Iraq’s Estimated Actual and Available Cumulative Budget Surplus through the End of 2009

Iraq generated an estimated cumulative budget surplus of $52.1 billion  through 2009, according to GAO’s analysis of data provided by the Iraqi  government. Adjusting for $40.3 billion in advances that were outstanding  as of September 2009 reduces the amount of available surplus to $11.8  billion. Iraq’s Board of Supreme Audit has highlighted weaknesses in Iraq’s  accounting for a large and growing amount of advances. The composition of advances is unclear. A senior Ministry of Finance  official stated that advances include funds set aside for FMS purchases  and letters of credit as well as advance payments to contractors. However, 40 percent of total outstanding advances through 2008 was  categorized as “other temporary advances,” which are not fully defined  (see app. Under the terms of the IMF  arrangement, Iraq has committed to completing this report by   September 30, 2010. Iraq’s Financial Deposit Balances

Iraqi government data and an independent audit report show that, through  the end of 2009, Iraq had accumulated between $15.3 billion and $32.2  billion in financial deposit balances held at the Central Bank of Iraq, the  Development Fund for Iraq in New York, and state-owned banks in Iraq. Ministry of Finance Reclassified $16.9 Billion of $32.2 Billion in Deposits as Encumbered and Not Available to the Iraqi Government

Data from the Central Bank of Iraq and the International Advisory and  Monitoring Board show that Iraq began 2010 with $32.2 billion in financial  deposits held at state-owned banks in Iraq, the Central Bank of Iraq, and  the U.S. Federal Reserve Bank’s Development Fund for Iraq account (see  table 2). The IMF is seeking greater clarity on the amount of Iraq’s financial  deposits that is unencumbered and available for government spending. Under the terms of Iraq’s February 2010 arrangement with the IMF, the  Ministry of Finance is required to complete a review of all central  government accounts in the banking system, reconcile them with Iraqi  Treasury records, and return any idle balances received from the budget to  the central Iraqi Treasury. Iraq Has Increased Its Spending on Security but Did Not Use All of Its Available Funds

Iraqi government data show that the Iraqi security ministries have  increased their spending from 2005 through 2009 and set aside about   $5.5 billion to purchase equipment, training, and services under the FMS  program. Iraq’s Security Ministries Have Not Fully Used Available Resources, and Funding for I-CERP Has Fallen Short of Expectations

Our analysis of data from the Iraqi Ministries of Finance, Defense, and  Interior; DSCA; and the Trade Bank of Iraq indicated that—despite  increases in spending by the security ministries since 2005—the Ministries  of Defense and Interior did not spend or set aside between $2.5 billion   and $5.2 billion that could have been applied to Iraq’s security needs (see  table 8). The Administration Is Requesting $2 Billion in Additional Funds for the Iraqi Military and Police Forces

In February 2010, the administration submitted a budget request for   $3 billion in additional U.S. funding to provide training, equipment, and  other services to the Iraqi military and police forces. Matter for Congressional Consideration

To ensure that Iraq continues to spend its own resources on security costs,  Congress should consider Iraq’s available financial resources when  reviewing (1) a fiscal year 2011 budget request and (2) potential future  funding requests to support the Iraqi security forces. Recommendation for Executive Action

We recommend that the Departments of State and the Treasury work with  the Iraqi government to further identify Iraqi resources available for future  spending. We a Agency (DSCA) on funds set aside by the Iraqi government for U.S.  Foreign Military Sales (FMS) purchases. 5). First, Iraq has agreed to prepare a  report on its outstanding advances, identify those that are recoverable,  and set a schedule for their recovery. This  review was due to be completed by March 31, 2010, but, according to  the IMF, it was still under way as of August 2010. The Board of Supreme Audit raised concerns about all  advances, despite our attempt to independently corroborate a portion  of these advances. Rather, as we  point out in comment 3, we report a range for Iraq’s available financial  deposits on the basis of a discrepancy between the amount of  government-sector deposits reported by the Central Bank of Iraq to the  IMF and the amount that the Ministry of Finance asserted is available  for government spending.
Why GAO Did This Study

Since 2003, the United States has reported obligating $642 billion for U.S. military operations in Iraq and provided about $24 billion for training, equipment, and other services for Iraqi security forces. To assist Congress in overseeing efforts to encourage the Iraqi government to contribute more toward the cost of securing and stabilizing Iraq, this report provides information on (1) the amount and availability of Iraq's budget surplus or deficit, (2) the amount of Iraq's financial deposit balances, and (3) the extent to which Iraq has spent its financial resources on security costs. To conduct this audit, GAO analyzed Iraqi financial data, reviewed U.S. and Iraqi documents, and interviewed U.S. and Iraqi officials.

What GAO Found

GAO analysis of Iraqi government data showed that Iraq generated an estimated cumulative budget surplus of $52.1 billion through the end of 2009. This estimate is consistent with the method that Iraq uses to calculate its fiscal position. Adjusting for $40.3 billion in estimated outstanding advances as of September 2009 reduces the amount of available surplus funds to $11.8 billion. In April 2010, a senior Ministry of Finance official stated that advances should be deducted from the budget surplus because they are committed for future expenditures or have been paid out. According to this official and Board of Supreme Audit reports on Iraq's financial statements, advances include funds for letters of credit, advance payments on domestic contracts, and other advances. However, Iraq's Board of Supreme Audit has raised concerns that weaknesses in accounting for advances could result in the misappropriation of government funds and inaccurate reporting of expenditures. Furthermore, the composition of some of these advances is unclear; about 40 percent of the outstanding advances through 2008 are defined as "other temporary advances." Under the terms of a February 2010 International Monetary Fund (IMF) arrangement, Iraq agreed to prepare a report on its outstanding advances, which will identify those advances that are recoverable and could be used for future spending, and set a time schedule for their recovery. This Iraqi report is to be completed by September 30, 2010. Another means of assessing Iraq's fiscal position is to examine its financial deposit balances. Iraqi government data and an independent audit report show that, through the end of 2009, Iraq had accumulated between $15.3 billion and $32.2 billion in financial deposit balances held at the Central Bank of Iraq, the Development Fund for Iraq in New York, and state-owned banks in Iraq. This range reflects a discrepancy between the amount of government-sector deposits reported by the Central Bank of Iraq to the IMF and the amount that the Ministry of Finance asserts is available for government spending. In November 2009, the Ministry of Finance reclassified $16.9 billion in state-owned banks as belonging to state-owned enterprises and trusts, leaving $15.3 billion of $32.2 billion available to the Iraqi government for other spending. The IMF is seeking clarification on the amount of financial deposits that is available for government spending. Under the terms of Iraq's 2010 arrangement with the IMF, the Ministry of Finance is required to complete a review of all central government accounts and return any idle balances received from the budget to the central Iraqi Treasury by March 31, 2010. As of August 2010, according to the IMF, this review was still under way. Iraqi government data show that Iraq's security ministries--the Ministries of Defense and Interior--increased their spending from 2005 through 2009 and set aside about $5.5 billion for purchases through the U.S. Foreign Military Sales program. However, over this 5-year period, these ministries did not use between $2.5 billion and $5.2 billion of their budgeted funds that could have been used to address security needs. The administration is requesting $2 billion in additional U.S. funding in its fiscal year 2011 budget request to support the training and equipping of Iraq's military and police. GAO believes that Congress should consider Iraq's available financial resources when reviewing the administration's fiscal year 2011 budget request and any future funding requests for securing and stabilizing Iraq. Also, GAO recommends that the Departments of State and the Treasury work with the Iraqi government to further identify available resources.