updated 6/22/2004 10:12:23 AM ET 2004-06-22T14:12:23

United Nations-mandated auditors have sharply criticized the US occupation authority for the way it has spent more than $11 billion in Iraqi oil revenues and say they have faced "resistance" from coalition officials. 

In an interim report, obtained by the Financial Times, KPMG says the Development Fund for Iraq, which is managed by the US-led Coalition Provisional Authority and channels oil revenue into reconstruction projects, is "open to fraudulent acts". 

The auditors criticize the CPA's bookkeeping and warn: "The CPA does not have effective controls over the ministries' spending of their individually allocated budgets, whether the funds are direct from the CPA or via the ministry of finance." 

The findings come after US complaints about the UN's administration of the oil-for-food program under Saddam Hussein. 

According to the CPA, the Development Fund for Iraq has taken in $20. 2 billion since last May and has disbursed $11.3 billion, with $4.6 billion left in outstanding commitments. 

One adviser to a member of the recently disbanded Iraqi Governing Council said the report raised the fear that no audit of the CPA's work would ever be completed. "If the auditors don't finish by June 30, they never will, because the CPA staff are going home," he said. "I lament the lack of transparency and lack of involvement by Iraqis." 

The KPMG auditors are answerable to the International Advisory and Monitoring Board, set up by the UN Security Council in May last year to oversee coalition spending from the development fund. The account contains oil revenues, frozen assets and money left over from the UN's oil-for-food program. 

The watchdog comprises representatives of the World Bank, International Monetary Fund and Arab Fund for Social and Economic Development. It spent much of last year battling with occupation administrators over the watchdog's remit. Officials said they were able to begin working in earnest only in April. 

In their first interim report, KPMG said it had "encountered resistance from CPA staff". CPA staff told KPMG they were overworked and had given them a "low priority". 

The UN decided this month that responsibility for the Development Fund for Iraq will pass to the Iraqi interim government and be monitored by the the IAMB. The panel also intends to widen its scrutiny of past CPA spending by examining reports and audits by the Pentagon's inspector general and the General Accounting Office, an official said. 

IAMB officials were meeting in Paris on Monday and were not available for comment. 

Some of KPMG's most damning criticisms were of the State Organization for Marketing Oil, responsible for the sale of Iraq's most crucial asset. Oil sales, which go into the US-controlled fund, have topped $10 billion since the overthrow of Saddam Hussein. 

Somo's only record of barter transactions was "an independent database, derived from verbal confirmations gained by Somo staff", the report found. 

The CPA declined to address the KPMG report, saying only that it "has been and will continue to discharge its responsibilities under the Iraqi Development Fund". 

One Iraqi minister due to take office on June 30 told the FT he and many colleagues felt "let down by how the CPA has controlled resources".

© The Financial Times Ltd 2010. "FT" and "Financial Times" are trademarks of the Financial Times.


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