IMAGE: DynCorp officer in Iraq
Patrick Baz  /  AFP - Getty Images FILE
An International Police Liaison Officer hired by the U.S. security company DynCorp walks through the rubble of a police station in the Iraqi city of Fallujah on Oct. 20.
By Investigative producer
NBC News
updated 10/23/2007 6:49:41 PM ET 2007-10-23T22:49:41

Just as the State Department is trying to work its way clear of its Blackwater troubles, a scathing federal audit released Tuesday exposes a glaring lapse in oversight of another federal contractor in Iraq, DynCorp. DynCorp was supposed to train and equip Iraqi police, but the report says the State Department doesn’t know how most of the money in the billion-plus-dollar program was spent.

The State Department "does not know specifically what it received for most of the $1.2 billion in expenditures under its DynCorp contract for the Iraqi Police Training Program," the audit says. The federal watchdogs, with the Special Inspector General for Iraq Reconstruction, or SIGIR, said that they even had to suspend their audit because there wasn't enough data to check the books, which were in “disarray.”

DynCorp’s contract was part of the U.S. strategy to arm and train a new Iraqi police force in the wake of the 2003 invasion. Training the police was a key part of the Bush administration’s efforts in Iraq. The training was considered crucial because police are often unable to withstand insurgent attacks, and are considered penetrated by various militias.  

DynCorp’s contract, issued in February 2004, entailed broad responsibilities, including equipping, housing and security for police training. It was overseen by the State Department’s Bureau of International Narcotics and Law Enforcement Affairs, or INL, which also assigned the company to handle police training in Afghanistan.

The program in Iraq has been riddled with problems. Stuart Bowen, the special inspector general, said at first the State Department had only two officials to administer the massive contract. He said the department wasn’t equipped to handle it. “They bit off more than they could chew,” Bowen said in an interview. “This is far and away the largest contract they have ever assigned in the history of the organization.”

‘Ripe for waste and fraud’
Bowen’s auditors said the environment was “ripe for waste and fraud.”  DynCorp's invoices had numerous problems, such as duplicate payments. Auditors also reported on the "the purchase of a $1.8 million X-ray scanner that was never used, and payments of $387,000 to house DynCorp officials in hotels in Iraq rather than in existing living facilities." (A State Department spokesperson disputes that, in part, and says the unused X-ray scanner and hotels were in Afghanistan rather than Iraq.) Bowen says the State Department says it will try to organize its books so that the auditors can come back at the end of the year and try again.

But with invoices paid without being checked, and with no one tracking what they were for, auditors say it's impossible to determine what money was spent on. The State Department admits that it was unable to reconcile the books for the entire period of February 2004 to October 2006 but says since then it has made tremendous improvements. A spokesperson disputes that “most” of the $1.2 billion was not accounted for and suggests it should be “some" rather than "most." The spokesperson said that "INL is committed to considerable improvement. We've already made considerable staffing and process changes to improve our contract oversight."

Some costs renegotiated
But in an indication of the scale of the problem, the State Department says it has renegotiated some old invoices with DynCorp, and the company has dropped its price by about $116 million.

In a letter responding to the audit, the Acting Assistant Secretary of the State Department’s INL wrote that it “will take three to five years” to “fully review and validate invoices” for pre-October 2006 work. The letter points out that there have been vast improvements. Bowen, the IG, agreed.

DynCorp spokesman Greg Lagana admitted Tuesday there were invoicing problems, blaming human error and a "systems problem." Still, he said, "the mistakes on a program like this are relatively few," considering its size.

Meanwhile the State Department continues to try to sort out another DynCorp debacle identified in a separate audit earlier this year — the purchase of hundreds of residential trailers in Baghdad. Bowen says the trailers, years after their purchase, are all in storage in the Baghdad airport complex, unoccupied.  On top of that, the company spent $4.2 million on "unauthorized work" — that is, on projects that were not approved by the State Department. That work included building a U.S. taxpayer-funded Olympic-sized swimming pool near the Adnan Palace in Iraq even though the State Department never approved it.

The new audit is sure to raise new concerns. DynCorp, in addition to the police training, is one of three security companies awarded the Worldwide Personal Protective Security contract, under which it works with Blackwater and a company named Triple Canopy providing bodyguard services for diplomats. Currently DynCorp has received only $38 million under the program, while Blackwater has received $470 million. If Blackwater is indeed banned from Iraq, security experts expect a lot of its business may go to DynCorp.

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