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Report to Congressional Leadership and Committees: 

United States Government Accountability Office: 

GAO: 

January 2007: 

Securing, Stabilizing, and Rebuilding Iraq: 

Key Issues for Congressional Oversight: 

Securing, Stabilizing, and Rebuilding Iraq: 

GAO-07-308SP: 

Contents: 

Letter: 

Strategy and Costs: 

Enclosure I: More Comprehensive U.S. Strategy Needed to Achieve Goals 
and Address Challenges in Iraq: 

Enclosure II: U.S. Commitments Involve Significant Resources, but DOD 
Cost Reports and Budgets Limit Transparency: 

Security Conditions: 

Enclosure III: Security Conditions Have Deteriorated as Iraq Has 
Assumed Additional Security Responsibilities: 

Enclosure IV: Assessing the Capabilities of the Iraqi Security Forces 
Is Critical: 

Enclosure V: DOD May Be Unable to Ensure That U.S.-Funded Equipment Has 
Reached Iraqi Security Forces: 

Governance Challenges: 

Enclosure VI: The Iraqi Government Needs to Staff an Effective Civil 
Service and Fight Corruption: 

Enclosure VII: Ministry Capacity Development Efforts Need Integrated 
Plan: 

Enclosure VIII: Several Factors Affect Iraqi Ministry Efforts to Spend 
Capital Budgets: 

Enclosure IX: Iraq Owes Significant Foreign Debt and Faces Challenges 
in Meeting IMF Conditions: 

Reconstruction Challenges: 

Enclosure X: U.S. Efforts to Restore Iraq's Oil Sector Have Been Slowed 
by Major Challenges: 

Enclosure XI: U.S. Efforts to Improve Iraq's Electricity Sector Have 
Been Constrained by Security, Management, and Funding Challenges: 

U.S. Military Readiness: 

Enclosure XII: Extended Operations Have Had Significant Consequences 
for the U.S. Military: 

Enclosure XIII: Securing Munitions Sites and Alleviating Armor 
Shortages Have Been Serious Problems: 

Enclosure XIV: Deficiencies in Supply Support for U.S. Ground Forces 
Have Resulted in Shortages of Critical Items: 

Improving Acquisition Outcomes: 

Enclosure XV: DOD Needs to Improve Its Capacity to Manage Contractors: 

Objectives, Scope, and Methodology, and Staff Acknowledgments: 

Enclosure XVI: Objectives, Scope, and Methodology: 

Enclosure XVII: Staff Acknowledgments: 

Abbreviations: 

CDWG: Capacity Development Working Group: 

CPA: Coalition Provisional Authority: 

CSIS: Center for Strategic and International Studies: 

DOD: Department of Defense: 

EPSS: Electric Power Security Service: 

GRD: Gulf Region Division: 

GWOT: global war on terrorism: 

HMMWV: High-Mobility Multipurpose Wheeled Vehicle: 

IAMB: International Advisory and Monitoring Board: 

IED: improvised explosive device: 

IMF: International Monetary Fund: 

IRMO: Iraq Reconstruction Management Office: 

IRRF: Iraqi Relief and Reconstruction Fund: 

ISF: Iraqi security forces: 

ISFF: Iraqi Security Forces Fund: 

JIEDDO: Joint Improvised Explosive Device Defeat Organization: 

LOGCAP: Logistics Civil Augmentation Program: 

MAT: Ministry Assistance Team: 

mbpd: million barrels per day: 

MNF-I: Multinational Force-Iraq: 

MNSTC-I: Multinational Security Transition Command-Iraq: 

mw: megawatt: 

NCDP: National Capacity Development Program: 

NSC: National Security Council: 

NSVI: National Strategy for Victory in Iraq: 

OIF: Operation Iraqi Freedom: 

OMB: Office of Management and Budget: 

SIB: Strategic Infrastructure Battalions: 

SIGIR: Special Inspector General for Iraqi Reconstruction: 

TRA: Transition Readiness Assessment: 

USAID: United States Agency for International Development: 

United States Government Accountability Office: 
Washington, DC 20548: 

January 9, 2007: 

Congressional Leadership and Committees: 

As the United States reviews its plans to secure, stabilize, and 
rebuild Iraq, I have enclosed a series of issue papers for 
consideration in developing your oversight agenda for the 110th 
Congress and analyzing the President's revised strategy for Iraq. These 
papers are based on the continuing work of the U.S. Government 
Accountability Office and the 67 Iraq-related reports and testimonies 
we have provided to the Congress since May 2003. 

Iraq has had three successful elections, adopted a constitution, and 
installed its first elected government. At the same time, since the 
initial ground offensive ended in 2003, the costs to secure and 
stabilize Iraq have grown substantially, as has the level of violence 
that afflicts Iraqi society. Such violence stems from an insurgency 
that has grown more complex and lethal over the past 3 years and the 
Sunni-Shi'a conflict, which escalated dramatically in 2006. This 
instability complicates meaningful political reconciliation among 
Iraq's religious and tribal groups, reduces the effectiveness of U.S. 
and Iraqi reconstruction and capacity-building efforts, and diminishes 
the hopes and expectations of an Iraqi people without adequate jobs, 
water, fuel, and electricity. 

Increasing Iraqi security forces and transferring security 
responsibilities to them have not resulted in reduced violence. Rather, 
attacks increased throughout 2006. Although more Iraqi troops have been 
trained and equipped, high absenteeism and divided loyalties have 
limited their overall effectiveness. At the same time, our service 
members are working with great courage and diligence to perform the 
roles the President has asked of them. Notwithstanding their noble 
efforts, the U.S. military has sustained significant casualties. In 
addition, wear and tear on military equipment and growing replacement 
costs have risen substantially. The resulting stress and strain on 
American forces have reduced troop readiness levels and the 
availability of reserve personnel. 

The U.S. rebuilding effort in Iraq has focused on helping the Iraqi 
government establish a sound economy with the capacity to deliver 
essential services. Although Iraq's economy has grown and U.S. efforts 
have helped restore portions of Iraq's infrastructure, the poor 
security environment and mismanagement have diminished the overall 
results of U.S. investments. Iraq will need U.S. and international 
support, including political and economic incentives, to strengthen its 
fragile government institutions, which have thus far failed to 
adequately deter corruption, stimulate employment, or deliver essential 
services. 

The enclosures that follow discuss these issues and other critical 
challenges that the United States and its allies face in the ongoing 
struggle to help the Iraqis stabilize, secure, and rebuild Iraq. 
Forthright answers to the oversight questions we pose herein are needed 
from the U.S. agencies responsible for executing the President's 
strategy. Congress and the American people need complete and 
transparent information on the progress made toward achieving U.S. 
security, economic, and diplomatic goals in Iraq to reasonably judge 
our past efforts and determine future directions. 

It is also important that the U.S. government account for the funds 
that it expended on behalf of the Iraqi government through the 
Development Fund for Iraq. After all, the Coalition Provisional 
Authority had a fiduciary responsibility to properly safeguard, use, 
and account for these funds. 

These enclosures focus on the U.S. strategy and costs of operations in 
Iraq; security, governance, and reconstruction issues; the readiness of 
U.S. military forces; and acquisition outcomes. They are based on our 
completed and ongoing Iraq-related work, and incorporate information 
from official documents and relevant officials from the various 
agencies involved in stabilizing and rebuilding Iraq, including the 
Departments of Defense, Energy, State, and the Treasury; the U.S. 
Agency for International Development; the Army Corps of Engineers; the 
multinational force; and the Defense Intelligence Agency. As part of 
this work, we made multiple visits to Iraq during 2006. For the 
enclosures that include new information, we provided copies to the 
relevant agencies for advanced review and technical comments, which we 
incorporated as appropriate. We conducted our review in accordance with 
generally accepted government auditing standards. Enclosure XVI 
contains a detailed scope and methodology. 

We are sending copies of this report to Members of Congress. This 
report will also be available at no charge on GAO's Web site at 
[Hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact the individual listed at the end of each enclosure. Contact 
points for our Offices of Congressional Relations and Public Affairs 
can be found on the last page of this report. For press inquiries, 
please contact Paul Anderson at (202) 512-3823. Key contributors to 
this report are included in enclosure XVII. 

Thank you for your time and consideration. As always, we at GAO stand 
ready to assist Congress in discharging its constitutional 
responsibilities for the benefit of the American people. 

Signed by: 

David M. Walker: 
Comptroller General of the United States: 

Enclosures: 

List of Congressional Leadership and Committees: 

The Honorable Harry Reid: 
Majority Leader: 
The Honorable Mitch McConnell: 
Minority Leader: 
United States Senate: 

The Honorable Nancy Pelosi: 
The Speaker of the House of Representatives: 

The Honorable John A. Boehner: 
Minority Leader: 
House of Representatives: 

The Honorable Robert C. Byrd: 
The Honorable Thad Cochran: 
Committee on Appropriations: 
United States Senate: 

The Honorable Carl Levin: 
The Honorable John S. McCain: 
Committee on Armed Services: 
United States Senate: 

The Honorable Joseph R. Biden, Jr. 
The Honorable Richard G. Lugar: 
Committee on Foreign Relations: 
United States Senate: 

The Honorable Joseph I. Lieberman: 
The Honorable Susan M. Collins: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable David Obey: 
Chairman: 
The Honorable Jerry Lewis: 
Ranking Minority Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Ike Skelton: 
Chairman: 
The Honorable Duncan L. Hunter: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Tom Lantos: 
Chairman: 
The Honorable Ileana Ros-Lehtinen: 
Ranking Minority Member: 
Committee on Foreign Affairs: 
House of Representatives: 

The Honorable Henry A. Waxman: 
Chairman: 
The Honorable Tom Davis: 
Ranking Minority Member: 
Committee on Oversight and Government Reform: 
House of Representatives: 

The Honorable Christopher Shays: 
Ranking Minority Member: 
Subcommittee on National Security and International Relations: 
Committee on Oversight and Government Reform: 
House of Representatives: 

[End of section] 

Strategy and Costs: 

Enclosure I: More Comprehensive U.S. Strategy Needed to Achieve Goals 
and Address Challenges in Iraq: 

Enclosure II: U.S. Commitments Involve Significant Resources, but DOD 
Cost Reports and Budgets Limit Transparency: 

[End of section] 

Enclosure I: More Comprehensive U.S. Strategy Needed to Achieve Goals 
and Address Challenges in Iraq: 

Issue: 

In November 2005, the National Security Council (NSC) issued the 
National Strategy for Victory in Iraq (NSVI) to clarify the President's 
strategy[Footnote 1] for achieving U.S. political, security, and 
economic goals in Iraq. The U.S. goals included establishing a 
peaceful, stable, and secure Iraq. Based on a GAO report issued in July 
2006[Footnote 2] and other GAO reviews, this enclosure discusses (1) 
the extent to which the NSVI and its supporting documents addressed the 
six characteristics of an effective national strategy, and (2) how 
security, political, and economic factors have affected the U.S. 
strategy for Iraq. Congressional review of the President's 2007 plan 
for Iraq should consider whether it addresses the key elements of a 
sound national strategy. 

Summary: 

We reported in July 2006 that the NSVI was an improvement over previous 
U.S. planning efforts for stabilizing and rebuilding Iraq. The 
strategy's positive attributes included a clear purpose and scope and 
identification of U.S. involvement in Iraq as a "vital national 
interest and the central front in the war on terror." The strategy also 
provided a comprehensive description of U.S. political, security, and 
economic objectives in Iraq. However, the discussion of outcome-related 
performance measures to assess progress in achieving these goals and 
objectives was limited. Moreover, the strategy fell short in at least 
three other areas. First, it only partially identified the agencies 
responsible for implementing key aspects of the strategy. Second, it 
did not fully address how the U.S. will integrate its goals with those 
of the Iraqis and the international community, and it did not detail 
Iraq's anticipated contribution to its future needs. Third, it only 
partially identified the current and future costs of U.S. involvement 
in Iraq, including maintaining U.S. military operations, building Iraqi 
government capacity, and rebuilding critical infrastructure. 

