable and sufficiently coordinated among those organizations to ensure the
accurate, complete, and timely reporting to senior government officials and the Congress
on the use of IRRF funds.
We will address the overall objective in subsequent audits. Specifically, we plan to
perform follow-up audits of the estimates of cost-to-complete prepared by the PCO. We
also plan to perform follow-up audits on the accuracy of the data reported in the
Secretary of the Army Report and the Section 2207 Report and on management controls
over the data reported.
For a discussion of the audit scope, methodology, and a summary of prior coverage, 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

A. Undeveloped Cost-to-Complete Estimates for
Iraq Reconstruction Projects
The Section 2207 Report on Iraq Relief and Reconstruction (Section 2207 Report) for
April 2005, compiled by the IRMO, did not meet the congressionally mandated
requirement to include estimates, on a project-by-project basis, of the costs required to
complete each project. The IRMO did not report the cost-to-complete data because PCO
project management personnel did not complete the integration of program and financial
data systems and did not develop the required cost-to-complete estimates for the Section
2207 Report. As a result, without current and accurate cost-to-complete data, it is
difficult to determine whether funds are available to complete ongoing IRRF projects and
for the initiation of new projects.
Section 2207 Report on Iraq Relief and Reconstruction
Section 2207 of Public Law 108-106, November 6, 2003, required the Director of the
Office of Management and Budget, in consultation with the Administrator of the
Coalition Provisional Authority, to submit a report to Congress every three months that
updated the proposed uses of all IRRF funds on a project-by-project basis, including
estimates of the costs required to complete each project. The Section 2207 Report is now
the responsibility of the IRMO due to the dissolution of the Coalition Provisional
Authority on June 28, 2004. The IRMO collates the information from the various
organizations managing the IRRF and prepares the report for transmission by the
Department of State to the Congress.
At the time our audit work was completed, the most recent Section 2207 Report prepared
by IRMO was released on April 6, 2005. The Section 2207 Report brings together IRRF
management information from all agencies apportioned IRRF funds, primarily the
Department of State, the Department of Defense, and the U.S. Agency for International
Development. The PCO prepares the Secretary of the Army Report, which is
incorporated into the Section 2207 Report, by consolidating Department of Defense
information for the reporting of IRRF funds.
Development of Cost-to-Complete Estimates by PCO
The Section 2207 Report on for April 2005, compiled by the IRMO, did not meet the
congressionally mandated requirement to include estimates, on a project-by-project basis,
of the costs required to complete each project. The IRMO did not report the cost-to-
complete data because PCO project management personnel did not complete the
integration of program and financial data systems and did not develop the required cost-
to-complete estimates for the Section 2207 Report. PCO officials cited a number of
constraints that hindered the development of cost-to-complete estimates including:
difficulty integrating data among financial and project management information systems,
incomplete program management data, and rapidly rising security costs.
Systems Integration Issues at the Project and Contracting Office. PCO management
has experienced difficulties integrating financial and program management data across its
management information systems infrastructure. For example, the PCO Oracle Project
Accounting interface with the CEFMS database has not been completed because there is
3

not a compatible common project code identifier that the two systems share. The
inability to share data has negatively impacted the PCO ability to link the financial
information in CEFMS to program information. Consequently, it is difficult for project
managers to prepare cost-to-complete estimates.
Program Management Data at the Project and Contracting Office. PCO program
management officials cited incomplete program management data as an impediment to
developing cost-to-complete estimates. As of March 31, 2005, the largest
151 construction projects totaled approximately $4.4 billion. PCO officials noted that 84
of those projects totaling approximately $2 billion were planned but realistic targeted
costs and baseline schedules were not established. Realistic targeted costs and baseline
schedules for use in managing and forecasting costs for the remaining 67 projects totaling
approximately $2.4 billion had been established.
Security Costs at the Project and Contracting Office. Another impediment cited by
PCO program management officials was the rapid growth in the cost to provide project
security from insurgent activity. PCO management advised that, as of March 31, 2005,
the estimated cost for project security had risen from the original program baseline of
$1.2 billion to more than $2 billion.
