AN AUDIT of US reconstruction spending in Iraq has uncovered spectacular misuse of tens of millions of dollars in cash, including bundles of money stashed in filing cabinets, a US soldier who gambled away thousands and stacks of newly minted notes distributed without receipts.

The audit, released yesterday by the US Special Inspector General for Iraq Reconstruction, describes a country in the months after the overthrow of Saddam Hussein awash with dollars, and a Wild West atmosphere where even multimillion-dollar contracts were paid for in cash.

The findings come after a report last year by the inspector general which stated that nearly $9 billion (£5 billion) of Iraq’s oil revenue disbursed by the US-led Coalition Provisional Authority (CPA), which governed Iraq until mid-2004, cannot be accounted for.

The huge sums in cash were paid out with little or no supervision, and often without any paperwork, yesterday’s audit found. The report found problems with nearly 2,000 contracts worth $88.1 million.

In one case, a US soldier gambled away more than $40,000 while accompanying the Iraqi Olympic boxing team to the Philippines. In others, “one contracting officer kept approximately $2 million in cash in a safe in his office bathroom”, the report says, “while a paying agent kept approximately $678,000 in cash in an unlocked footlocker”.

The lack of supervision had tragic consequences. A contract for $662,800 to refurbish the Hilla General Hospital was paid in full by a US official, even though the work was not finished. Instead of replacing a central lift, as demanded in the contract, workers only tinkered with the existing mechanism. Three months later the lift crashed, killing three Iraqis.

Cash was stolen during insurgent raids but never reported, the audit found. In another case, a contractor was paid $108,140 to refurbish completely the Hilla Olympic swimming pool. The contractor simply polished some of the pumps and piping to make it look as if new hardware had been installed. The pool has never reopened.

More than 160 vehicles worth about $3.3 million could not be traced because there was no proper documentation. Another project, a $473,000 contract to install an internet service in Ramadi, was cancelled because officials could not oversee it. But the contractor had already been paid.

A separate congressional inquiry has uncovered the sums of cash airlifted into Iraq after the invasion. Desperate for money, and with no banking system to receive wire transfers, the CPA, led by Paul Bremer, received UN approval to fund reconstruction with $37 billion of seized Iraqi oil proceeds, most of it held in the US Federal Reserve in New York.

Soon, large quantities of cash began arriving in Baghdad, shipped in on C17 cargo planes. The cash arrived on pallets loaded with shrink-wrapped bundles of crisp $100 bills. The parcels, which soon became known as “bricks”, were handed out “like candy”, one Democrat congressman said.

In all, $12 billion in cash, weighing 363 tonnes, was flown into Iraq. On December 12, 2003, one single flight to Iraq contained $1.5 billion in cash, the largest single Federal Reserve payout in US history, according to Henry Waxman, the Democrat congressman who is investigated the funding.

The US has so far spent $226 billion on the Iraq war. The CPA was allocated $38 billion in US and Iraqi funds, and spent $19.7 billion of UN-administered Iraqi oil money.

FRITTERED AWAY

$108,140 paid to contractor to refurbish Olympic swimming pool in Hilla. Work never done

$662,800 paid to repair Hilla hospital. Much of work never done, including renewing central lift. Three people later died when lift crashed

$40,000 gambled away by US soldier assigned as assistant to Iraqi Olympic boxing team on trip to Philippines

$2 million locked in a the bathroom safe of a US official

$678,000 stashed away in an unlocked foot locker

$473,000 paid for internet installation in Ramadi. Work never done

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