Security, political, and economic factors continue to hamper U.S. 
efforts to stabilize Iraq and achieve key U.S. goals. First, the United 
States and Iraq are trying to revitalize Iraq's economy and restore the 
oil, electricity, and other key sectors. However, these efforts have 
been impeded by security, corruption, and other challenges. 

NSVI Did Not Fully Address All Key Characteristics of an Effective 
National Strategy: 

The NSVI aimed to improve U.S. strategic planning for Iraq; however, 
the NSVI and supporting documents did not fully address all of the six 
desirable characteristics of effective national strategies that GAO has 
identified through its prior work.[Footnote 3] We used these six 
characteristics to evaluate the strategy--that is, the NSVI and 
supporting documents that Department of Defense (DOD) and Department of 
State officials said encompassed the U.S. strategy for rebuilding and 
stabilizing Iraq.[Footnote 4] 

As figure 1 shows, the strategy generally addressed three of the six 
characteristics but only partially addressed three others, limiting its 
usefulness in guiding agency implementation efforts and achieving 
desired results. Moreover, since the strategy was dispersed among 
several documents instead of one, its effectiveness as a planning tool 
for implementing agencies and informing Congress about the pace, costs, 
and intended results of these efforts was limited. 

Figure 1: Extent That November 2005 U.S. Strategy for Iraq Addressed 
GAO's Desirable Characteristics of an Effective National Strategy: 

[See PDF for image] 

Signed by: GAO analysis of NSC, State, and DOD data. 

[End of figure] 

As shown in figure 1, the NSVI and supporting documents only partially 
(1) delineated the roles and responsibilities of key U.S. government 
agencies; (2) described the means by which the strategy will be 
integrated among U.S. entities, the Iraqi government, and international 
organizations, and the mechanisms for coordination; and (3) identified 
the strategy's costs and sources of financing. 

* Although the strategy partially addressed the roles and 
responsibilities of specific U.S. government agencies and offices and 
the process for coordination, it is not clear which agency was 
responsible for implementing the overlapping activities listed under 
the NSVI's eight strategic objectives. For instance, one activity was 
to promote transparency in the executive, legislative, and judicial 
branches of the Iraqi government; however, the NSVI and supporting 
documents did not indicate which agency was responsible for 
implementing this activity, or who was to be held accountable for 
results. Moreover, little guidance was provided to assist implementing 
agencies in resolving conflicts among themselves, as well as with other 
entities. 

* The NSVI and supporting documents partially addressed how the 
strategy related to other international donors and Iraqi government 
goals, objectives, and activities. For instance, the NSVI and 
supporting documents identified the need to integrate the efforts of 
the coalition, the Iraqi government, and other nations, but did not 
discuss how U.S. goals and objectives would be integrated. In addition, 
the strategy did not address what it expects the international 
community or the Iraqi government to pay to achieve future objectives. 

* The November 2005 National Strategy for Victory in Iraq and related 
supporting documents did not clearly identify the costs of U.S. 
military operations, including the costs to repair and replace 
equipment used during operations. The strategy did not identify other 
key related costs, including the costs of training, equipping, and 
supporting Iraq's security forces; the costs of rebuilding, 
maintaining, and protecting critical oil and electricity 
infrastructure; or the costs of building management capacity in Iraq's 
central ministries and 18 provincial governments. In addition to these 
costs, the new Iraqi government will need significant help in building 
the procurement, financial management, accountability, and other key 
systems needed to govern and provide basic services to its citizens. 

Security, Political, and Economic Factors Hamper Efforts to Achieve 
Strategic Goals: 

Our July 11, 2006, report and other GAO work show that security, 
political, and economic factors have hampered and will continue to 
influence U.S. efforts to stabilize Iraq and achieve key U.S. strategic 
goals. First, increases in attacks against the coalition and its Iraqi 
partners, growing sectarian violence, and the influence of militias 
have adversely affected U.S. and Iraqi efforts to secure Baghdad and 
other strategic cities. Second, sectarian control over ministries and 
the lack of skilled employees hinder efforts to improve Iraq's 
governance by building the capacity of ministries and reconciling 
differences among sectarian interests. Third, security, corruption, and 
fiscal problems limit U.S. and Iraqi plans to revitalize Iraq's economy 
and restore essential services in the oil and electricity sectors. 

* Overall security conditions in Iraq have continued to deteriorate and 
have grown more complex despite recent progress in transferring 
security responsibilities to Iraqi security forces and the Iraqi 
government. The number of trained and equipped Iraqi security forces 
has increased from about 174,000 in July 2005 to about 323,000 as of 
December 2006, at the same time as more Iraqi army units have taken the 
lead for counterinsurgency operations in specific geographic areas. 
Despite this progress, however, attacks on coalition forces, Iraqi 
security forces, and civilians have all increased, reaching record 
highs in October 2006. Because of these conditions, the United States 
could not draw down U.S. force levels in Iraq as planned in 2004 and 
2006, and U.S. forces have continued to conduct combat operations in 
urban areas, especially Baghdad (see encl. III). 

* The U.S. government faces significant challenges in improving the 
capability of national and provincial governments to provide security 
and deliver services to the Iraqi people. According to State, the Iraqi 
capacity for self-governance was decimated after nearly 30 years of 
autocratic rule. In addition, Iraq lacked competent existing Iraqi 
governmental organizations. Since 2003, the United States has provided 
the Iraqis with a variety of training and technical assistance to 
improve their capacity to govern. As of December 2006, we identified 
more than 50 capacity development efforts led by at least 6 U.S. 
agencies (see encl. VII). 

* Iraq's oil production and exports have consistently fallen below U.S. 
program goals. U.S. and Iraqi efforts to restore Iraq's oil sector have 
been impeded by the lack of security, corruption, sustainability, and 
funding challenges. The unstable security environment continues to 
place workers and infrastructure at risk while protection efforts 
remain insufficient. Widespread corruption and smuggling affect the 
distribution of refined oil products such as gasoline. The U.S. 
reconstruction program has encountered difficulty with Iraq's ability 
to operate and maintain aging infrastructure. Furthermore, 
uncertainties exist regarding the sources of future funding. These 
challenges could make it difficult to achieve current production and 
export goals, which are central to Iraq's economic development (see 
encl. X). 

Prior Recommendations: 

In our July 2006 report, we recommended that the NSC improve the 
current strategy by articulating clear roles and responsibilities, 
specifying future contributions, and identifying current costs and 
future resources. In addition, the United States, Iraq, and the 
international community should (1) enhance support capabilities of the 
Iraqi security forces, (2) improve the capabilities of the national and 
provincial governments, and (3) develop a comprehensive anti-corruption 
strategy. State commented that the NSVI's purpose is to provide a broad 
overview of the U.S. strategy in Iraq rather than a detailed account. 
GAO's analysis was not based exclusively on the NSVI but included all 
key supporting documents. Consequently, GAO retained the recommendation 
for a more complete and integrated strategy. 

Oversight Questions: 

* What is the desired end-state of U.S. involvement in Iraq? How long, 
and at what cost, will it take to achieve a peaceful, stable, and 
secure Iraq? 

* What political and economic incentives are needed to increase 
security, improve government capacity, and reduce corruption in Iraq? 

* How will revised U.S. plans incorporate enhanced support for Iraqi 
security forces and national and provincial governments? 

* How will revised U.S. plans assist the Iraqi government in developing 
a comprehensive anti-corruption strategy? 

* If the President suggests a troop increase, what would be the mission 
of the additional troops? 

- How long would they stay? 

- How would the success of the mission be measured? 

- What additional costs would the United States incur? 

* To what extent does the administration's revised strategy integrate 
the input and resources of the Iraqi government? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or Hchristoffj@gao.govH. 

[End of section] 

Enclosure II: U.S. Commitments Involve Significant Resources, but DOD 
Cost Reports and Budgets Limit Transparency: 

Issue: 

Since 2001, Congress has appropriated about $495 billion to U.S. 
agencies for military and diplomatic efforts in support of the global 
war on terrorism (GWOT); the majority of this amount has gone to 
stabilize and rebuild Iraq. Efforts in Iraq involve various activities 
such as combating insurgents, conducting civil affairs, building 
capacity, reconstructing infrastructure, and training Iraqi military 
forces. The Departments of Defense (DOD) and State and the U.S. Agency 
for International Development, among others, play primary roles. To 
date, the United States has reported substantial costs[Footnote 5] for 
Iraq and can expect to incur significant costs in the foreseeable 
future, requiring decision makers to consider difficult trade-offs as 
the nation faces an increasing number of long-range fiscal challenges. 
Funding for these efforts has been provided through annual 
appropriations, as well as supplemental appropriations that are outside 
the annual budget process. Moving more funding into baseline budgets, 
particularly for DOD, would enable decision makers to better weigh 
priorities and assess trade-offs. This enclosure describes (1) the 
reported costs incurred by DOD and other U.S. agencies for military 
operations, reconstruction efforts, and stabilization activities in 
Iraq since 2003; and (2) the issues involved in estimating future 
financial commitments related to U.S involvement. 

Summary: 

As of September 30, 2006, DOD had reported costs of about $257.5 
billion[Footnote 6] for military operations in Iraq. In addition, as of 
October 2006, about $29 billion had been obligated for Iraqi 
reconstruction and stabilization efforts. However, problems with the 
processes for recording and reporting GWOT costs raise concerns that 
these data may not accurately reflect the true dollar value of war- 
related costs. U.S. commitments to Iraq will likely involve the 
continued investment of significant resources and will depend on 
several direct and indirect cost variables and, in some cases, 
decisions that have yet to be made. For DOD, these include the pace and 
duration of operations, redeployment and basing plans, and the amount 
of equipment to be repaired or replaced. Cost variables for other U.S. 
agencies include efforts to help form national and provincial 
governments, develop management capacity, build capable and loyal 
security forces, and undertake reconstruction activities to restore, 
sustain, and protect critical infrastructure. With activities likely to 
continue into the foreseeable future, decision makers will have to 
carefully weigh priorities and make difficult decisions when budgeting 
for future costs. 

Reported Costs for Operations in Iraq Are Increasing: 

Since 2003, when DOD began Operation Iraqi Freedom, DOD has reported 
cumulative costs of about $257.5 billion for military operations in 
Iraq. As shown in figure 1, DOD's reported costs show a steady increase 
from about $38.8 billion in fiscal year 2003 to about $83.4 billion in 
fiscal year 2006. The largest increase has been in operation and 
maintenance expenses, including items such as support for housing, 
food, and services; the repair of equipment; and transportation to move 
people, supplies, and equipment. Between fiscal years 2003 and 2006, 
DOD reported increases in these expenses from about $29.9 billion to 
about $50 billion. According to DOD officials, some of this increase is 
attributable to higher fuel costs and higher costs for contracts to 
provide housing, food, and services. Reported costs for military 
personnel have increased from about $8 billion in fiscal year 2003 to 
about $14.1 billion in fiscal year 2006, and include military pay and 
allowances for mobilized reservists, as well as special payments or 
allowances, such as imminent danger pay. DOD has also reported that 
costs for procurement of equipment and other items have increased from 
$0.7 billion in fiscal year 2003 to about $13 billion in fiscal year 
2006. 

Figure 1: DOD's Reported Costs for Operation Iraqi Freedom by Fiscal 
Year: 

[See PDF for image] 

Source: GAO analysis of DOD data. 

Note: DOD spent an additional $6.1 billion for operations in Iraq that 
was not included in DOD's reported costs. 

[End of figure] 

Other U.S. government agencies have reported obligating $29 billion for 
Iraqi reconstruction and stabilization, as of October 2006. Among other 
uses, these funds have been used for infrastructure repair of the 
electricity, oil, water, and health sectors; training and equipping of 
Iraqi security forces (military and police); and administrative 
expenses. The Department of State reports that the remaining funds will 
be used to sustain the infrastructure projects that are completed or 
under way and to build greater capacity at the national, provincial, 
and municipal levels. 