Management Actions
During our audit, IRMO officials initiated procedures for preparing and reporting cost-to-
complete estimates. On June 7, 2005, IRMO officials advised us that IRMO will begin
reporting cost-to-complete estimates in the Section 2207 Report for September 2005. On
June 10, 2005, PCO officials began reporting cost-to-complete estimates to IRMO. We
were advised by the PCO Chief Information Officer and Director of Information
Technology that the U.S. Army Corps of Engineers is developing a software solution that
will link the PCO Oracle Project Accounting interface with the CEFMS database. This is
to provide integration of financial and project data that will improve PCO abilities to
generate cost-to-complete estimates. The estimated completion date for the interface is
August 31, 2005.
In response to our draft audit report, the PCO officials stated that in coordination with
IRMO and effective June 2005, it had fully implemented the procedures that support the
monthly reporting requirement to develop and submit updated cost-to-complete estimates
for Sector Project Codes and related construction projects. PCO officials stated they have
provided the cost-to-complete estimates for each project (defined as a major task order)
to IRMO.
Conclusion
Estimating cost-to-complete for each project is a challenging but congressionally-
mandated requirement in Iraq. Progress on reconstruction projects is sometimes difficult
to determine. The lack of adequate automation support also adds to the difficulty.
However, decision-makers need an accurate picture of funds required to complete
projects currently underway. Without current and accurate cost-to-complete data, it is
difficult to determine whether funds are available to complete ongoing IRRF projects and
for the initiation of new projects.
4

Recommendations, Management Comments, and Audit
Response
A.1. We recommend that the Director, Project and Contracting Office:
a. Complete the integration of the U.S. Army Corps of Engineers Financial
Management System database with the Project and Contracting Office Oracle
Project Accounting interface.
Management Comments. The Director, PCO, concurred with our recommendation.
The Director, PCO, stated that he anticipates completion of the development work of the
PCO component of this interface by August 31, 2005.
Audit Response. We agreed.
b. Finalize and update, on a project-by-project basis, the current and best
estimate of costs required to complete each project.
Management Comments. The Director, PCO, concurred with our recommendation.
The Director, PCO, stated that the PCO will continue its efforts to generate cost-to-
complete estimates and that the PCO has already provided the first of the information to
the interested parties.
Audit Response. We agreed.
A.2. We recommend that the Director, Iraq Reconstruction Management Office
require that current and best estimate for cost-to-complete information be provided
for inclusion in the Section 2207 Report on Iraq Relief and Reconstruction.
Management Comments. The Acting Director, IRMO, concurred with the
recommendation through informal written comments. The Acting Director, IRMO,
stated that the IRMO concurred as long as it could include the cost-to-complete
information as a separate report with its Section 2207 Report submittal due to the
sensitivity of the detailed information on projects.
Audit Response. We agreed.
5

B. Accuracy of the Secretary of the Army Report
The accuracy of the $7.9 billion of Department of Defense obligations reported on the
Secretary of the Army Report issued March 27, 2005, could not be verified. Further,
information that was incorporated into the Section 2207 Report, including the Secretary
of the Army Report, was not required to be verified for accuracy by the U.S. government
organizations providing that information.
This occurred because PCO finance personnel could not provide transaction level details
of obligations that were reconcilable to obligations contained in the Secretary of the
Army Report and the Section 2207 Report, and because the IRMO had not established a
requirement that submitted data for the Section 2207 Report be verified before
submission.
As a result, our audit was unable to verify the accuracy of the data submitted through the
Secretary of the Army Report to the IRMO. Further, without a requirement to verify the
submitted data, U.S. government organizations could submit unverified data to the IRMO
for inclusion in the Section 2207 Report. Finally, because no verification was required or
performed by the PCO, including information submitted by other organizations through
the PCO, there is no assurance that the Congress was provided valid information through
the Section 2207 Report that is needed to exercise oversight of the reconstruction efforts
in Iraq.
