Inspector general supports penalizing Halliburton Co.

WASHINGTON – The inspector general for Iraq’s reconstruction on Wednesday threw his weight behind penalizing Halliburton Co. for its work in the war-torn country, concluding its record-keeping was so poor that auditors couldn’t determine whether the firm had fulfilled its obligations to the U.S. occupational government.

The memorandum, from Stuart Bowen Jr., the special inspector general monitoring billions of dollars in Iraqi reconstruction contracts, comes three months after the U.S. Army initially said it may begin withholding about $60 million a month from Halliburton because of inadequate cost-accounting. Under federal contracting rules, the Army can withhold 15 percent of a contractor’s payments until charges are fully accounted for.

“We also believe that (those rules) should be enforced,” Bowen told Army and Defense Department officials in a memo released Wednesday.

Halliburton subsidiary Kellogg Brown & Root Inc. has been enmeshed in controversy for months over its massive Army contract to handle logistical support in Iraq and Kuwait. The contract mostly covers services for military personnel, but KBR also supported the U.S. occupational authority in Baghdad before it was disbanded.

Bowen had been tasked to determine whether the U.S. occupational authority was “efficiently and effectively” managing KBR’s contract to support occupation personnel throughout Iraq.

But Bowen’s audit team found insufficient information to determine what exactly KBR had done with its money and what the firm was billing the government for. Government officials were also unable to project future costs, “due to the lack of contractor-provided … cost information,” the memorandum said.

After conducting audit work between May and July, Bowen threw up his hands, he wrote.

“During the initiation of our fieldwork, we found we could not effectively address the overall audit objective due to weaknesses in the KBR cost reporting process,” Bowen said. “We will terminate further audit work on (the Halliburton logistical contract) at this time.”

The inspector general’s frustration was consistent with earlier audits. In August, Pentagon auditors also described KBR’s cost-estimating system as “inadequate,” saying that $1.8 billion in billings for $4.18 billion of logistical work remained unsupported by documentary evidence. KBR has billed the government for about $12 billion in Iraq, but nearly a quarter of that remains in dispute.

The Defense Department audit led the Army to announce on Aug. 17 that it would withhold 15 percent of its payments to Halliburton, following the recommendations of the U.S. Army Materiel Command and the Defense Contract Audit Agency. After the company protested, Army officials said they would give the firm more time to work out the problems.

Halliburton spokeswoman Cathy Gist said Wednesday that no such penalties have been imposed. “We will continue to work directly with our client (Army Materiel Command) regarding resolution for this issue. Further, both sides continue to fully cooperate,” she said.

Halliburton’s Iraq contracts were the subject of heated political debate during the campaign because of Vice President Dick Cheney’s links to the company. He was chief executive of the Houston-based energy services company before being tapped as President Bush’s running mate.

With the end of the campaign, there has been some expectation that the dispute between the company and the government would be resolved. It was unclear Wednesday whether Bowen’s memorandum would have an effect on a possible settlement. Linda Theis, a spokeswoman for the U.S. Army Field Support Command in Rock Island, Ill., which administers the logistical contract, said commanders will examine the memo but “there’s no new information contained in this report.”

Theis said Field Support Command is still negotiating between Army contracting operations – which support a penalty – and Army commanders in Iraq, who are concerned that withholding payments could harm Halliburton’s delivery of needed services to troops in the field.