Our prior work[Footnote 7] found numerous problems with DOD's processes 
for recording and reporting its war-related costs, including long- 
standing deficiencies in DOD's financial management systems and 
business processes, the use of estimates instead of actual cost data, 
and the lack of adequate supporting documentation. DOD has taken some 
steps to address these issues, but problems remain. Without transparent 
and accurate cost reporting, Congress and DOD will continue to not have 
reliable information on how much the war is costing, sufficient details 
on how appropriated funds are being spent, or the historical data 
needed to consider future funding needs. 

Future Iraq Costs Are Likely to Be Considerable: 

U.S. military and diplomatic commitments in Iraq will continue for the 
foreseeable future and are likely to be in the hundreds of billions of 
dollars. The magnitude of future costs will depend on several direct 
and indirect variables and, in some cases, decisions that have not been 
made. DOD's future costs will likely be affected by the pace and 
duration of operations, the types of facilities needed to support 
troops overseas, redeployment plans, and the amount of equipment to be 
repaired or replaced. Although reducing troops would appear to lower 
costs, we have seen from previous operations in the Balkans and Kosovo 
that costs could rise--if, for example, increased numbers of 
contractors replace military personnel. If the pace of operations 
remains high or troops are increased, costs for force protection, fuel, 
and other items could remain high. Lastly, sustained operations will 
continue to take a toll on the condition of equipment. The Army and 
Marine Corps will have the largest equipment reset (repaired, 
recapitalized, or replaced) costs. Although the military services are 
refining estimates of overall needs, their total requirements and costs 
are still unclear. 

Other future costs to the U.S. government in Iraq include efforts to 
help form national and provincial governments, develop management 
capacity, and build capable and loyal security forces. Also, more funds 
will be needed to restore, sustain, and protect infrastructure. The new 
Iraqi government will need significant help in building the 
procurement, financial management, and accountability systems needed to 
govern and provide basic services to its citizens. The 18 provincial 
governments will need assistance in building management capacity and 
delivering results that make a difference in Iraqis' daily lives. 
Sustaining Iraqi military and police forces of 323,000 personnel will 
require the Iraqi government to spend more money on personnel, 
maintenance, and equipment than originally anticipated. Also, the new 
Iraqi security forces will need additional help in addressing recurring 
training needs, replacing lost or stolen equipment, and developing 
improved logistical and sustainment capabilities. Although most of the 
early U.S. reconstruction monies for Iraq have been obligated, more 
funds will be needed for remaining reconstruction needs and to restore, 
sustain, and protect the infrastructure built to date. 

With U.S. commitments in Iraq continuing for the foreseeable future, 
requiring decision makers to make difficult decisions, we would 
encourage DOD to consider moving certain costs into the baseline 
budget, as it has done with Operation Noble Eagle.[Footnote 8] This 
action is consistent with our prior recommendations and 
testimony[Footnote 9] that, once an operation reaches a known level of 
effort and costs are more predictable, more funding should be built 
into the baseline budget. We note that Congress, in the John Warner 
National Defense Authorization Act for Fiscal Year 2007, requires, 
among other things, that the President's annual budget submitted after 
fiscal year 2007 include a request for the funds for ongoing military 
operations in Iraq and Afghanistan. Doing so would allow decision 
makers to weigh priorities and consider trade-offs in making financial 
decisions. 

Prior Recommendations: 

Over the years, we have made a series of recommendations to the 
Secretary of Defense intended to improve the transparency and 
reliability of DOD's GWOT obligation data, including recommendations 
that DOD (1) revise the cost-reporting guidance so that large amounts 
of reported obligations are not shown in "miscellaneous" categories, 
and (2) take steps to ensure that reported GWOT obligations are 
reliable. We have also recommended that DOD build more funding into the 
baseline budget once an operation reaches a known level of effort and 
costs are more predictable. In response, the department has implemented 
many of our previous recommendations. 

Oversight Questions: 

* What are the key factors causing steady growth in agencies' reported 
costs to address the situation in Iraq, and what steps are being taken 
to control costs? 

* To what extent have U.S. government agencies estimated the future 
costs and financial requirements of continued efforts in Iraq? 

* To what extent are improvements being made to existing accounting and 
management information systems so that they will be able to provide 
complete and reliable reporting on costs? 

* To what extent will the unstable security environment affect 
reconstruction efforts in Iraq, and what is the impact on future costs? 

* What steps are U.S. government agencies taking to move some of their 
more predictable costs into their baseline budgets? 

* Does DOD have a valid basis for determining funding needs for Iraq? 

GAO Contacts: 

Sharon Pickup, Director, Defense Capabilities and Management, (202) 512-
9619 or pickups@gao.gov; and Joseph A. Christoff, Director, 
International Affairs and Trade, (202) 512-8979 or 
Hchristoffj@gao.govH. 

[End of section] 

Security Conditions: 

Enclosure III: Security Conditions Have Deteriorated as Iraq Has 
Assumed Additional Security Responsibilities: 

Enclosure IV: Assessing the Capabilities of the Iraqi Security Forces 
Is Critical: 

Enclosure V: DOD May Be Unable to Ensure That U.S.-Funded Equipment Has 
Reached Iraqi Security Forces: 

[End of section] 

Enclosure III: Security Conditions Have Deteriorated as Iraq Has 
Assumed Additional Security Responsibilities: 

Issue: 

Since the fall of 2003, the U.S.-led multinational force in Iraq has 
developed and refined a series of plans to transfer security 
responsibilities to the Iraqi government and security forces, with the 
intent of creating conditions that would allow a gradual drawdown of 
the 140,000 U.S. military personnel in Iraq. This security transition 
was to occur first in conjunction with the neutralization of Iraq's 
insurgency and second with the development of Iraqi forces and 
government institutions capable of securing their country. According to 
the November 2005 National Strategy for Victory in Iraq, security 
conditions in Iraq were expected to improve as the Iraqi government and 
security forces became more capable and took the lead for security. 
This enclosure provides information on (1) the evolution of the 
multinational force's plan to transfer security responsibilities to the 
Iraqi government and forces, and (2) whether progress in implementing 
the current security transition plan has led to improved security 
conditions in Iraq. 

Summary: 

The Multinational Force-Iraq (MNF-I) has revised its security 
transition plan numerous times over the past 3 years, as Iraqi security 
forces and government have not effectively taken over security 
responsibilities within planned time frames.[Footnote 10] MNF-I first 
revised its security transition plan in the summer of 2004 following 
the collapse of Iraqi security forces during an insurgent uprising. 
This collapse ensued when MNF-I transferred security responsibilities 
to Iraqi forces before they were properly trained and equipped to 
battle insurgents. Under the current security transition plan, MNF-I 
has established partnerships with Iraqi security forces, is developing 
Iraqi army units so that they can lead counterinsurgency operations, 
and is assessing when to transfer security responsibilities to 
provincial Iraqi governments. After provincial transitions occur, the 
plan calls for MNF-I forces to move out of urban areas and assume a 
supporting role. 

Overall security conditions in Iraq have continued to deteriorate and 
have grown more complex despite recent progress in transferring 
security responsibilities to Iraqi security forces and the Iraqi 
government. The number of trained and equipped Iraqi security forces 
has increased from about 174,000 in July 2005 to about 323,000 in 
December 2006, at the same time as more Iraqi army units have taken the 
lead for counterinsurgency operations in specific geographic areas. 
Despite this progress, however, attacks on coalition forces, Iraqi 
security forces, and civilians have all increased, reaching record 
highs in October 2006. Because of these conditions, the United States 
could not draw down U.S. force levels in Iraq as planned in 2004 and 
2006, and U.S. forces have continued to conduct combat operations in 
urban areas, especially Baghdad. 

MNF-I Revised Security Transition Plan Because Iraq Could Not 
Effectively Take Over Security Responsibilities: 

From the fall of 2003 through April 2006, MNF-I revised its security 
transition plan a number of times because the Iraqi government and 
security forces have proved incapable of assuming security 
responsibilities within the time frames envisioned by the plans. For 
example, in October 2003, the multinational force outlined a four- 
phased plan for transferring security missions to Iraqi security forces 
(see table 1). Citing the growing capability of Iraqi security forces, 
MNF-I attempted to quickly shift responsibilities to them in February 
2004 but did not succeed in this effort. In Baghdad, for example, the 
coalition forces withdrew to bases outside of the city, giving Iraqi 
forces greater responsibility for security within the city. In April 
2004, however, Iraqi police and military units performed poorly during 
an escalation of insurgent attacks against the coalition.[Footnote 11] 
Many Iraqi security forces around the country collapsed during this 
uprising, with some units abandoning their posts and responsibilities 
and in some cases assisting the insurgency. Following the collapse of 
Iraqi security forces, MNF-I identified a number of problems that 
contributed to their poor performance, including problems in training 
and equipping Iraqi forces, and revised its security transition 
plan.[Footnote 12] 

Table 1: MNF-I's Initial and Current Plans for Transferring Security 
Responsibilities to Iraq: 

Phase: Phase I; 
Initial security transition plan (October 2003): Mutual support: The 
multinational force establishes conditions for transferring security 
responsibilities to Iraqi forces; 
Current security transition plan (2005 and 2006): Partnership: MNF-I 
and its major subordinate commands establish and maintain partnerships 
in all Iraqi security force units, from battalion to ministerial level. 

Phase: Phase II; 
Initial security transition plan (October 2003): Transition to local 
control: Iraqi forces in a local area assume responsibility for 
security; 
Current security transition plan (2005 and 2006): Iraqi army lead: 
Process during which Iraqi army units progress in capability from unit 
formation to the ability to conduct counterinsurgency operations in 
specific geographic areas. 

Phase: Phase III; 
Initial security transition plan (October 2003): Transition to regional 
control: Iraqi forces are responsible for larger regions; 
Current security transition plan (2005 and 2006): Provincial Iraqi 
control: Iraqi civil authorities satisfy the conditions required to 
assume control and exercise responsibility for the security of their 
respective provinces. 

Phase: Phase IV; 
Initial security transition plan (October 2003): Transition to 
strategic over watch: Iraqi forces on a national level are capable of 
maintaining a secure environment against internal and external threats, 
with broad monitoring from the multinational force; 
Current security transition plan (2005 and 2006): Iraqi security self- 
reliance: The government of Iraq is capable of planning, conducting, 
and sustaining security operations and forces through its security 
ministries. 

Source: GAO analysis of Combined Joint Task Force-7, DOD, and State 
documents. 

Note: The phases of the current security transition plan may occur at 
different times throughout Iraq. 

[End of table] 

As shown in table 1, the current version of the security transition 
plan includes four phases. During the first phase, which occurred from 
2005 through 2006, MNF-I expanded the use of military, police, and 
other transition teams to assist in the development of Iraqi security 
forces and ministries, and its major subordinate commands established 
partnerships with Iraqi military units. In the ongoing second phase, 
Iraqi army lead, MNF-I is attempting to organize and develop Iraqi army 
units to the point that they can assume the lead for counterinsurgency 
operations. Units in the lead, however, still require MNF-I support 
because they need to develop additional capabilities, particularly in 
the logistics and combat support areas.[Footnote 13] For the third 
phase, provincial Iraqi control, MNF-I and the Iraqi government 
determine when Iraqi provinces can assume responsibility for security 
based on the threat level in the province, the capabilities of the 
Iraqi security forces and the provincial government, and MNF-I's 
ability to respond to major threats, if needed. According to an MNF-I 
official, as these conditions are met, MNF-I forces will then move out 
of all urban areas and assume a supporting role. 