Obligation Transaction Data
We requested obligation transaction data to support amounts reported on the March 27,
2005, Secretary of the Army Report. The PCO provided an obligation transaction listing
to us, retrieved from the CEFMS, which at the time it was provided was to be
representative and reconcilable to the Secretary of the Army Report. During our audit, it
was determined that the data provided, although not significantly different, could not be
reconciled to the reported obligation amounts in the Secretary of the Army Report.
Obligation Transaction Listing
The accuracy of the $7.9 billion of Department of Defense obligations reported on the
Secretary of the Army Report issued March 27, 2005, could not be verified. This
occurred because PCO finance personnel could not provide transaction level details of
obligations that were reconcilable to obligations contained in the Secretary of the Army
Report and the Section 2207 Report
Obligations Shown in the Secretary of the Army Report and the Obligation
Transaction Listing. Our review showed that there were differences between the
obligations shown in the Secretary of the Army Report and the obligation transaction
listing. The table shows the differences in the amounts reported in the Secretary of the
Army Report and the amounts determined from the obligation transaction listing.
6

Differences Between the Obligations Shown in the Secretary of the Army Report
and the Obligation Transaction Listing
Construction Non-Construction Overhead Totals
Secretary of the
$5,056,061,174 $2,609,260,401 $254,834,868 $7,920,156,443
Army Report
(a)
Obligation
Transaction Listing
$4,938,810,175 $2,355,972,039 $495,012,835 $7,789,795,049
(b)
Dollar Amount of
$117,250,999 $253,288,362 ($240,177,967) $130,361,394
Differences
(a-b = c)
Percent Amount of
2.32% 9.71% (94.25)% 1.65%
Differences
(c/a)
The Project and Contracting Office Position. We requested transactional data from
the PCO to support amounts reported on the March 27, 2005, Secretary of the Army
Report. The transactional data that was provided by the PCO for our review was not
reconcilable to the Secretary of the Army Report and consequently did not meet our audit
objectives. We were advised by PCO finance personnel that the CEFMS did not have a
standard management report to support such a request but that CEFMS programmers had
been asked to develop a program to provide the requested information.
When we inquired about these differences, PCO finance personnel advised that:
A nominal difference exists between the SecArmy Report and the
detailed transaction listing supplied to the AFAA [sic] auditors in
Baghdad. The Sec Army Report reflects valid, supportable, and
certifiable figures that are obtained from the Corps of Engineers
Financial Management System (CEFMS). The detail transaction listing
is an internal analysis tool generated from CEFMS intended to be used
by resource managers to identify material increases/decreases in
sector/program accounts. The detail transaction report was never
created to be used as a certifiable report. It is a reconciliation tool.
CEFMS does not presently have available a comprehensive report that
lists every individual transaction rolling up to AMSCOs [Army
Management Structure Code], allotment serial numbers and
appropriations, as such a report has never been required to reconcile
CEFMS internally, though HQUSACE [Headquarters, U.S. Army
Corps of Engineers] could certainly program such a report. CEFMS
was designed as a ‘one entry updates all applicable general ledgers and
subsidiary ledgers’, and almost all transactions are updated in real time.
Reconciliation routines are run each night to insure the general ledger
and subsidiary ledgers are reconciled.
The detail transaction report we provided the auditors was never
represented as a transaction file that reconciles exactly Sec Army data.
The auditors needed a tool to select obligation transactions to test, we
provided this, however not every transaction will be in the provided
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data. For example labor, cost transfers, and interest payments would
not be in the data set provided – our data set would only capture
transactions linked to an undelivered order obligation document
(emphasis added in bold). CEFMS cost transfers are accomplished at
the Work Item Code (WIC) level, and are not attached to obligations.
Interest payments work the same way, and labor transactions do not
become obligations until t&a [time and attendance] data is signed,
going from certified commitment to accrued expenditure, not tied to an
undelivered order. All these transactions are captured on the SecArmy
Report but not on the detailed obligation transaction report.
