Evidence Of Financial Mismanagement Of War On Terrorism

Yesterday's news was full of evidence that the continued occupation of Iraq and the so-called "War on Terrorism" are being mismanaged in the extreme.

Overhead Reached 55 Percent in Some Iraq Contracts

This headline says a lot. Since most of these contracts are managed by the US government in some manner, there should be more percentage of the funds made available put toward results than merely tracking, managing and accounting for the funds. However, as was previously reported on CBS' "60 Minutes," these administrative efforts are not that effective given that several top Iraqi officials have walked away from their official positions while pocketing a large portion of $1.2 billion and spending the rest of that money on unnecessary or defective equipment.

Overhead and administrative costs on Iraq reconstruction projects have run as high as 55 percent of total spending and could be even higher with full accounting, according to data in a new inspector general report.

The question that comes to mind here is why don't we already have a full accounting? Shouldn't a "real time" accounting process be employed so that we know exactly where and how our US tax dollars are being spent? Ask yourself if this amount of wasteful and inappropriate management would be tolerated anywhere in the US except in the military-industrial complex via government contracts. The facts seem to point to a pattern not only in Iraq, but also in the US, that involves overt fraud, mismanagement and complete disregard for the real value of our tax dollars by anyone doing business with the US government under the umbrella of the military, DOD or State Department.

In a review of 12 large reconstruction contracts awarded in early 2004 by an Army contracting office, the Special Inspector General for Iraq Reconstruction found that contractors -- including construction giants Parsons Delaware Inc., Halliburton subsidiary KBR Inc. and Fluor Corp. -- charged the government from 11 percent to 55 percent for overhead and administration.

What will happen from here will be more wasted time and money in the guise of investigation and hearings by members of congress. What should happen, however, is a suspension of any contract that has more than 10% administrative costs until those costs can be justified in accordance with GAAP (Generally Accepted Accounting Practices)... and I do not mean GAAP for government contracts, but GAAP as it is applied to business accounting. These entities spending our tax dollars are businesses. They should be held accountable according to a business standard.

The contracts, all for design-build projects in which a single contract covers both stages of construction, were to be issued using new administrative task orders to help managers see the balance of direct and indirect costs, minimize administrative expenses and better understand how extending contracts affects indirect expenses, the Oct. 23 report stated.

What "new orders"? Why aren't we already employing GAAP procedures? Why is it that the DOD and other government entities get to use their own procedures and modifiy them on a whim? We have accounting standards that are not only well-established, but approved by the top accounting standards agencies and federal government enforcement authorities. Why must we have "new orders" or special procedures for contracts involving Iraq and the corporations doing business with our tax dollars?

Reviewers found that the long idle periods between the time that contractors were first told to mobilize their employees to Iraq and when substantive work began on projects, contributed significantly to indirect costs. Due partly to political changes on the ground in Iraq, the five contracts for which officials used the new administrative task orders were largely idle from March to November 2004. During that time, the contractors were fully mobilized and incurred expenses to house, manage and protect their employees. The companies submitted invoices for $62.1 million in indirect costs, while claiming just $26.7 million in direct costs.

In other words, these folks have been sitting on their collective asses, doing nothing, and collecting fees for doing nothing but screwing us. In any "civilian" construction contract of this type there are deadlines and terms for penalties for not meeting those deadlines within a reasonable period of time. While many allow for delays that are not the fault of the contractor, there are requirements to document the delays and the causes for the delays. Certainly we can understand some delays in a conflict zone where battles are a daily occurrence, but not to the point that we are seeing in this report. If we used US military forces, such as the Army Corps of Engineers and the Navy Construction Battalions (Sea Bees), we might have better results and lower costs. But that would cut out Halliburton, KBR (a Halliburton subsidiary) and other companies that have been awarded what appears to be "blank check contracts" that lack any genuine oversight, management or accounting/auditing.

I hate being screwed by anyone, but I hate it even more when it is a practice of my government and its corporate partners.

For the contract with the longest idle time -- a KBR contract in which nine months passed between mobilization and the start of substantial work -- the government received invoices for $52.7 million through an administrative task order, and only $13.4 million in direct costs. In August 2004, the contracting officer wrote to KBR expressing concern that the company was "accruing exorbitant costs at a rapid pace," according to the report.

Our government actually paid the bill... something is wrong in Iraq and it isn't just the fact that we shouldn't be there. For those of us that are not in opposition to our presence in Iraq on moral, ethical or legal grounds, consider that you might want to be against our presence in Iraq on the basis of our tax dollars being wasted as a daily event... meanwhile, let us remember that the US government, under the Bush administration, is cutting funding for the care of our troops injured in Iraq and Afghanistan. One might ask if we implemented some real accounting and management procedures in regard to these contracts whether or not we could find the money to fund the care for our heroes????