Progress in Transferring Security Responsibilities to Iraq Has Not Led 
to Improved Security Conditions: 

The security situation has worsened despite progress in implementing 
the current security transition plan (see fig. 1). For example, the 
State Department has reported that the number of trained and equipped 
army and police forces has increased from about 174,000 in July 2005 to 
about 323,000 in December 2006.[Footnote 14] As we previously reported, 
the number of trained and equipped security forces does not provide a 
complete picture of their capabilities and may overstate the number of 
forces on duty.[Footnote 15] Ministry of Interior data include police 
who are absent without leave, but Ministry of Defense data exclude 
absent military personnel. Moreover, according to DOD's November 2006 
report to Congress, due to a lack of standardized personnel strength 
reporting in the Ministry of Interior, it is unclear how many of the 
coalition-trained police the ministry still employs, or what percentage 
of the 180,000 police thought to be on the ministry payroll are 
coalition trained and equipped. 

DOD and State also have reported progress in transferring security 
responsibilities to Iraqi army units and provincial governments. As 
shown in figure 1, the number of Iraqi army battalions in the lead for 
counterinsurgency operations has increased from 21 in March 2005 to 89 
in October 2006. In addition, 7 Iraqi army division headquarters and 30 
brigade headquarters had assumed the lead by December 2006. Moreover, 
by mid-December 2006, three provincial governments--Muthanna, Dhi Qar, 
and Najaf--had taken over security responsibilities for their 
provinces. In November 2006, DOD reported that security responsibility 
for up to five more provinces could transition to Iraqi government 
authority by February 2007. 

Figure 1: Enemy-Initiated Attacks against the Coalition and Its Iraqi 
Partners Compared with Progress in Developing Iraqi Security Forces: 

[See PDF for image] 

Sources: Multinational Force-Iraq, DOD and State Reports, and DIA. 

Notes: For the number of attacks in September 2006, an unclassified 
breakout of categories is not available. 

[End of figure] 

As shown in figure 1, the reported progress in transferring security 
responsibilities to Iraq has not led to improved security conditions. 
Since June 2003, overall security conditions in Iraq have deteriorated 
and grown more complex, as evidenced by the increased numbers of 
attacks and more recent Sunni-Shi'a sectarian strife after the February 
2006 bombing of the Golden Mosque in Samarra. Enemy-initiated attacks 
against the coalition and its Iraqi partners have continued to increase 
through October 2006. The average total attacks per day has increased, 
rising from about 70 per day in January 2006 to about 180 per day in 
October 2006. These attacks have increased around major religious and 
political events, including Ramadan[Footnote 16] and elections. 
Coalition forces are still the primary target of attacks, but the 
number of attacks on Iraqi security forces and civilians also has 
increased since 2003. In October 2006, the State Department reported 
that the recent increase in violence has hindered efforts to engage 
with Iraqi partners and shows the difficulty in making political and 
economic progress in the absence of adequate security conditions. 

Although the Iraqi government and security forces have recently made 
some progress in taking on security responsibilities, they and MNF-I 
have been unable to reduce the levels of violence in Iraq. Because of 
these conditions, the United States has not been able to draw down the 
number of U.S. forces in Iraq as early as planned. For example, after 
the increase in violence and collapse of Iraqi security forces during 
the spring of 2004, DOD decided to maintain a force level of about 
138,000 troops until at least the end of 2005, rather than reducing the 
number of troops to 105,000 by May 2004, as had been announced the 
prior fall. More recently, DOD reversed a decision to significantly 
reduce the U.S. force level during the spring of 2006 because Iraqi and 
coalition forces could not contain the rapidly escalating violence that 
occurred the following summer. After reducing the number of troops from 
about 160,000 in December 2005 to about 127,000 in June 2006, the 
United States increased its force level to 144,000 troops in September 
and October 2006 and then reduced it to 140,000 the following 
month.[Footnote 17] Moreover, rather than moving out of urban areas, 
U.S. forces have continued to conduct combat operations in Baghdad and 
other cities in Iraq, often in conjunction with Iraqi security forces. 

Oversight Questions: 

* Why have security conditions continued to deteriorate in Iraq even as 
the number of trained and equipped Iraqi security forces has increased 
and the Iraqi forces and government have assumed increasing 
responsibility for security? 

* If existing U.S. political, economic, and security measures are not 
reducing violence in Iraq, what additional measures, if any, will the 
administration propose to stem the violence and facilitate the 
achievement of U.S. objectives, including an eventual drawdown of U.S. 
forces? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or christoffj@gao.gov. 

[End of section] 

Enclosure IV: Assessing the Capabilities of the Iraqi Security Forces 
Is Critical: 

Issue: 

Transferring security responsibilities to the Iraqi security forces and 
provincial governments is a critical part of the U.S. government's 
strategy in Iraq and key to allowing a drawdown of U.S. forces. Toward 
this end, the United States has provided about $15.4 billion to train, 
equip, and sustain the Iraqi army and police since 2003. However, it is 
unclear whether U.S. expenditures and efforts are having their intended 
effect in developing capable forces and whether additional resources 
are needed. A key measure of the capabilities of Iraqi forces is the 
Transition Readiness Assessment (TRA) reports prepared by coalition 
advisors embedded in Iraqi units. These reports serve as the basis for 
the Multinational Force-Iraq (MNF-I) determination of when a unit is 
capable of leading counterinsurgency operations and can assume security 
responsibilities for a specific area. This enclosure (1) assesses 
limitations in Department of Defense (DOD) and State Department reports 
on Iraqi security forces, and (2) discusses how unit-level TRA reports 
provide more comprehensive information on Iraqi security force 
capabilities. 

Summary: 

Although DOD and State reports indicate progress in the development of 
Iraqi security forces, the aggregate nature of the reports does not 
provide comprehensive information on the capabilities and needs of 
individual units. As of December 2006, MNF-I had trained and equipped 
approximately 323,000 Iraqi security forces, had assigned specific 
areas of operations to 128 Iraqi army units, and had transferred 
security responsibilities to three Iraqi provinces. However, aggregate 
numbers of trained and equipped forces that are leading operations do 
not provide information on the capabilities and needs of individual 
units. This information is found in unit-level TRA reports. These 
reports provide the coalition commander's professional judgment on an 
Iraqi unit's capabilities and are based on ratings in personnel, 
command and control, equipment, sustainment and logistics, training, 
and leadership. To conduct future work on this issue, GAO has made 
multiple requests for access to the unit-level TRA reports over the 
last year. However, DOD has not yet complied with our requests. This 
serves to limit congressional oversight over the progress achieved 
toward a critical U.S. objective. 

Reports on Iraqi Security Forces Provide Limited Assessments of 
Capabilities: 

DOD and State reports provide some information on the development of 
Iraqi security forces, but they do not provide detailed information on 
the specific capabilities that affect the readiness levels of 
individual units. For example, DOD and State provide Congress with 
weekly and quarterly reports on the progress made in developing capable 
Iraqi security forces and transferring security responsibilities to the 
Iraqi army and the Iraqi government. This information is provided in 
two key areas: (1) the number of trained and equipped forces, and (2) 
the number of Iraqi army units and provincial governments that have 
assumed responsibility for security of specific geographic areas. 

The State Department reports that the number of trained and equipped 
Iraqi security forces has increased from about 174,000 in July 2005 to 
about 323,000 in December 2006.[Footnote 18] DOD reports that, as of 
December 5, 2006, 128 Iraqi army units--7 division headquarters, 30 
brigade headquarters, and 91 battalions--have assumed the lead for 
counterinsurgency operations in their areas of responsibility. In 
addition, Muthanna, Dhi Qar, and Najaf provincial governments assumed 
security responsibility in July, September, and December 2006, 
respectively. However, these numbers do not provide a complete picture 
of Iraqi security forces' capabilities in part because they may 
overstate the number of forces on duty. For example, Ministry of 
Interior data include police who are absent without leave, but Ministry 
of Defense data exclude absent personnel. Moreover, the numbers do not 
give detailed information on the status of equipment, personnel, 
training, or leadership. Unit-level TRA reports provide that 
information. For additional information on the limitations of DOD-and 
State-reported information on the number of units trained and equipped 
as well as the transfer of security responsibilities, see enclosure 
III. 

Transition Readiness Assessments Assess Iraqi Security Force 
Capabilities: 

MNF-I uses the TRA system to determine when units of the Iraqi security 
forces can assume the lead for conducting security operations. The TRA 
is a joint assessment, prepared monthly by the unit's coalition 
commander and Iraqi commander. According to MNF-I guidance, the purpose 
of the TRA system is to provide commanders with a method to 
consistently evaluate units; it also helps to identify factors 
hindering unit progress, determine resource shortfalls, and make 
resource allocation decisions. The basic TRA reports[Footnote 19] are 
used by commanders to determine when an Iraqi army unit is prepared to 
assume the lead in counterinsurgency operations. 

Iraqi army TRA reports contain capabilities ratings in the areas of 
personnel, command and control, equipment, sustainment/logistics, 
training, and leadership (see fig. 1). Commanders use the TRA results 
and their professional judgment to determine a unit's overall readiness 
level. Each Iraqi army unit is assigned a readiness level of 1 through 
4, with 1 being the highest level a unit can achieve. Accordingly, 

* level 1 units are capable of planning, executing, and sustaining 
counterinsurgency operations, 

* level 2 units are capable of planning, executing, and sustaining 
counterinsurgency operations with Iraqi security forces or coalition 
support, 

* level 3 units are partially capable of conducting counterinsurgency 
operations in conjunction with coalition units, and: 

* level 4 units are forming or are incapable of conducting 
counterinsurgency operations. 

* The TRA reports also include the commanders' estimates of the number 
of months needed before a unit can assume the lead for 
counterinsurgency operations. DOD also reports readiness assessments 
for headquarters service companies, such as engineering and signal 
units that support combat units.[Footnote 20] 

Figure 1: Transition Readiness Assessment (TRA) Report Form for the 
Iraqi Army: 

[See PDF for image] 

Source: MNF-I. 

[End of figure] 

Finally, the TRA reports include the coalition commander's narrative 
assessment of the Iraqi unit's overall readiness level, known as the 
Performance Capability Assessment, which is designed to clarify the 
overall TRA. The narrative assesses the Iraqi unit's leadership 
capabilities, combat experience, ability to execute intelligence-based 
operations, and describes any life support issues affecting the Iraqi 
unit's capabilities. Commanders must explain and address any regression 
in the unit's overall TRA level and list the top three issues 
preventing the unit from assuming the lead for counterinsurgency 
operations or advancing to the next TRA level. Remarks are intended to 
provide information and details that will help to resolve the problems 
that degrade the unit's status. 

DOD provided GAO with classified, aggregate information on overall 
readiness levels for the Iraqi security forces--including an executive-
level brief--and information on units in the lead, but has not provided 
unit-level reports on Iraqi forces' capabilities. According to MNF-I's 
Deputy Chief of Staff for Strategic Effects, the best measure of the 
capabilities of Iraqi units and improvements in the security situation 
comes from commanders on the ground at the lowest level. We previously 
reported that GAO was working with DOD to obtain the unit-level TRA 
reports because they would be useful in more fully informing Congress 
on the capabilities and needs of Iraq's security forces and in 
indicating how accurately DOD reports reflect the forces' capabilities. 
As of January 2007, DOD still has not provided GAO with this unit-level 
TRA data. 

Oversight Questions: 

* Why has DOD not provided GAO and Congress with unit-level TRA 
reports? 

* How does DOD assess the reliability of TRA reports and ensure that 
they present an accurate picture of Iraqi security forces' capabilities 
and readiness? 

* At what TRA rating level would Iraqi army units not require any U.S. 
military support? What U.S. military support would Iraqi units still 
require at TRA levels 1 and 2? 

* How does DOD use unit-level TRA reports to assess shortfalls in Iraqi 
capabilities? What do DOD assessments show about the developmental 
needs of Iraqi security forces? 

