"The breakdown in controls left the funds vulnerable to inappropriate uses and undetected loss," the Special Inspector General for Iraq Reconstruction said in a report.

The Pentagon received 9.1 billion dollars in 2004 from the fund set up by the US-led occupation authority to benefit Iraqis with Iraqi oil and gas revenues and assets seized from the ousted regime of Saddam Hussein.

But the audit found the Pentagon cannot properly account for 8.7 billion dollars because defense agencies that received the money failed to set up required Treasury accounts and no single organization was created to manage the funds.

The audit found that "weaknesses" in the Department of Defense (DOD) financial and management controls meant it could not account properly for the funds.

"This situation occurred because most DoD organizations receiving DFI (Development Fund for Iraq) funds did not establish the required Department of the Treasury accounts and no DoD organization was designated as the executive agent for managing the use of DFI funds," the report explained.

Separately "our selective review shows the records were not always complete. For example, (the Pentagon) could not provide documentation to substantiate how it spent 2.6 billion dollars," the report added.

The US Army Corps of Engineering and the US Central Command disputed the finding, the report said.

The Central Command said documents that could account for the missing money were "likely" deposited at a US base but retrieving it "would require significant archival retrieval efforts."

The Army Corps of Engineering said it had provided auditors with two billion dollars of the funds.

However, the Office of the Special Inspector General for Iraq Reconstruction recommended that Defense Secretary Robert Gates should specify procedures for future accounting all non-government funds made available for such operations.

related report
GE to pay 23 million dollars after Iraq bribery charges
US industrial titan General Electric has agreed to pay over 23 million dollars to settle allegations that it bribed Iraqi officials, a US financial watchdog said on Tuesday.

GE had been accused by the Securities and Exchange Commission of being part of "a 3.6 million dollar kickback scheme with Iraqi government agencies to win contracts to supply medical equipment and water purification equipment."

Four subsidiaries of the Connecticut-based company were accused of bribing officials at the Iraqi ministries of health and oil, trading cash, computer equipment and medical supplies to win lucrative contracts.

The SEC said the four GE units -- two of which were not part of the firm when the alleged bribery took place -- earned around 18.4 million dollars as a direct result of the kickbacks.

"Bribes and kickbacks are bad business, period," said Robert Khuzami, the head of the SEC's Division of Enforcement.

"This case affirms that law enforcement is active across the globe -- offshore does not mean off-limits."

The contracts were linked to the UN's discredited "oil-for-food" program which allowed international firms to offer services paid for from Iraqi oil revenues.

An investigation later found that Iraqi officials had siphoned off around 1.7 billion in kickbacks from the contracts.

In a statement, GE said the "conduct did not meet our standards."

"We believe that it is in the best interests of GE and its shareholders to resolve this matter now, without admitting or denying the allegations, and put the matter behind us."

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