The February 2007 U.S. strategy, The New Way  Forward in Iraq, emphasizes a transition of responsibility for  reconstruction to the Iraqi government. 1). U.S. and Iraqi Reports Show Differing Spending Rates

Citing unofficial Ministry of Finance data, the administration’s September  2007 Benchmark Assessment Report stated that the Iraqi ministries had  spent 24 percent of their capital projects budgets, as of July 15, 2007. According to official  reporting by the Ministry of Finance, as of August 31, 2007, Iraqi ministries  spent only 4.4 percent of their 2007 investment budget (most of which is  for capital projects). The Government of Iraq Faces Many Challenges in Attempting to Spend Its Capital Projects Budget

U.S. government, coalition, and international agencies have identified a  number of factors that challenge the Iraqi government’s efforts to fully  spend its budget for capital projects. First, Treasury officials noted that  violence and sectarian strife can delay capital budget execution by  increasing the time and cost needed to award and monitor contracts, and  by reducing the number of contractors willing to bid on projects. Second,  these officials stated that recent refugee outflows and the de- Ba’athification process have reduced the number of skilled workers  available and contributed to the exodus of Iraq’s professional class from  the country. Third, U.S. and foreign officials also noted that weaknesses in  Iraqi procurement, budgeting, and accounting procedures impede  completion of capital projects. In addition, Iraqi procurement  regulations require about a dozen signatures to approve oil and electricity  contracts exceeding $10 million, which also slows the process, according  to U.S. officials. Several U.S. Assistance Efforts Are Under Way to Improve Iraqi Budget Execution

In early 2007, U.S. agencies increased the focus of their assistance efforts  on improving the Iraqi government’s ability to effectively execute its  budget for capital projects, although it is not clear what impact this  increased focus has had, given the inconsistent expenditure data  presented earlier in this report. In  addition, improving Iraqi government budget execution is part of a broader  U.S. assistance effort aimed at improving the capacity of the Iraqi  government through automation of the financial management system,  training, and advisors embedded with ministries. State established this  position in the U.S. Embassy in February 2007 to work with senior Iraqi  government officials and to coordinate with U.S. agencies that provide  assistance related to improving Iraq’s budget execution. Procurement Assistance Program. USAID suspended assistance to the Ministry of  Finance to implement IFMIS in June 2007, following the kidnapping of five  BearingPoint employees. According to USAID officials, this program includes several activities to  assist with provincial budget execution. The discrepancies between the  unofficial and official data highlight the ambiguities about the extent to  which the government of Iraq is spending its resources on capital projects. Recommendation

To help ensure more accurate reporting of the government of Iraq’s  spending of its capital projects budget, we recommend that the Secretary  of Treasury work with the government of Iraq and relevant U.S. agencies  to enhance the Treasury department’s ability to report accurate and  reliable expenditure data from the ministries and provinces. Specifically, we (1) examine the  data the U.S. embassy uses to determine the extent to which the Iraqi  government has spent its 2007 capital projects budget, (2) identify factors  affecting the Iraqi government’s ability to spend these funds, and (3)  describe U.S. government efforts to assist the Iraqi government in  spending its capital projects funds. In addition, we reviewed previous  GAO reports.
Why GAO Did This Study

The President's New Way Forward in Iraq identified Iraq's inability to spend its resources to rebuild infrastructure and deliver essential services as a critical economic challenge to Iraq's self-reliance. Further, Iraq's ability to spend its $10.1 billion capital projects budget in 2007 was one of the 18 benchmarks used to assess U.S. progress in stabilizing and rebuilding Iraq. This report (1) examines data the U.S. embassy used to determine the extent to which the government of Iraq spent its 2007 capital projects budget, (2) identifies factors affecting the Iraqi government's ability to spend these funds, and (3) describes U.S. government efforts to assist the Iraqi government in spending its capital projects funds. For this effort, GAO reviewed Iraqi government budget data and information on provincial spending collected by the U.S. Provincial Reconstruction Teams. GAO also interviewed officials from the departments of the Treasury, Defense, State, and other agencies and organizations.

What GAO Found

U.S. and Iraq reports show widely disparate rates for Iraqi government spending on capital projects. Accordingly, GAO cannot determine the extent to which the Iraqi government is spending its 2007 capital projects budget. In its September 2007 Iraqi benchmark assessment, the administration reported that Iraq's central government ministries had spent 24 percent of their 2007 capital projects budget, as of July 15, 2007. However, this report is not consistent with Iraq's official expenditure reports, which show that the central ministries had spent only 4.4 percent of their investment budget as of August 2007. The discrepancies between the official and unofficial data highlight uncertainties about the sources and use of Iraq's expenditure data. The government of Iraq faces many challenges that limit its ability to spend its capital project budget. Violence and sectarian strife delay capital budget execution by increasing the time and cost needed to implement contracts. Recent refugee flows and the de-Ba'athification process have contributed to the exodus of skilled labor from Iraq. In addition, U.S. and foreign officials also noted that weaknesses in Iraqi procurement, budgeting, and accounting procedures impede completion of capital projects. For example, according to the State Department, Iraq's Contracting Committee requires about a dozen signatures to approve projects exceeding $10 million, which slows the process. U.S. agencies have undertaken a variety of programs to help Iraq execute its capital projects budget, although it is not clear what impact these efforts have had to date. U.S. agencies supported new efforts in 2007 targeting Iraq's ability to spend capital budget funds, including an office to provide procurement assistance to ministries and provinces and a new position in the U.S. Embassy to coordinate with senior Iraqi government officials on budget execution and oversee related U.S. assistance efforts. In addition, improving Iraqi government budget execution is part of a broader U.S. assistance effort to improve the capacity of the Iraqi government. For example, the U.S. Agency for International Development (USAID) has trained 500 ministry officials in procurement or budget execution. USAID also led an effort to implement an automated financial management information system for the Iraqi government, although this program was suspended in June 2007 following the kidnapping of five contractors involved in the project. In addition, U.S. advisors work directly with key Iraqi ministries to assist with budget execution and procurement, among other responsibilities.