* How have changes in the TRA system and form affected the standards by 
which units are assessed? Have changes been made in the degree to which 
the commanders' subjective judgment is used? If so, why? 

* What threat levels, if any, do commanders assess Iraqi units against 
when determining a unit's overall readiness rating? Is the threat level 
used consistently across all units? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or Hchristoffj@gao.govH. 

[End of section] 

Enclosure V: DOD May Be Unable to Ensure That U.S.-Funded Equipment Has 
Reached Iraqi Security Forces: 

Issue: 

In the fall of 2003, the Coalition Provisional Authority and 
Multinational Force-Iraq (MNF-I) shared responsibility for the U.S.- 
funded train-and-equip program for Iraqi security forces, which include 
military and police forces.[Footnote 21] After the collapse of Iraqi 
forces in the spring of 2004, the United States restructured the 
multinational force and increased resources to train and equip Iraqi 
forces. Unlike traditional security assistance programs,[Footnote 22] 
the train-and-equip program in Iraq operates under the authority of the 
Department of Defense (DOD) and is implemented by MNF-I subordinate 
commands, including the Multinational Security Transition Command-Iraq 
(MNSTC-I). Since 2003, the United States has provided $15.4 billion for 
Iraqi security forces and law enforcement. According to MNSTC-I 
records, MNF-I has issued about 480,000 weapons, 30,000 vehicles, and 
1.65 million pieces of gear (uniforms, body armor, helmets, and 
footwear), among other items, to the Iraqi security forces as of 
October 2006. This enclosure provides information on (1) the laws and 
regulations governing property accountability that DOD may have applied 
to the U.S. train-and-equip program in Iraq[Footnote 23] and (2) MNF- 
I's accountability for U.S.-funded equipment that it has issued to 
Iraqi security forces. We plan on issuing a final report on these and 
related intelligence matters by March 2007. Our work focuses on the 
accountability requirements for the transportation and distribution of 
U.S.-funded equipment and did not review any requirements relevant to 
the procurement of this equipment. 

Summary: 

Congress funded the train-and-equip program for Iraq outside 
traditional security assistance programs, which, according to DOD 
officials, provided DOD with a large degree of flexibility in managing 
the program. Since the funding did not go through traditional security 
assistance programs, the accountability requirements normally 
applicable to these programs--including the registration of small arms 
transferred to foreign governments--did not necessarily apply. It is 
currently unclear what accountability measures, if any, DOD has chosen 
to apply to the train-and-equip program for Iraq, as DOD officials have 
expressed differing opinions on this matter. As part of our ongoing 
work, we have asked DOD to clarify what accountability measures it has 
chosen to apply to the program. 

While it is unclear which regulations DOD has chosen to apply, 
beginning in early 2004, MNF-I established requirements to control and 
account for equipment issued to the Iraqi security forces by issuing a 
series of orders that outlined procedures for its subordinate commands. 
These included obtaining signed records for equipment received by Iraqi 
units or individuals and recording weapons serial numbers. Although MNF-
I took initial steps to establish property accountability procedures, 
limitations such as the initial lack of a fully operational equipment 
distribution network, staffing weaknesses, and the operational demands 
of equipping the Iraqi forces during war hindered its ability to fully 
execute critical tasks outlined in the property accountability orders. 
Since late 2005, MNSTC-I has taken additional steps to improve its 
property accountability procedures, including establishing property 
books[Footnote 24] for equipment issued to Iraqi Ministry of Defense 
and Ministry of Interior forces. According to MNSTC-I officials, MNSTC-
I also recovered existing documentation for equipment previously issued 
to Iraqi forces. However, according to our preliminary analysis, DOD 
and MNF-I may not be able to account for Iraqi security forces' receipt 
of about 90,000 rifles and about 80,000 pistols which were reported as 
issued before early October 2005. Thus, DOD and MNF-I may be unable to 
ensure that Iraqi military forces and police received all of the 
equipment that the coalition procured or obtained for them. 

DOD Has Not Clarified What Accountability Requirements Apply to the 
Train-and-Equip Program for Iraq: 

The train-and-equip program for Iraq received U.S. funding from sources 
other than traditional security assistance programs. These funding 
mechanisms, according to DOD officials, provided DOD with a large 
degree of flexibility in managing the program. Congress made funds 
available for developing Iraqi security forces initially through the 
Iraq Relief and Reconstruction Fund (IRRF) and later through the Iraq 
Security Forces Fund (ISFF).[Footnote 25] According to DOD officials, 
because the funding did not go through traditional security assistance 
programs, the equipment procured with these funds was not necessarily 
subject to the accountability requirements that normally apply to these 
programs. As specified in DOD regulations, these requirements include 
procedures for storing, protecting, transporting, and registering small 
arms and other sensitive items transferred to foreign governments. For 
example, the Security Assistance Management Manual, which provides 
guidance for traditional security assistance programs, states that the 
U.S. government's responsibility for equipment intended for transfer to 
a foreign government under the Foreign Military Sales program does not 
cease until the recipient government's official representative assumes 
final control.[Footnote 26] Other regulations referenced by the 
Security Assistance Management Manual prescribe minimum standards and 
criteria for the physical security of sensitive conventional arms and 
require the registration of small arms transferred outside DOD 
control.[Footnote 27] 

It is unclear at this time what accountability measures DOD has chosen 
to apply to the train-and-equip program for Iraq. For example, DOD 
officials have expressed differing opinions on whether the DOD 
regulation on the Small Arms Serialization Program, which requires the 
entry of small arms serial numbers into a DOD-maintained registry, 
applies to U.S.-funded equipment procured for Iraqi security 
forces.[Footnote 28] If the regulation does apply, then MNSTC-I would 
be required to provide the serial numbers of all small arms procured 
for Iraqi forces to the Small Arms Serialization Program. Although the 
regulation requirements are unclear, MNSTC-I has recently begun to 
provide weapons serial numbers to the Small Arms Serialization Program, 
according to MNSTC-I officials. As part of our ongoing work, we have 
asked DOD to clarify whether MNF-I and MNSTC-I must follow 
accountability measures specified in DOD regulations, or whether DOD 
has established other accountability measures. 

Despite MNF-I Accountability Orders, DOD and MNF-I May Be Unable to 
Fully Account for Weapons Issued to Iraqi Security Forces: 

While it is unclear which regulations DOD has chosen to apply, MNF-I 
issued orders to its subordinate commands directing steps to account 
for all equipment distributed to the Iraqi security forces.[Footnote 
29] These orders tasked relevant coalition forces to collect property 
accountability items, including signed hand receipts and weapons serial 
numbers. For example, MNF-I and one of its subordinate commands, 
Multinational Corps-Iraq (MNC-I), issued two orders in early 
2004[Footnote 30] that together directed U.S. military units 
responsible for issuing equipment to the Iraqi security forces to 
conduct the following procedures, among others: 

* record the serial numbers for all sensitive items such as weapons and 
radios; 

* enter relevant information onto a Department of the Army hand receipt 
form and obtain signatures from receiving Iraqi security forces; and: 

* submit property accountability information to MNSTC-I. 

According to a former MNSTC-I official, hand receipts are critical to 
maintaining property accountability because they document the 
particular unit or individual that has control over a specific item. 

Although MNSTC-I took initial steps to establish property 
accountability procedures during 2004 and 2005, MNF-I subordinate 
commands did not fully execute critical tasks outlined in the property 
accountability orders due to the length of time necessary to fully 
develop an equipment distribution network, staffing weaknesses, and the 
operational demands of equipping the Iraqi forces during war: 

* The length of time necessary to fully develop the equipment 
distribution network hampered MNSTC-I's ability to collect and maintain 
appropriate equipment accountability records. According to former MNSTC-
I officials, the equipment distribution network for Iraqi military 
forces and police, which included national warehouses and regional 
distribution centers, was initiated during 2004. MNSTC-I took initial 
steps to put in place accountability procedures at the national level 
warehouses located at Taji and Abu Ghraib. For example, through the 
summer of 2004 and into early 2005, MNSTC-I consolidated and recorded 
existing inventory and established a database to track equipment that 
the national warehouses received, stored, and shipped. In addition, 
regional equipment distribution centers, from which MNF-I staff and 
contractors issued equipment to Iraqi units and maintained records of 
issue, were established to receive equipment from the national 
warehouses. These and other efforts, however, did not result in a fully 
operational distribution network until mid-2005, over 1 year after MNF-
I began distributing large quantities of equipment to the Iraqi 
security forces, according to former MNSTC-I officials. 

* According to former MNSTC-I and other officials, staffing weaknesses 
also hindered the development of property accountability procedures. 
According to the former MNSTC-I commander, several months passed after 
MNSTC-I's establishment before the command received the needed number 
of staff. As a consequence, MNSTC-I did not have the personnel 
necessary to open shipping containers and record information on 
individual items distributed to Iraqi forces, according to former MNSTC-
I officials. Moreover, frequent personnel turnover contributed to 
communications problems and a loss of institutional memory. For 
example, some former MNSTC-I staff told us that they were not aware 
that MNF-I had published a property accountability order in early 2004 
for equipment issued to Iraqi security forces. 

* The operational demands of equipping Iraqi forces during war-- 
including the need to distribute weapons rapidly to Iraqi forces 
conducting combat operations--limited MNSTC-I's ability to fully comply 
with accountability procedures, according to former MNSTC-I officials. 
For example, during late 2004, according to the former MNSTC-I 
commander, Iraqi insurgents conducted a campaign of intimidation during 
which they attacked equipment convoys and killed contractors. 

Due to these early limitations, MNF-I subordinate commands did not 
consistently collect and maintain records of equipment issued to Iraqi 
security forces. As a result, DOD and MNF-I may be unable to ensure 
that all of the equipment obtained for the Iraqis reached the intended 
recipients. 

As MNSTC-I's organization matured, it took additional steps to improve 
accountability procedures for the equipment provided to Iraqi security 
forces. Since the fall of 2005, MNSTC-I has collected hand receipts for 
equipment issued to Iraqi security forces, according to former and 
current MNSTC-I officials. In addition, in the fall of 2005, MNSTC-I 
logistics staff established separate electronic property books for the 
equipment provided to Iraqi Ministry of Defense and Ministry of 
Interior forces, including records for equipment previously issued to 
those forces. To create the records for equipment already issued to the 
Iraqis, MNSTC-I staff relied on contract and shipping records stored at 
MNSTC-I, according to a former MNSTC-I official. In August 2006, 
according to MNSTC-I officials, MNSTC-I logistics staff began to build 
on earlier efforts to improve accountability by recovering records 
maintained at the Umm Qasr port, the national warehouses at Taji and 
Abu Ghraib, and the regional distribution centers. The information 
collected since August 2006 includes hand receipts for many shipments, 
according to MNSTC-I officials. In addition, since the spring of 2006, 
MNSTC-I has been consolidating weapons serial numbers into an 
electronic format. MNSTC-I officials stated that they have begun to 
submit these numbers to the DOD Small Arms Serialization Program, and 
are also establishing the basis for a weapons serial number registry 
for the government of Iraq. MNSTC-I officials stated that as a result 
of these efforts they can account for most of the weapons procured 
through coalition funding channels and issued to Iraqi security force 
units. 

