Waxman Probes Iraq Contracting, Missing $12 Billion

By Jay Newton-Small

Feb. 6 (Bloomberg) -- Representative Henry Waxman, kicking off hearings on government contracting, questioned former Ambassador L. Paul Bremer today on what happened to as much as $12 billion in unaccounted-for cash spent when he was in charge of rebuilding Iraq.

A report from Waxman's House Oversight and Government Reform Committee said the money represented more than half of Bremer's budget from May 2003 to June 2004. The report described contractors being told to bring big bags to collect shrink- wrapped bundles of money and one episode where a Bremer staff member was allegedly told to spend $6.75 million in a week.

``We have no way of knowing if the cash that was shipped into the green zone ended up in enemy hands,'' Waxman, a California Democrat, said at today's hearing. ``We owe it to the American people to do everything we can to find out where the $12 billion went.''

The hearings, which fulfill a Democratic campaign promise, will spotlight the use of contractors in Iraq and on homeland security under President George W. Bush, as well as spending on Medicare and Medicaid. The hearings ``will embarrass the administration,'' said James Thurber, a political science professor at American University and expert on government oversight.

Contractors Killed

Representatives of eight companies -- among them Halliburton Co.'s KBR Inc. subsidiary, Boeing Co. and Lockheed Martin Corp. -- have been called to testify. The committee will also hear from family members of four Blackwater USA contractors who were killed in Fallujah in March 2004, their bodies burned and dragged through the streets. The families have accused Blackwater of failing to protect the men. Blackwater officials didn't return a phone call seeking comment.

So far, audits of spending in Iraq have covered only 10 percent of the contracts, Waxman said in a Jan. 31 interview. ``What we know from the audits is that perhaps billions of dollars may not be accounted for,'' he said.

Waxman's report said as much as $12.7 billion in cash from the Federal Reserve Bank of New York, sent to Iraq during Bremer's watch between May 2003 and June 2004, was unaccounted for.

While acknowledging he made mistakes, Bremer said the money was actually Iraqi money used to help revive the economy after the invasion by paying salaries in cash in a country where there was no practical banking system or government payroll.

``My colleagues and I fully understood our responsibility for the temporary stewardship of these Iraqi moneys,'' Bremer said in testimony to the committee. ``We took seriously our charge to operate in an open and transparent fashion to use these Iraqi funds in the best interests of the Iraqi people.''

``We always strived to meet those objectives, and where we may have fallen short, I accept the responsibility.''

KBR Audit

In addition to Bremer, Waxman today will call Stuart Bowen, the special inspector general for Iraqi reconstruction. In a report to Congress last week, he said Houston-based KBR, the largest U.S. military contractor in Iraq, failed to account for $22.3 million of items surveyed in two audits in 2004.

KBR, 80 percent owned by Halliburton, transports war supplies and provides food to U.S. troops in Iraq.

A KBR employee was convicted in August 2005 of accepting a bribe from an Iraqi company that had been seeking a $609,000 contract to renovate warehouse and office space, according to military legal documents. KBR fired the employee after an internal review.

Ship Contract

A representative for KBR will testify tomorrow, and Houston-based Halliburton spokeswoman Melissa Norcross said the company ``looks forward to providing the facts regarding KBR's work.''

Also scheduled to testify tomorrow are representatives of Moyock, North Carolina-based Blackwater; ESS, a division of Compass Group, based in Chertsey, U.K.; and Irving, Texas-based Fluor Corp., the largest publicly traded U.S. engineering and construction company.

Turning to homeland security on Feb. 8, Waxman will examine $47 billion of contracts for design flaws and cost overruns.

One of two projects he's investigating is the so-called Deepwater shipbuilding contract awarded to Integrated Coast Guard Systems, a joint venture between Los Angeles-based Northrop Grumman Corp. and Bethesda, Maryland-based Lockheed Martin Corp.

Commandant Testified

The Coast Guard contract has the potential to cost as much as $17 billion over 30 years, according to the Deepwater Web site. Critics cite delays in the project, design flaws and rising costs and question whether the companies should have received the contract in lieu of a series of small contracts.

Coast Guard Commandant Admiral Thad Allen, who told the House Transportation Committee last week that the project ``is designed to promote innovation and spread risk,'' will testify before Waxman's panel.

Project spokeswoman Margaret Mitchell-Jones said the company will tell the committee the ``complete story.''

Waxman, 67, is also questioning the cost of the Department of Homeland Security's award of a three-year contract to Boeing. The so-called Secure Border Initiative seeks to use technology to enhance border security.

Program Cost

Homeland Security Inspector General Richard Skinner told the House Homeland Security Committee in November that the program's cost may be anywhere between $8 billion and $30 billion, and he is to testify before Waxman this week.

``A large amount of money has been spent on border technology to protect this country,'' Waxman said. ``We're going to see what we got for that.''

Boeing spokeswoman Deborah Bosick said the company will discuss its effort to improve border security.

Waxman will wrap up this week's hearings with a day of health-care experts discussing whether the government is paying too much for prescription drugs through Medicare and Medicaid.

``Waxman has carefully selected this as his first set of hearings,'' Thurber said. ``They are planning it almost like a Shakespeare theater.''

To contact the reporter on this story: Jay Newton-Small in Washington at jnewtonsmall@bloomberg.net