House Oversight Committee Amazed at DoD Lacking Iraq Payment Documentation

The article below describes how the DoD IG just presented audit findings regarding lack of documentation for Iraq spending for goods and services to the US House Oversight Committee run by Congressman Henry Waxman. The IG said they had a very hard time finding documentation to justify many payments. They didn't know why.

WELL, I can tell you why, RIGHT HERE, because I found the same thing happened to CPI in Iraq when I was there in 2004-2006. I am not sure if the IG was auditing the same group that processed Iraq Reconstruction funded procurements, but I bet the same problem applied to them.

Here is the link to the House Oversight Committee page for this hearing and transcripts:
http://oversight.house.gov/story.asp?ID=1965

Click here for a picture of the hearings taken from the DoD IG webpage.

The US Government has a regulation (Prompt Payment Act) that requires that vendors must be paid within 30 days of shipping (or invoice date - not sure which). In the case of Iraq, delivery and order delays made that impossible, SO SOMEONE AUTHORIZED THE WAIVING OF THE STANDARD REQUIREMENT TO WAIT FOR A SIGNED RECEIVING REPORT FROM THE END CUSTOMER, and instead vendors were paid in 30 days WITHOUT ANY SIGNED RECEIVING REPORT.

As the acting procurement manager for CPI in Iraq, I got a financial report that showed the list of our purchase requests approved by the budget / finance office, AND it also showed payment status. As an auditor, I always worked in corporations previously where you didn't pay the vendor until the end customer (or receiving warehouse) signed a receiving report to indicate proper receipt of the ordered items. This is a very basic accounting control. However, that control process was waived, and vendors were getting paid once they invoiced after shipping goods. That caused problems where shipments "disappeared" or were delayed for months in warehouses until we could physically track them down. THAT IS A MAJOR BLUNDER ON THE PART OF THE US ARMY RUNNING THE PROCUREMENT PROCESS, as well as the finance departments.

In the case of CPI, I found that several of our purchases had been paid for months earlier, when we were told by contracting to "be patient". Thus we knew the orders had been shipped, and had to contact the vendor, get copies of shipping documents, and try to get the logistics department to locate the missing items in warehouses. We never could locate an order for ammunition for Glock handguns for Investigators, even though the payment was made months earlier to the vendor.

That is also how I discovered that the military contracting office had NO quality control procedures to ensure the data they entered into the purchase orders from requisitions was accurate and not incomplete or out of date. They had 18 year old airmen typing forms without editing oversight, and I found numerous errors in purchase orders that would result in non delivery to us because the data was so inaccurate or bad. They even mistyped overly complex email addresses for finance, so even finance couldn't get required documentation.

So, DoD IG - that is how it happened.

NO ONE implemented a quality control review of purchase order accuracy, so deliveries could not be made, customers could not be contacted and finance emails went to wrong addresses. When we convened a meeting with contracting I had a Lt. Col yell at me trying to intimidate me to drop the issue. They were very defensive and did not want to be held accountable for data accuracy on purchase orders they created.

PS: A few months ago, two DoD IG investigators visited me for three hours, and that is one of the control breakdowns I described to them.
vj

=========================================================

This summary article was distributed in Jimmie Durso's periodic emails on Iraq.

Report: Defense Department cannot fully account for $7.8B spent in Iraq
By Dan Friedman, CongressDaily

A House panel Thursday displayed vouchers showing single U.S. Army payments of up to $11 million made without any documentation showing how the money was spent. The House Oversight and Government Reform Committee used a hearing to publicize a Defense Department inspector general's report, released Thursday, which estimates that of $8.2 billion used to buy commercial goods and services in the war, the Defense Finance and Accounting Service processed $7.8 billion in payments without adequate documentation. For $1.4 billion of payments, the Army lacked the minimum justification required for payment, the report estimates. "We don't know what we paid for," testified Mary Ugone, the Defense Department's deputy inspector general for auditing. The IG made estimates by extrapolating from a sample of 702 commercial payments; a methodology the Army questioned in a written response to the report. Lawmakers highlighted some of the largest single payouts made without adequate paperwork, such as a voucher showing an $11.1 million payment in 2005 to contractor IAP Worldwide Services that "was missing both the receiving report and invoice," the report said, and a $5.6 million payment made in 2004 to an Iraqi company without any description of how the money was used.

The report also highlights $135 million in payments made without documentation through the Commander's Emergency Response Program, which was created to give local U.S. military commandeers in Iraq the ability to back small local projects. While the program is generally used to pay Iraqis for supporting U.S. forces, the report notes large lump sum payments of up $8 million made to foreign governments with troops in Iraq. The United Kingdom got $68 million, Poland $45 million and South Korea $21 million. But the IG report says of 22 related vouchers reviewed "none contained sufficient supporting documentation to provide reasonable assurance that these funds were used for their intended purpose." The report says auditors could not identify any reconstruction project resulting from the funds. Ugone denied that war conditions excuse sloppy recordkeeping. She said auditors used standards significantly less rigorous than those for domestic spending to decide if payments were adequately documented. "There are challenges, but there should be some semblance of accountability," she said. "No documentation, from our perspective, is not acceptable." Ugone noted that from 2003 to 2006, the audit found accounting did not improve.

House Oversight and Government Reform ranking member Tom Davis, R-Va., pointed out that problems accounting for payments have long plagued the Defense Department, putting it on GAO's high-risk list for the last 15 years. But Davis joined Democrats in faulting the Army for its response to the issue. Due to the audit, the Pentagon moved the DFAS office reconciling Iraqi payments from Kuwait to a Rome, N.Y. facility, but Ugone said she was unsure what larger fixes are underway. House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., said the Pentagon had refused to send a witness to Thursday's hearing even though "the department has known about this audit for more than a year and has known about this hearing for several weeks." Members noted Pentagon officials had claimed they needed time to review the report, but had already sent extensive written comments on it to the IG.

Full story: http://www.govexec.com/story_page.cfm?articleid=40073&dcn=e_gvet