When the SecArmy and Transaction Listing reports are compared at
summary level, there is less than a quarter percent difference. This is a
reasonable difference that provides a high level of assurance that the
funds are being properly accounted for.
We plan to perform follow-up audits of the accuracy of the data reported in the Secretary
of the Army Report and on management controls over the data reported.
Verification of Submitted Data
The information that was incorporated into the Section 2207 Report, including the
Secretary of the Army Report, was not required to be verified for accuracy by the U.S.
government organizations providing that information. This occurred because IRMO had
not established a requirement that submitted data for the Section 2207 Report be verified
before submission.
Certification of Data. According to PCO officials, the PCO is not required to certify the
accuracy of the submitted data that is input into the Secretary of the Army Report.
Further, according to PCO officials, the Secretary of the Army Report is compiled by the
PCO from various Department of Defense organizations that manage and utilize funds
obtained through the Iraq Relief and Reconstruction Fund.
Iraq Reconstruction Management Office Position. IRMO officials provided informal
comments to our draft report and stated that they have management controls in place to
ensure accurate data is provided to them on a weekly basis. However, those officials also
stated that the Secretary of Army Report is not an IRMO report and that they do not
know what management controls are in place for this report. Given that the Secretary of
the Army Report is the basis for the information that is provided to IRMO for the Section
2207 Report, we asked how IRMO ensured that this data were validated for accuracy.
Officials at IRMO stated that they only collated and prepared the Section 2207 Report for
transmission by the Department of State to Congress. When IRMO officials were asked
if they required that the information they reported to Congress be validated, they said no
but agreed that it should be and would request that the data being provided to them for
the purposes of the Section 2207 Report be verified for accuracy.
Reconciliation of the Submitted Data
We do not believe that the PCO can assert that “The Secretary of the Army Report
reflects valid, supportable, and certifiable figures that are obtained from the Corps of
Engineers Financial Management System (CEFMS)” when it can neither provide support
for such a statement nor reconcile the reported figures to detailed transactions.
8

Further, we also do not believe that the PCO can argue that “The detail transaction report
was never created to be used as a certifiable report” and that “The detail transaction
report we provided the auditors was never represented as a transaction file that reconciles
exactly Sec Army data” and simultaneously maintain that “When the Secretary of the
Army and Transaction Listing reports are compared at summary level, there is less than a
quarter percent difference. This is a reasonable difference that provides a high level of
assurance that the funds are being properly accounted for.” We find these statements to
be contradictory.
Finally, we do not understand the PCO position that “The detail transaction report is an
internal analysis tool generated from CEFMS intended to be used only by resource
managers to identify material increase/decreases in sector/program accounts” and yet
state “it is a reconciliation tool” when it cannot be reconciled to the data reported for the
Secretary of the Army Report.
Conclusion
We were unable to verify the accuracy of the data submitted through the Secretary of the
Army Report to the IRMO. Further, without a requirement to verify the submitted data,
U.S. government organizations could submit unverified data to the IRMO for inclusion in
the Section 2207 Report. Finally, because no verification was required or performed by
the PCO, including information submitted by other organizations through the PCO, there
is no assurance that the Congress was provided valid information through the Section
2207 Report that is needed to exercise oversight of the reconstruction efforts in Iraq.
Recommendations, Management Comments, and Audit
Response
B.1. We recommend that the Director, Project and Contracting Office ensure that
management controls over the Secretary of the Army Report, such as reconciliation
procedures, result in verifying the accuracy of the submitted data.
Management Comments. The Director, PCO, did not concur with our recommendation.
The Director, PCO, stated that the Secretary of the Army Report is a weekly update for
Army management that was never intended to be a certified report. The Director, PCO,
further stated that because the PCO compiles data which is generated from multiple
Department of Defense accounting systems, certification of the report is not possible by
the PCO.
Audit Response. We agreed and changed our report accordingly.
