Review launched on payments Army made to KBR over auditor objections

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Controversial charges by contractor KBR for work done in Iraq are getting new scrutiny from the Pentagon, PaperTrail has learned.

The billions in charges by KBR were initially questioned back in 2004 by Pentagon auditors. Those auditors recommended withholding some of the payments, but the Army ignored that advice and paid in full. Now the the Defense Department’s inspector general has decided to review that decision.

In the January 29 letter, which PaperTrail has obtained, the Pentagon’s inspector general states that the review of the payments “will determine the appropriateness of related Army official decisions.”

KBR is the biggest contractor in Iraq and a lightning rod for critics who claim it benefited from its relationship with former Vice President Dick Cheney, who used to head Halliburton, which was once the parent company of KBR. The company provides services to troops under the aegis of the Army’s Logistics Civil Augmentation Program contract.

Back in 2004 the Defense Contract Audit Agency expressed concern over alleged flaws in KBR's billing system. An August 16, 2004 memorandum from the audit agency to the Army stated that 42 percent of the charges KBR was proposing to the Army under the logistics civil augmentation program were not justified. By that time the audit agency had deemed several billion dollars in KBR's charges to the U.S. government questionable or unjustified, according to government reports made available by California Democratic Rep. Henry Waxman.

In the August 2004 memo, the audit agency recommended the Army hold back on 15 percent of its payments to KBR, stating, "KBR will not provide an adequate proposal until there is a consequence."

The Army ultimately ignored the auditors’ advice, but not everyone agreed. Charles Smith, the former head of the Army's field support division that oversaw KBR, tried to withhold 15 percent of the payments to KBR, per the audit agency’s advice, but he was overruled.

"The interest of a corporation, KBR, not the interests of American soldiers or American taxpayers, seemed to be paramount," Smith said in July testimony before the Democratic Policy Committee, which has held several hearings on Iraq contracting. "In 31 years of doing this work, I have never seen anything like the way KBR's unsupported charges were handled by the Department of Defense."

Darryn James, a Defense Department spokesperson, acknowledged that the Pentagon IG had initiated an audit into the issue, “but until that audit is complete, it would be inappropriate to discuss it.”

KBR spokesperson Heather Browne said the firm “remains committed to providing high-quality service to our customer and conducting our business with ethics and integrity.” She went on to say that KBR “will cooperate in any government investigation of these allegations. We remain committed to finding quick resolutions to issues when they arise.”

But why review the matter now, more than four years later? The inspector general review was initiated at the request of the Senate Armed Services Committee, which found issues after conducting its own investigation, according to Peter Levine, counsel for the Committee. He could not release the letter the committee sent to the inspector general or provide further details.

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