Despite the steps MNF-I has taken to improve its accountability 
procedures, our preliminary analysis indicates that DOD and MNF-I may 
not be able to account for a number of weapons reported as issued to 
Iraqi forces. The MNSTC-I property books contain records for about 
90,000 rifles and about 90,000 pistols issued to Iraqi forces as of 
September 22, 2005. These numbers incorporate records MNSTC-I recently 
recovered from earlier phases of the train-and-equip program for Iraq. 
However, the former MNSTC-I commander reported that about 180,000 
rifles and about 170,000 pistols were issued during the same time 
frame. According to former and current MNSTC-I officials, weapons 
obtained with non-U.S. funds may comprise a portion of the difference 
between these sets of numbers. In addition, MNSTC-I continues to 
recover records and may be able to account for some part of the 
difference. However, based on our preliminary analysis, because DOD and 
MNF-I maintained incomplete records for equipment issued to the Iraqi 
security forces before the fall of 2005, the numbers reported by the 
former MNSTC-I commander do not necessarily represent the weapons 
received by Iraqi security forces. Rather, these numbers indicate 
weapons tracked at the national warehouses and regional distribution 
centers, according to former MNSTC-I officials. In addition, former MNC-
I property book officers told us they had maintained the required 
records for weapons their units had issued to Iraqi forces between 2004 
and 2006. However, MNF-I officials were unaware of such records when we 
recently requested them. As a result, DOD and MNF-I may not be able to 
account for Iraqi security forces' receipt of about 90,000 rifles and 
about 80,000 pistols that were reported as issued but were not recorded 
during earlier phases of the train-and-equip program for Iraq. Thus, 
DOD and MNF-I may be unable to ensure that Iraqi military forces and 
police received all of the equipment that the United States has 
procured or obtained for them. In our ongoing review, we will continue 
to assess MNF-I records for equipment distributed to Iraqi forces. 

Oversight Questions: 

* What are the steps being taken to ensure accountability of U.S.- 
funded equipment issued to the Iraqi security forces? 

* Should DOD formulate property accountability rules and regulations 
that distinguish between times of peace and war? 

* What is the potential for insurgents, militias, or other armed groups 
to obtain U.S.-funded equipment, including weapons? 

* What plans do DOD and the State Department have, if any, for 
transitioning MNSTC-I to a traditional security assistance 
organization? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or Hchristoffj@gao.govH. 

[End of section] 

Governance Challenges: 

Enclosure VI: The Iraqi Government Needs to Staff an Effective Civil 
Service and Fight Corruption: 

Enclosure VII: Ministry Capacity Development Efforts Need an Integrated 
Plan: 

Enclosure VIII: Several Factors Affect Iraqi Ministry Efforts to Spend 
Capital Budgets: 

Enclosures IX: Iraq Owes Significant Foreign Debt and Faces Challenges 
in Meeting IMF Conditions: 

[End of section] 

Enclosure VI: The Iraqi Government Needs to Staff an Effective Civil 
Service and Fight Corruption: 

Issue: 

Critical to stabilizing Iraq is ensuring that the nation's central 
government ministries can provide security to the country and deliver 
essential government services to all citizens. The Iraqi government has 
34 central government ministries that employ an estimated 2 million 
government workers. The United States has multiple ongoing efforts to 
strengthen key Iraqi ministries, including programs at the Ministry of 
Interior and the Ministry of Defense that are implemented by the 
Department of Defense (DOD). Additional efforts at civilian ministries 
under the authority of the Department of State and United States Agency 
for International Development (USAID) are also under way. This 
enclosure is based on U.S. reports, an assessment by the World Bank, 
and interviews with U.S. officials.[Footnote 31] This enclosure 
discusses U.S. and international assessments of the Iraqi ministries' 
capacity to (1) build and train a nonpartisan civil service, (2) fight 
corruption within the ministries, and (3) use technology and 
effectively manage resources. U.S. and international assessments note 
that these three critical areas must be strengthened to improve the 
Iraqi government's ability to provide basic services to its citizens. A 
classified version of this enclosure will be available in February. 

Summary: 

Iraqi government institutions are undeveloped and confront significant 
challenges in staffing a competent, nonpartisan civil service; 
effectively fighting corruption; and using modern technology and 
managing resources effectively. Ministry personnel are frequently 
selected on the basis of political affiliation rather than competence 
or skills, and some ministries are under the authority of political 
parties hostile to the U.S. government. Also, U.S. reports cite 
widespread corruption in the Iraqi government and a lack of commitment 
to anti-corruption efforts within the ministries. Finally, reliance on 
manual processes and antiquated technology hampers efforts to build 
efficient, modern ministries. Figure 1 provides an organizational chart 
of the Iraqi executive branch and ministries. 

Figure 1: Iraqi Executive Branch and Ministries: 

[See PDF for image] 

Source: State Department. 

[End of figure] 

Iraqi Ministries Lack Trained, Nonpartisan Civil Service: 

The Iraqi civil service remains hampered by inadequately trained staff 
whose political and sectarian loyalties jeopardize the ministries' 
ability to provide basic services and build credibility among Iraqi 
citizens, according to U.S. government reports and international 
assessments. According to U.S. officials a significant number of Iraqi 
ministry staff lack adequate skills, including computer skills. A World 
Bank assessment notes that political parties play a large role in 
hiring decisions within the Iraqi government. Also, a U.S. report 
states that the government ministries and the associated budgets are 
used as sources of power for political parties with ministry positions 
staffed with party cronies as a reward for political loyalty. According 
to U.S. officials, patronage leads to instability in the civil service 
as many staff are replaced whenever the government changes or a new 
minister is named. 

Some Iraqi ministries are under the authority of political parties 
hostile to U.S. goals and use their positions to pursue partisan 
agendas that conflict with the goal of building a government that 
represents all ethnic groups. For instance, DOD reports that the 
Ministry of Interior has been infiltrated by members of the Supreme 
Council for Islamic Revolution in Iraq or its Badr Organization and 
Muqtada al-Sadr's Mahdi Army. For example, the Mahdi Army often 
operates under the authority or approval of Iraqi police to detain, 
torture, and kill Sunni civilians. According to a November DOD report, 
steps are being taken to address these issues. The Ministries of 
Agriculture, Health, Transportation, and Tourism are led by ministers 
whose allegiance is to al-Sadr. U.S. officials expressed reservations 
about working in some of these ministries, noting that the 
effectiveness of programs is hampered by presence of unresponsive or 
anti-U.S. officials. 

Corruption Is a Key Challenge: 

Corruption in Iraq is reportedly widespread and poses a major challenge 
to building an effective Iraqi government and could jeopardize future 
flows of needed international assistance. A World Bank report notes 
that corruption undermines the government's ability to make effective 
use of current reconstruction assistance. A 2006 survey by Transparency 
International ranked Iraq's government as the second most corrupt 
government in the world. Moreover, between January 2005 and August 
2006, 56 officials in Iraq's ministries were either convicted of 
corruption charges or subject to arrest warrants. 

According to U.S. government and World Bank reports, the reasons for 
corruption in the Iraqi ministries are several, including the 
following: 

* The absence of an effective Iraqi banking system leaves the 
government dependent on cash transactions. 

* The majority of key Iraqi ministries have inadequately transparent, 
obsolete, or ambiguous procurement systems. 

* Key accountability institutions, such as the inspectors general who 
were installed in each Iraqi ministry in 2004, lack the resources and 
independence to operate effectively and consistently. 

* The government has no strategy to implement training for its three 
anti-corruption institutions--the Commission on Public Integrity, the 
Board of Supreme Audit, and the inspectors general in each ministry. 

Furthermore, Embassy Baghdad's Anticorruption Working Group attributed 
poor performance by the anti-corruption institutions to the 
government's lack of visible and authoritative commitment and 
engagement. 

Most Ministries Lack Technology and Face Challenges in Effectively 
Managing Resources: 

The Iraqi ministries lack adequate technology and have difficulty 
managing their resources, according to U.S. officials and an 
international assessment. For example, U.S. officials said that the 
Ministry of Interior relies on manual processes, such as hand-written 
ledgers and a cash-based payroll system, which have resulted in Iraqi 
police leaving their posts to deliver paychecks to their families. U.S. 
officials also said that the Iraqi ministries lack the technology to 
effectively disseminate information among offices and ministries within 
the Iraqi government. Finally, a U.S. contractor with a training center 
in Baghdad noted that the lack of communication technology at the Iraqi 
ministries increases the risk faced by staff and Iraqi trainees by 
requiring them to undertake dangerous travel to the National Training 
Center in Baghdad. This could be obviated through remote or offsite 
training via video conferences or other computer-based training. 

U.S. officials said that the Iraqi ministries have limited capability 
to manage personnel, and that the Ministry of Interior has limited 
control of local and provincial police and that loyalty to officials in 
Baghdad is questionable. For example, the World Bank report states that 
the Iraqi government pays salaries to nonexistent, or "ghost 
employees," that are collected by other officials. According to U.S. 
officials 20 percent to 30 percent of the Ministry of Interior staff 
are "ghost employees." Also, many key ministries have been unable to 
expend budget resources on capital improvements and are running large 
surpluses due in part to an ineffective procurement process and the 
inability to carry out fair, competitive contracting, according to U.S. 
officials. Finally, U.S. officials said that the civilian ministries 
need assistance developing long-term and strategic plans, including the 
ability to plan for and execute capital expenditures. 

Oversight Questions: 

* Given the level of corruption, partisanship, and sectarian loyalties 
in various ministries, what efforts are being made to ensure that U.S. 
resources, equipment, and training are appropriately used and are not 
used to support a single group's agenda? 

* How can the United States ensure that the Iraqi government initiates 
and sustains effective anti-corruption efforts within the ministries? 

* Given the limited capacity of the Iraqi ministries to effectively 
manage government resources, can the Iraqi government effectively 
absorb significant levels of future U.S. and international assistance? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or christoffj@gao.gov. 

[End of section] 

Enclosure VII: Ministry Capacity Development Efforts Need Integrated 
Plan: 

Issue: 

Developing the capacity of Iraq's national ministries to effectively 
provide security and deliver essential services is critical to U.S. 
efforts to help Iraq build a legitimate sustainable government. 
According to U.S and Coalition Provisional Authority (CPA) assessments 
and officials, years of neglect, a highly centralized decision-making 
system under the former regime, and the looting of ministries in 2003 
have decimated Iraq's government ministries. Since then, the United 
States and other donor partners have attempted to strengthen the 
ministries. Current U.S. activities include efforts targeting 10 key 
civilian ministries with funding totaling about $126 million; 
transition efforts at the Ministries of Defense and Interior with 
funding of $43 million; and additional projects by several U.S. 
agencies. This enclosure (1) assesses the status of U.S. capacity 
development efforts, (2) examines overall leadership and coordination 
of these efforts, and (3) describes the metrics used to assess 
progress. We are continuing to review these issues and will report 
further on them in the spring of 2007. 

Summary: 

The U.S. government lacks a plan that integrates current efforts to 
improve Iraq's capacity to provide security and deliver essential 
services. Although the National Strategy for Victory in Iraq and 
related policy documents guide all U.S. efforts in Iraq, the United 
States lacks a specific plan for its capacity development efforts that 
includes milestones and agreed-upon metrics, integrates all U.S. and 
coalition efforts, and incorporates Iraqi governmentwide capacity 
objectives. We identified more than 50 U.S. efforts led by at least six 
U.S. agencies; however, it is unclear how these efforts address core 
needs and Iraqi priorities in the absence of an integrated U.S. plan. 
U.S. officials note that the Iraqi government has taken an increasing 
leadership role in capacity development efforts in recent months and 
that coordination of U.S. efforts has improved. However, questions 
still remain about the extent of Iraqi leadership and ownership of 
these efforts. Moreover, it is uncertain how the U.S. will make the 
transition from the temporary U.S. entities leading these efforts to 
those having permanent post-conflict responsibilities. Finally, U.S. 
agencies are still developing the metrics to assess progress and 
effectiveness. After an initial U.S. Embassy effort was deemed 
inadequate, several efforts are ongoing. 