B.2. We recommend that the Director, Iraq Reconstruction Management Office
require that the data provided by U.S. government organizations responsible for
managing the Iraq Relief and Reconstruction Fund for the purposes of inclusion in
the Section 2207 Report be verified for accuracy before submission.
Management Comments. The Acting Director, IRMO, concurred with the
recommendation through informal written comments. The Acting Director, IRMO,
stated that the data provided to them does not have to be certified but that the accuracy of
the data should be verified by the various organizations submitting the data to IRMO.
Audit Response. We agreed and changed our report accordingly.
9

Appendix A. Scope and Methodology
We interviewed management personnel within the Iraq Reconstruction Management
Office (IRMO) and the Project and Contracting Office (PCO) and reviewed
organizational charts and relevant program memoranda to gain an understanding of the
entities’ operations to include their organization, management style, and the internal and
external factors influencing their operating environments.
We reviewed the Section 2207 Report on Iraq Relief and Reconstruction issued to the
Congress on April 6, 2005, for completeness. We attempted to reconcile the reported
amounts to supporting worksheets provided by the PCO. The PCO provided the
Department of Defense Iraq Relief and Reconstruction Fund (IRRF) program financial
data as reported in the Secretary of the Army Report issued March 27, 2005.
We performed our audit in Baghdad, Iraq, at the Presidential Palace, where we
interviewed PCO finance and senior management personnel and IRMO budget and
operations personnel and reviewed IRRF program and financial data, and at the PCO
Annex, where we met with PCO project management and information technology
personnel and reviewed project management data.
We conducted this performance audit from March through July 2005, in accordance with
generally accepted government auditing standards.
Use of Computer-Processed Data. We performed tests to verify automated financial
data maintained by the PCO through a comparison of reported balances to detail
transactions records and by comparing detail transactions to source documents. We also
utilized computer assisted audit techniques to identify potential duplicate obligations.
The audit results indicated that the detailed transaction records provided to us by the PCO
were not representative of data input to the summary PCO records and, therefore, not
valid or reliable for verification by audit.
Prior Coverage. There were no audits performed in the past 5 years with the same or
similar objectives as this audit.
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Appendix B. Acronyms
CEFMS U.S. Army Corps of Engineers Financial Management System
IRMO Iraq Reconstruction Management Office
IRRF Iraq Relief and Reconstruction Fund
PCO Project and Contracting Office
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Appendix C. Report Distribution
Department of State
Secretary of State
Senior Advisor/Coordinator for Iraq
U.S. Ambassador to Iraq
Director, Iraq Reconstruction Management Office
Inspector General, Department of State
Department of Defense
Deputy Secretary of Defense
Director, Defense Reconstruction Support Office-Iraq
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
Assistant Secretary of the Army for Financial Management and Comptroller
Auditor General of the Army
Other Defense Organizations
Director, Defense Contract Audit Agency
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
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Congressional Committees and Subcommittees, Chairman and
Ranking Minority Member
U.S. Senate
Senate Committee on Appropriations
Subcommittee on Defense
Subcommittee on Foreign Operations
Senate Committee on Armed Services
Senate Committee on Foreign Relations
Subcommittee on Near Eastern and South Asian Affairs
Subcommittee on International Operations and Terrorism
Senate Committee on Homeland Security and Governmental Affairs
Subcommittee on Government Efficiency and Financial Management
Subcommittee on Financial Management, the Budget, and International Security
U.S. House of Representatives
House Committee on Appropriations
Subcommittee on Defense
Subcommittee on Foreign Operations, Export Financing and Related Programs
House Committee on Armed Services
House Committee on International Relations
Subcommittee on Middle East and Central Asia
House Committee on Government Reform
Subcommittee on Government Efficiency and Financial Management
Subcommittee on National Security, Emerging Threats and International Relations
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Appendix D. Audit Team Members
The Office of the Assistant Inspector General for Auditing, Office of the Special
Inspector General for Iraq Reconstruction, prepared this audit report. The staff members
who contributed to the report include:
Timothy Baum
James Carrera
Dan Haigler
James Kojak
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