Government Investigates Iraq Contracting Fraud

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The Special Inspector General for Iraq Reconstruction has 78 open investigations into fraud and corruption in the Coalition Provisional Authority. This spring, two men pleaded guilty to bribery and fraud. Last winter, two Army officers were arrested on similar charges. Those cases appear to be only the beginning of reconstruction fraud cases.

STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne. Good morning.

While Iraqis and Americans struggle to define the future of Iraq, others are focusing on what went wrong immediately after the fall of Saddam's regime. The special inspector general for Iraq reconstruction is investigating fraud, waste and abuse in the early days of the reconstruction. This spring, two men pleaded guilty to bribery and fraud. Last winter, two Army officers were arrested on similar charges.

As NPR's Ari Shapiro reports, those cases appear to be just the beginning.

ARI SHAPIRO reporting:

Franklin Willis was a civilian hired by the Coalition Provisional Authority just after the fall of Baghdad. He worked on transportation and telecommunications in Iraq. When he looks at corruption and fraud in the CPA, he applies what he calls the cockroach theory.

Mr. FRANKLIN WILLIS (Former Senior Advisor, Coalition Provisional Authority): If you see one cockroach, you're going to find a lot more. If you see one bad contract in this chaotic situation that we had without adequate supervision, you're going to find a lot more.

SHAPIRO: How many more?

Ms. GINGER CRUZ (Deputy Inspector General for Iraq Reconstruction): It is part of a series of 78 investigations that our office now has under way.

SHAPIRO: Ginger Cruz is Deputy Inspector General for Iraq Reconstruction. She says the early days of reconstruction provided the ideal breeding ground for fraud, bribery and outright theft.

Ms. CRUZ: Probably the biggest contributing factor was that you had, in this case, a cash economy. There was no electronic funds transfer. There was no way to do business in Iraq unless you physically took bricks of hundred-dollar, shrink-wrapped bills and used that around the country.

SHAPIRO: Inspector general reports describe billions of dollars flowing to the country. In some cases, there were no procedures to track where it was going or who had it. Cruz says there was a push to distribute the cash quickly to get the country back on its feet.

Ms. CRUZ: The regulations were actually created by Paul Bremer. Underneath the CPA, they were more streamlined, they weren't nearly as complex; they provided some accountability mechanisms, but the fact that it was sort of an ad hoc organization and an ad hoc budget also meant that even those regulations, in many cases, weren't followed.

SHAPIRO: Franklin Willis agrees that it was streamlined and he says that's only a good thing if it was affective.

Mr. WILLIS: If money is poured into the effort but it doesn't hit the ground in Iraq, it is sopped up, absorbed by fast-dealing contractors, by administrative costs, by a lot of security, then it's a great idea with terrible implementation.

SHAPIRO: The idea was to create an organization from scratch that would use Iraqi and U.S. money to get the country back on its feet quickly. People left their civilian lives behind and came to Iraq to work for the Coalition Provisional Authority.

Retired Admiral Dave Nash directed a program management office that was part of the CPA.

Admiral DAVE NASH (Director of Program Management Office, Coalition Provisional Authority; U.S. Navy, Retired): There were people like me who had retired from the government and had come back just to try to help. And they were from all walks of life, all kinds of jobs, you know, from finance to agriculture to even one individual who came to try to help get the sports program back on its feet.

SHAPIRO: He says they took pay cuts. They endured stressful living conditions and worked 16-hour days, seven days a week.

Adm. NASH: I never met anybody that I thought was there just to feather their own nest and to do good for just themselves. You know, there were people of varying capabilities and varying talents and varying experiences, but I never really ran into anybody that I thought was there trying to take advantage of things.

SHAPIRO: But now it seems clear that there were such people, and they took full advantage of the gaps in the system. Yahia Said is the Director of Iraq Revenue Watch, a joint project of the London School of Economics and New York's Open Society Institute.

Mr. YAHIA SAID (Director, Iraq Revenue Watch): People always try to enrich themselves. And if there's money lying around unguarded, they will avail themselves of it.

SHAPIRO: Said blames the thieves and also the guardians.

Mr. SAID: One may want to hope or expect from U.S. personnel in Iraq to be above that, but that's not the case. If the money is not guarded, it will be stolen. And so the responsibility is shared by both the thief and those who fail to guard resources that do not belong to them.

SHAPIRO: Willis, who was part of the CPA, agrees.

Mr. WILLIS: Oh, first blame us. They may have been fast actors, but we gave them the opportunity to cut corners, to sop up money and to really dodge oversight.

SHAPIRO: Now, some people are asking whether there was a better way to rebuild the country without the waste, fraud, and abuse. James Spike Stephenson believes there was.

Mr. JAMES “SPIKE” STEPHENSON (Former Mission Director, Agency for International Development): I think the question that one has to ask is that if, in fact, you're engaged in what may be the most important U.S. policy initiative, and certainly, the largest program, in terms of foreign assistance since the Marshall Plan, why would one create an ad hoc organization such as the Coalition Provisional Authority?

SHAPIRO: Stephenson was Mission Director for the State Department's Agency for International Development in Iraq.

Mr. STEPHENSON: Working in conflict and post-conflict environments with foreign assistance is an art, and there's a very small cadre of people within the State Department, USAID, and other agencies, who do this kind of work.

SHAPIRO: He says, by and large, people in the CPA did not have that kind of background.

Mr. STEPHENSON: Many had no overseas experience. And most, or certainly many of them, only came in for a period of three or four months and then they were rotated out and replaced by others.

SHAPIRO: This is one of the questions that the special inspector general has asked, could the State Department or the Army Corps of Engineers have done a better job than the CPA? Deputy Inspector General Cruz says the answer is not simple.

Ms. CRUZ: While they do have the systems to be able to do this type of thing, neither of them is currently setup to do it to the magnitude of the Iraq Reconstruction Program, nor to match the speed, and, in fact, the conditions.

SHAPIRO: She says those organizations are good at post-conflict reconstruction. But Iraq has never been post-conflict. It's been conflict. Now that the damage has been done and billions of dollars lost, the inspector general is trying to hold people accountable. They have a limited timeline in which to do it. In September 2007, the office will transfer oversight authority to the inspector general for the State Department, which has a smaller budget and fewer people in Iraq.

Democratic Congressman Henry Waxman of California fought that move.

Representative HENRY WAXMAN (Democrat, California): You don't take a person who's doing a good job and say you're no longer going to do that job, we're going to give it to somebody else who will start brand new. I don't think the Congressional Republicans want to find out the truth because it will point out that the administration botched the use of these funds.

SHAPIRO: That's an assertion that Republican Congressman Jim Kolbe of Arizona denies.

Representative JAMES KOLBE (Republican, Arizona): I have been arguing for more vigorous oversight, have pushed the inspector general, the special inspector general, and the AID inspector general, to do more and more of the oversight. We need to do that, and Congress needs to do its role. So that just isn't true. This is a normal transition as we're changing the aid program.

SHAPIRO: Ginger Cruz of the Special Inspector General's Office hopes the State Department's inspector general will get an infusion of money and staffers when it's time for the handoff. She's optimistic about the job that the State Department will do, but she expects her office to produce quite a bit more before it's time to close up shop.

Ari Shapiro, NPR News.

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