Capacity Development Efforts Lack Integrated Plan: 

In its efforts to develop the capacity of Iraqi ministries, the United 
States lacks a plan that includes milestones and agreed-upon metrics, 
integrates all U.S. and coalition efforts, and incorporates Iraqi 
governmentwide capacity objectives. Overall U.S. activities in Iraq are 
guided by the April 2006 Joint Campaign Plan issued by Embassy Baghdad 
and the Multinational Force-Iraq (MNF-I), the Joint Campaign Action 
Plan, the National Strategy for Supporting Iraq (updated January 2006), 
and Iraq's National Development Strategy 2005-2007. However, there is 
no specific plan for capacity development that considers and integrates 
all U.S. efforts, according to U.S. officials. A mid-2005 U.S. Embassy 
assessment first identified the need for a broad, integrated approach. 
Multiple U.S. agencies had been conducting capacity development efforts 
since 2003 at individual ministries; however, most of these efforts 
focused on helping Iraqi officials assume responsibility for sustaining 
new and restored infrastructure. (Fig. 1 illustrates U.S. capacity 
development efforts in Iraq since 2003.) In June 2004, CPA reported 
that all Iraqi ministries had graduated and were capable of managing 
the Iraqi government. 

Figure 1: Key U.S. Efforts to Improve Iraqi Ministerial Capacity: 

[See PDF for image] 

Source: GAO analysis of relevant documents and interviews with U.S. 
government officials. 

[End of figure] 

The mid-2005 assessment and subsequent reviews by the State Department 
concluded, however, that a broader, Iraqi-led capacity development 
program with an integrated approach was needed to strengthen the 
ministries. The embassy conceived a National Capacity Development 
Program (NCDP) in late 2005. The program called for the U.S. Embassy to 
assess the current capacity of the ministries in conjunction with the 
Iraqi government, identify core needs, and work with the Iraqi 
government to develop a governmentwide strategy. The Multinational 
Security Transition Command-Iraq (MNSTC-I) assumed responsibility for 
capacity development at the Ministries of Defense and Interior. Plans 
to integrate capacity development efforts at the security and civilian 
ministries for core common needs, such as budgeting, are ongoing. 

As of December 2006, we identified more than 50 capacity development 
efforts led by at least six U.S. agencies, including 18 programs 
launched under the NCDP. However, it is unclear how these efforts are 
addressing core needs and Iraqi priorities in the absence of an 
integrated U.S. plan. The State Department's Iraq Reconstruction 
Management Office (IRMO) coordinates the overall effort, which targets 
10 key civilian ministries, and is spending $61.5 million for short- 
term projects, such as providing English-language training for Iraqi 
officials, developing a new media center for the Prime Minister's 
office, and adding budget and procurement components to Iraq's 
financial management information system, which the U.S. Agency for 
International Development (USAID) is responsible for implementing. 
USAID is also implementing a $65 million medium-term effort initially 
focused on training the Iraqi civil service. A range of U.S. Army Corps 
of Engineers projects also currently provide capacity development and 
technical training at six ministries, including the Ministries of 
Electricity and Oil. According to U.S. officials and documents, IRMO 
has begun to identify all U.S. capacity development efforts to develop 
a comprehensive plan. 

The Iraqi government has not developed a governmentwide plan for 
capacity development that includes core objectives and appropriate 
benchmarks to measure progress. According to IRMO officials, the U.S. 
government worked with Iraqis to incorporate Iraq's priorities into 
current capacity development efforts and to validate these efforts. 
Nonetheless, a governmentwide capacity development plan for Iraq does 
not exist. USAID is responsible for helping the government of Iraq to 
create this plan as part of its longer-term work to strengthen key 
public administration functions. It is uncertain if the plan will be 
developed. The contractor responsible for helping with the plan stated 
that the lack of a central coordinating entity for the government of 
Iraq, combined with a lack of access at certain ministries, could 
hamper U.S. efforts. Moreover, only a few ministries, including the 
Ministries of Defense and Interior, have developed action plans to 
address core needs and priorities. 

Questions Remain about Iraqi Leadership and U.S. Agency Roles and 
Responsibilities: 

Questions remain about the extent of Iraqi government leadership and 
ownership in current capacity development efforts. To ensure Iraqi 
ownership, a representative from the Iraq Ministry of Planning was to 
lead the overall effort as chair of the multinational Capacity 
Development Working Group formed in late 2005 to guide overall efforts. 
According to IRMO officials, the Iraqi government has become 
increasingly involved since the permanent government was finalized in 
May 2006. However, a representative from the Ministry of Planning did 
not attend any working group meetings until October 2006, according to 
U.S. officials. 

In addition, Ministry Assistance Teams (MAT), comprised of 
representatives from the Iraqi ministries, the U.S. government, and 
donor partners, were to create capacity development action plans and to 
guide and monitor efforts. However, one U.S. official stated that the 
MATs were largely a planning concept. Other officials noted that Iraqi 
participation in the MATs was uncertain, as in some cases U.S. advisers 
completed work that was to be done by Iraqi counterparts. Another 
official told GAO that membership on the MATs is informal and ad hoc, 
with relevant representatives participating as needed to address 
specific issues. 

All U.S. capacity development efforts are being coordinated by a joint 
U.S. government task force. According to U.S. officials, early meetings 
of the task force involved information sharing rather than 
coordination. However, U.S. officials stated that the current 
objectives of the task force include identifying issues, critical 
paths, and potential overlap in U.S. capacity development efforts. 
Meetings held since the beginning of November 2006 have helped clarify 
questions between USAID and IRMO on project-specific issues. Although 
coordination mechanisms exist, the U.S. agencies' roles and 
responsibilities for capacity development and for transition to normal 
post-conflict operations are uncertain: 

* IRMO was established as a temporary organization by National Security 
Presidential Directive 36 in May 2004 and has responsibility for 
coordination, policy direction, and short-term capacity development 
efforts. U.S. officials questioned whether IRMO, as coordinator of all 
U.S. capacity development efforts, should also be implementing 
programs. In addition, one of IRMO's short-term projects includes 
providing training on principles of transparent procurement to Iraqi 
government officials. USAID has also delivered procurement training to 
Iraqi government officials through its efforts to train the Iraqi civil 
service, according to a high-level contractor. According to a senior 
State Department official, although IRMO was expected to cease 
operations in 2007, it is likely that its authority is going to be 
extended. However, it is unclear how IRMO will transition 
responsibility for capacity development to USAID when it eventually 
ceases operations. 

* MNSTC-I is a temporary organization with more than 130 personnel and 
contractors that is responsible for leading capacity development at the 
Ministries of Defense and Interior. However, it is unclear how it will 
transition these efforts to an embassy-run post-conflict security 
assistance effort and a civilian-led rule of law program. According to 
a senior State Department official, U.S. support for the Ministry of 
Interior is scheduled to transition to State in fiscal year 2007. 

U.S. Metrics to Assess Ministerial Effectiveness Are Still Being 
Developed: 

U.S. government agencies have developed multiple tools to assess 
capacity and measure progress at the Iraqi ministries. For example, 
IRMO developed an initial set of metrics in late 2005 to assess six 
core functions common to 10 key civilian ministries and 2 security 
ministries. However, the government of Iraq did not participate in 
developing these metrics, according to an embassy document. U.S. 
officials also noted that these metrics were not based on 
internationally accepted approaches for measuring capacity. The metrics 
were dropped in early 2006 after they were deemed insufficient for 
their purpose at certain ministries, according to some U.S. government 
officials. 

Since then, at least three separate sets of metrics have been initiated 
or are under development. First, in mid-2006, MNF-I began monthly 
assessments of the capacity of the security ministries to perform nine 
key functions, such as planning, logistics, and budgeting. Second, IRMO 
completed a baseline assessment of the key civilian ministries in 
August 2006, using a new, more detailed ministry capacity assessment 
that gauges nine core functions, such as the ability to plan and to 
stem corruption. Third, USAID is developing a ministry self-assessment 
tool that will help determine Iraqi needs and how USAID will address 
these needs in its medium-term programs. The assessment also could 
inform an overall capacity development plan for the government of Iraq. 

Questions for Oversight: 

* What progress has been made in developing an overall integrated plan 
for capacity development in conjunction with the government of Iraq and 
the international community? 

* To what extent have U.S. efforts to improve Iraq's capacity to 
provide essential services incorporated lessons learned that have been 
cited by the World Bank and other international development 
organizations, such as the need to establish host-nation ownership? 

* How are IRMO, USAID, and DOD clarifying their roles and 
responsibilities in Iraqi capacity development efforts? What are they 
doing to ensure there are no gaps or duplicative efforts in the U.S. 
program? 

* How are U.S. agencies developing, coordinating, and reporting metrics 
for assessing the effectiveness of U.S. assistance to Iraq's 
ministries? How is the U.S. government validating the usefulness of its 
capacity development metrics? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or christoffj@gao.gov. 

[End of section] 

Enclosure VIII: Several Factors Affect Iraqi Ministry Efforts to Spend 
Capital Budgets: 

Issue: 

When the Iraqi government assumed control over its finances in 2004, it 
became responsible for determining how more than $25 billion annually 
in government revenues would be collected and spent to rebuild the 
country and operate the government. However, the government faces 
difficulties in spending budgeted funds for capital goods and projects 
in the security, oil, and electricity sectors. In this enclosure, we 
discuss (1) the factors affecting the Iraqi ministries' efforts to 
spend approved budgets, and (2) U.S. government efforts to address 
Iraq's budget execution problems. 

Summary: 

Sound government budgeting practices can help determine the priorities 
of the new government, provide transparency on government operations, 
and help decision makers weigh competing demands for limited resources. 
However, unclear budgeting and procurement rules have affected Iraq's 
efforts to spend capital budgets effectively and efficiently. The 
inability to spend the money raises serious questions for the 
government, which has to demonstrate to citizens who are skeptical that 
it can improve basic services and make a difference in their daily 
lives. The U.S. government has launched a series of initiatives in 
conjunction with other donors to address this issue and improve 
ministry budget execution. 

Iraq Has Spent Little of Its Annual Capital Budget: 

As of August 2006, the government of Iraq had spent, on average, 8 
percent of its annual capital goods budget and 14 percent of its annual 
capital projects budget. Iraq's fiscal year begins on January 1 of each 
year. Some of the weakest spending occurs at the Ministry of Oil, which 
relies on damaged and outdated infrastructure to produce the oil that 
provides nearly all of the country's revenues (see table 1). 

Table 1: 2006 Annual Iraq Budget and Actual Expenditures through August 
2006: 

Dollars in millions. 

Ministry: Finance; 
2006 Annual Budget: Capital goods: $10; 
2006 Annual Budget: Capital projects: $33; 
2006 Annual Budget: Total budget: $16,506; 
Expenditures through August 2006: Capital goods: $1; 
Expenditures through August 2006: Capital projects: $74; 
Expenditures through August 2006: Total budget: $8,895. 

Ministry: Planning; 
2006 Annual Budget: Capital goods: 4; 
2006 Annual Budget: Capital projects: 27; 
2006 Annual Budget: Total budget: 55; 
Expenditures through August 2006: Capital goods: 0.4; 
Expenditures through August 2006: Capital projects: 3; 
Expenditures through August 2006: Total budget: 9. 

Ministry: Interior; 
2006 Annual Budget: Capital goods: 233; 
2006 Annual Budget: Capital projects: 27; 
2006 Annual Budget: Total budget: 1,919; 
Expenditures through August 2006: Capital goods: 25; 
Expenditures through August 2006: Capital projects: 0.2; 
Expenditures through August 2006: Total budget: 958. 

Ministry: Defense; 
2006 Annual Budget: Capital goods: 864; 
2006 Annual Budget: Capital projects: 33; 
2006 Annual Budget: Total budget: 3,443; 
Expenditures through August 2006: Capital goods: 12; 
Expenditures through August 2006: Capital projects: 0.0; 
Expenditures through August 2006: Total budget: 831. 

Ministry: Oil; 
2006 Annual Budget: Capital goods: 2; 
2006 Annual Budget: Capital projects: 3,533; 
2006 Annual Budget: Total budget: 3,590; 
Expenditures through August 2006: Capital goods: 0.4; 
Expenditures through August 2006: Capital projects: 4; 
Expenditures through August 2006: Total budget: 40. 