The contract with the lowest rate of indirect costs, at 11 percent, was with Lucent Technologies. But reviewers noted that the Lucent administrative task order was constructed differently from those for KBR and Parsons. It included only one of the four cost categories included for the others. Actual indirect costs were likely higher, the SIGIR report said.

My wife is an accountant. One of the first things she would say is that you cannot apply different accounting standards to contracts if you really want to understand how your business or enterprise is performing. Certainly there may be differing terms within different contracts, but the accounting procedures need to be standardized and in keeping with GAAP... Otherwise, it's all a waste of time and money. Even the validity of the SIGIR report comes into question if there are no standardized approach to the accounting processes.

The inspector general attributed the lag time to poor planning on the government's part.

There is a consistent theme here that seems to escape the attention of Bush, Cheney, Rumsfeld and Rice.... a lack of proper planning. Someone needs to educate the Bush gang about the 6-P Principle: "Proper Prior Planning Prevents Poor Performance".

Despite the high indirect costs, auditors found that they probably were even higher than the task orders show. One reason for this was that the administrative task orders were not issued at the start of the contracts, so the companies used direct and mobilization tasks to invoice for all types of expenses.

As someone that has worked in the corporate world, the one thing I know is that no business entity will waive revenues without having a means for recovering the loss in some manner. So the question raised in the above quoted paragraph is how are we going to get hit with the "other shoe" when it drops? How are these corporations going to recoup these delayed costs... and how much "overhead" or "administrative costs" are going to be jacked up so that a profit is realized in the process. Did I say profit? I should have said "fraudulent bill padding."

The inspector general also reviewed audits by the Defense Contract Audit Agency that showed significant problems in the accounting and billing systems used by most of the companies in question. For four of the five contracts that used administrative task orders, DCAA found the contractors' accounting and billing systems inadequate.

Just exactly why are we doing business with these entities? Oh, I remember, these are no bid contracts awarded to friends of Dick Cheney and the Bush clan. And no one in the Bush administration has said, "Hold the phone! We're getting screwed!"

Based on these findings, the SIGIR recommended that future Iraq reconstruction contracts include requirements to track and bill administrative costs separately. The inspectors also recommended that project planning minimize contractors' idle time between mobilization and significant work, and that processes to monitor administrative costs be developed.

Why haven't we recommended a suspension of payments and a criminal investigation?

Stan Soloway, president of the Professional Services Council, an industry group that worked with the IG's office on a previous Iraq contracting report, said the strategy of using administrative task orders throughout the life of a contract was a creative way to gain greater visibility into project spending.

Bovine excrement! This practice is nothing less than padding the bill in a fraudulent manner that has been so much a practice among defense contractors that it has become a standard way of doing business. We need to suspend this practice and call these corproations to adhere to schedules and deadlines, with penalties for failing to show scheduled progress in construction projects, and criminal penalties for fraudulent practices.

He said administrative task orders are generally used for minor expenses toward the end of a contract's life to "mop up" from delays and minor changes. Used as it was in Iraq, the strategy could give both the government and contractors a better way to track what is happening on a contract at any point in time.

When the administrative costs are almost four times the direct costs, that is not a means to "mop up" but a way to "clean out" the taxpayer coffers.


In related news, we seem to be able to fund the fraud of defense contractors, but not the money needed for an effective military presence. I wonder how many Kevlar vests and ceramic inserts will not be given to our troops on the battlefield because of this budget restriction? I know where we could recover $52 million to help the Army out a bit.

OMB Rejects Army Bid for Bigger Share of 2008 Budget

The Army has lost an extraordinary bid to capture a larger share of the fiscal 2008 Defense budget, with Office of Management and Budget officials agreeing to give the heavily deployed military service $121 billion next year -- nearly $18 billion below what senior officers say they need, several defense sources familiar with the negotiations said Wednesday.

Army Chief of Staff Peter Schoomaker has said that the service needs $138.8 billion next year to continue plans to transform the force and pay burgeoning personnel, operations and maintenance bills. Pentagon leaders issued fiscal 2008 budget planning guidance earlier this year that would have given the Army roughly $114 billion next year -- a figure that service leaders feared would not be enough to cover the Army's needs.

The Army already has had problems paying routine expenses at bases around the country, with a $500 million shortfall in installation accounts alone in fiscal 2006, congressional Democrats said recently. Base commanders have cut back on many standard services, including reducing mess hall hours and slashing funds for community centers and libraries.

Defense sources said those problems would only be exacerbated in fiscal 2008. The Army, one source said, needs, at minimum, $128 billion just to keep the lights on next year.