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US unable to account for billions of Iraq oil money

The US defence department is unable to account for almost $9bn taken from Iraqi oil revenues for use in reconstruction, according to an official audit released yesterday.

The report by the US Special Investigator for Iraq Reconstruction says $8.7bn (£5.6bn) out of $9.1bn withdrawn between 2004 and 2007 from a special account set up by the UN Security Council is unaccounted for. This is separate from $53bn set aside by Congress for Iraqi reconstruction.

Though the special investigator found that some of the money was spent properly, Iraqis continually complain that they see little sign of their infrastructure being rebuilt after 30 years of war and sanctions. Electricity, clean water and sewage disposal remain wholly inadequate and seven years after the overthrow of Saddam Hussein there are few cranes visible on the Baghdad skyline or any other signs of rebuilding. A total of 95 per cent of the country's federal budget comes from oil revenue.

The scale of the sums unaccounted for are particularly striking given they cover periods well after serious fraud and corruption had been widely publicised in Iraq and abroad. The audit says that no organisation in the defence department was set up to oversee how money from the Development Fund for Iraq was spent. It adds that "the breakdown in controls left the funds vulnerable to inappropriate uses and undetected loss". Many of the organisations at the Pentagon that received funds failed to establish the accounts required to track the funds.

The report cited poor record-keeping and said most of the organisations at the Pentagon that received DFI funds failed to use required treasury department accounts. And while most of the money was at least partially tracked, the military failed to produce any records whatsoever for $2.6bn.

Corruption in Iraq in general became all pervasive at the height of the violence in 2006-7 because of the difficulty in monitoring what was going on. Money was dissipated by main contractors sub-contracting work which was sub-contracted in turn with each company involved taking a profit.

In a separate development, the General Electric Company has agreed to pay $23.4m to settle bribery charges relating to Iraq, the Security and Exchange Commission said yesterday. GE settled without admitting the charges which relate to a $3.6m kickback scheme to win contracts to supply medical and water purification equipment.

Iraq is still no nearer to forming a government as a parliamentary session to discuss the new administration was postponed indefinitely yesterday. Iraq's parliamentary election was held on 7 March but no party won an outright majority or has been able to put together a coalition which has a majority, largely because the Shia coalition which won the election in 2005 is split and has been unable to recombine. The Prime Minister Nouri al-Maliki's State of Law party has been unable to reach agreement with the Shia religious parties in the Iraqi National Alliance.

The stumbling block is Mr Maliki himself, who is refusing to step down despite the fact that he is deeply distrusted by potential allies in any future coalition. The US would like him to form an alliance with former Prime Minister, Ayad Allawi, whose al-Iraqiya party largely depends on Sunni votes.

The continuing political stalemate is eroding the legitimacy of the present government.