Ministry: Electricity; 
2006 Annual Budget: Capital goods: 4; 
2006 Annual Budget: Capital projects: 767; 
2006 Annual Budget: Total budget: 840; 
Expenditures through August 2006: Capital goods: 0.3; 
Expenditures through August 2006: Capital projects: 267; 
Expenditures through August 2006: Total budget: 279. 

Ministry: Water; 
2006 Annual Budget: Capital goods: 0.2; 
2006 Annual Budget: Capital projects: 200; 
2006 Annual Budget: Total budget: 259; 
Expenditures through August 2006: Capital goods: 0.0; 
Expenditures through August 2006: Capital projects: 49; 
Expenditures through August 2006: Total budget: 78. 

Ministry: Justice; 
2006 Annual Budget: Capital goods: 3; 
2006 Annual Budget: Capital projects: 10; 
2006 Annual Budget: Total budget: 74; 
Expenditures through August 2006: Capital goods: 2; 
Expenditures through August 2006: Capital projects: 0.2; 
Expenditures through August 2006: Total budget: 34. 

Ministry: Others; 
2006 Annual Budget: Capital goods: 272; 
2006 Annual Budget: Capital projects: 1,552; 
2006 Annual Budget: Total budget: 7,290; 
Expenditures through August 2006: Capital goods: 77; 
Expenditures through August 2006: Capital projects: 480; 
Expenditures through August 2006: Total budget: 3,501. 

Total; 
2006 Annual Budget: Capital goods: $1,392; 
2006 Annual Budget: Capital projects: $6,181; 
2006 Annual Budget: Total budget: $33,975; 
Expenditures through August 2006: Capital goods: $117 (8.4%); 
Expenditures through August 2006: Capital projects: $877 (14.2%); 
Expenditures through August 2006: Total budget: $14,623(43%). 

Source: GAO analysis of Iraqi budget data. 

[End of table] 

Since most of the $34.5 billion in reconstruction funds provided 
between fiscal year 2003 and 2006 have been obligated, unexpended Iraqi 
funds represent an important source of additional financing. The 
capital goods budgets of the Interior and Defense ministries were 
intended for the purchase of weapons, ammunition, and vehicles, among 
other items. However, as of August 2006, Interior and Defense had spent 
only about 11 percent and 1 percent, respectively, of these budgeted 
funds. The Ministry of Oil's $3.5 billion 2006 capital project's budget 
targeted key enhancements to the country's oil production, 
distribution, and export facilities. As of August 2006, the ministry 
had spent less than 1 percent of these budgeted funds. 

Lack of Clear Budget and Procurement Rules Affect Ministry Efforts to 
Spend Budgets: 

According to U.S. officials, Iraq lacks the clearly defined and 
consistently applied budget and procurement rules that are needed for 
effective budget planning and implementation. The Iraqi ministries are 
guided by complex and conflicting sets of laws and regulations, 
including those implemented under Saddam Hussein, the Coalition 
Provisional Authority (CPA), and by the current government. According 
to State officials, the lack of agreed-upon procurement and budgeting 
rules causes confusion among ministry officials and creates 
opportunities for corruption and mismanagement. 

The World Bank and U.S. Treasury also identified the following budget 
and financial management problems: 

* Ministries do not submit budget execution reports on a timely or 
complete basis. The Kurdistan Regional Government receives block grants 
from the central government but does not provide budget execution 
reports to the central government. 

* Reconciliation of government accounts is impossible because the 
government lacks consolidated information on the balances in government 
bank accounts or on the exact number of these accounts. 

* Donor-financed expenditures take place directly with ministries and 
outside the budget process. As a result, the Ministry of Finance has 
limited information on the activities of Iraq's donors. 

* Provincial governments do not provide an accounting of the funds they 
receive ($2 billion in 2006 and slated to increase to $2.9 billion in 
2007). 

The World Bank also found that Iraq's procurement procedures and 
practices are not in line with generally accepted public procurement 
practices, such as effective bid protest mechanisms and transparency on 
final contract awards.[Footnote 32] 

U.S. Government and Donors Have Made Efforts to Address Budget 
Execution Challenges: 

The U.S. government, World Bank, and International Monetary Fund (IMF) 
have taken steps to address some of the existing deficiencies in 
ministry budget planning and execution. U.S. government officials 
stated that reform of budget and procurement processes is urgently 
needed but would be challenging due to the cultural resistance to 
change within the ministries. 

The U.S. Embassy has formed a "budget execution" task force charged 
with mapping out current ministry budgeting and procurement procedures 
to help ministry officials and external parties understand how their 
budgets are planned and implemented. This task force will identify the 
"rules of the road" for key agencies and help them streamline budget 
procedures. Treasury and the U.S. Agency for International Development 
(USAID) are also working with the Ministry of Finance to implement a 
state-of-the-art financial management information system to provide it 
with more complete and timely information on ministry budgets. 

The United States, World Bank, IMF, and other donors are also planning 
additional steps to strengthen Iraq's budget and procurement processes. 
First, the United States and other donors are training Ministry of 
Finance staff on budget preparation and execution. Second, according to 
U.S. officials, the IMF and World Bank helped implement a new budget 
classification system that is being used for the 2007 budget. This is 
an important step since it creates an accounting system for the entire 
government and provides a sound basis for budgeting and planning. (See 
enclosure X on Iraq's debt and progress in meeting international 
economic milestones). Third, the World Bank recommends bringing all 
donor projects into the budget by means of a unified reporting 
framework and reflecting this information in the Donor Assistance 
Database, a database of donor commitments and projects. 

Over the longer term, the World Bank recommends that Iraq's budget 
include all of the government's significant revenues and expenditures-
-including the full economic costs of the oil subsidies, which are 
currently excluded. The Bank also recommended that the international 
donor community help the Ministry of Finance, inspector general 
offices, and Board of Supreme Audit provide greater oversight of 
budgeted and expended funds. 

Oversight Questions: 

* What are the key challenges that Iraq's government faces in planning 
and managing budgets and procurement in the near term and in the 
future? 

* What strategy guides U.S. efforts to build Iraqi ministry capacity to 
plan and execute budgets? Are the roles and responsibilities of the 
various U.S. agencies, international donors, and Iraqi ministries 
involved in these budget execution efforts clearly defined? 

* What types of assistance has the United States provided to improve 
ministry capacity to plan and implement budgets. What is the impact of 
this assistance? 

* Given the large unspent capital budgets, why should additional U.S. 
reconstruction assistance be provided to Iraq? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or christoffj@gao.gov. 

[End of section] 

Enclosure IX: Iraq Owes Significant Foreign Debt and Faces Challenges 
in Meeting IMF Conditions: 

Issue: 

Iraq has significant foreign debt remaining from the Saddam Hussein 
regime, which presents financial challenges for Iraq's reconstruction 
and economic development. Although Iraq has negotiated some debt 
restructuring under an IMF reform program, implementing these reforms 
is challenging and, as of December 2006, has not been wholly 
successful. Nonetheless, Iraq's progress in economic development is 
tied to the reforms and the debt reduction they secure. This enclosure 
describes (1) the nature and extent of Iraq's debt and (2) challenges 
that Iraq faces in implementing economic reforms to secure additional 
debt restructuring. 

Summary: 

The United States has led efforts to forgive Iraq's bilateral debt and 
to secure greater debt relief and foreign assistance in exchange for 
political and economic reforms. At the end of 2004, Iraq owed about 
$120 billion to foreign creditors--an amount almost five times the size 
of its economy. The country owed about $36 billion to official 
creditors that were members of the Paris Club, a group of 19 creditor 
nations that includes the United States. In 2004, Paris Club members 
made a commitment to forgive 80 percent of that debt. As part of this 
effort, the United States forgave all of Iraq's outstanding debt ($4.1 
billion). However, the majority of Iraq's debt--about $69 billion--is 
owed to non-Paris Club countries, particularly those in the Persian 
Gulf region, such as Saudi Arabia. Negotiations with non-Paris Club 
countries are ongoing. Iraq's foreign debt at the end of 2006 is 
estimated at about $89 billion--almost twice the size of its economy. 

As a condition of Paris Club debt relief, Iraq agreed to follow a 
reform program developed by the International Monetary Fund (IMF). The 
IMF program stipulates a series of reforms that Iraq must undertake to 
qualify for debt relief and access to IMF funds. The reforms are 
intended to help Iraq restructure its economy, spark economic 
development, and attract investment. However, some of these reforms are 
challenging to implement due to the difficult security situation in 
Iraq and the government's relative inexperience. In addition, the Iraqi 
government has not been able to complete all of the reforms stipulated 
under the IMF agreement, such as completing a census of government 
employees. The IMF, however, allowed Iraq to reschedule implementation 
of the reforms. 

Debt Reduction Has Been Promised, with Conditions: 

After Saddam Hussein's regime fell in 2003, Iraq's international 
creditors sought payment on the nearly $120 billion in outstanding debt 
owed them. This outstanding debt was nearly five times the size of 
Iraq's economy in 2004 and was believed to inhibit Iraq's ability to 
attract the investment needed to finance its economic reconstruction. 
Figure 1 shows that official Paris Club creditors--including the United 
States, United Kingdom, France, Japan, Russia, and 14 other countries-
-accounted for about $36 billion (30 percent) of Iraq's total foreign 
debt in 2004. However, the largest amount (about $62 billion) was owed 
to non-Paris Club bilateral creditors, particularly Persian Gulf states 
such as Saudi Arabia and Kuwait.[Footnote 33] The remaining debt was 
held by private creditors and multinational creditors. 

Figure 1: Change in Iraq's Debt, 2004 to 2006: 

[See PDF for image] 

Source: GAO analysis of International Monetary Fund and U.S. Treasury 
data. 

Note: Summations may differ from totals due to rounding. Non-Paris Club 
official creditor debt is based on estimates since it has not been 
reconciled. The estimate of this debt for 2004 was made by the IMF, 
while the estimate for 2006 was provided by the U.S. Treasury 
Department. 

[End of figure] 

Iraq has engaged its creditors in negotiations to restructure and 
forgive portions of its foreign debt.[Footnote 34] Paris Club official 
creditors agreed to reduce Iraq's outstanding debt by 80 percent over 
three phases, one of the largest debt reductions ever agreed to by the 
Paris Club creditors. The United States, a member of the Paris Club, 
forgave all of Iraq's outstanding debt ($4.1 billion) in December 2004. 
Iraq received the first 30-percent tranche when it agreed to an IMF 
Emergency Post-Conflict Assistance program in November 2004. The second 
30-percent tranche took effect in December 2005 when Iraq agreed to a 
stand-by arrangement with the IMF. Iraq will receive the remaining 20- 
percent reduction following satisfactory performance for 3 years under 
the IMF reform program. Iraq cleared its arrears with the IMF and World 
Bank in 2004. By the end of July 2006, Iraq had settled almost $20 
billion in private creditor claims, receiving overall (private) debt 
reduction of more than 80 percent. The Iraq Minister of Finance stated 
that the pace and scale of the commercial debt restructuring program 
was unprecedented. 

However, even with Paris Club, private, and multilateral debt 
reductions, at the end of 2006, Iraq will still owe foreign creditors 
about $89 billion--almost twice the size of its economy. In addition, 
Iraq owes an additional $31 billion in compensation claims for damages 
and losses resulting from Iraq's invasion and occupation of Kuwait in 
1990. Iraq is continuing to negotiate with other countries outside the 
Paris Club, including its largest creditors from the Persian Gulf 
region and China. It is unclear whether certain economic or political 
conditions may be requested by creditors to forgive or restructure this 
outstanding debt. U.S. government officials stated that political 
factors, not progress on the IMF program, will ultimately determine the 
degree to which Iraq succeeds in negotiating debt relief on the amounts 
owed to the Gulf states. Given the large share of Iraq's outstanding 
debt, these negotiations and their outcome represent an important 
factor that could affect Iraq's reconstruction and economic development 
efforts. As part of a larger effort to assist Iraq's economic 
development, the United States is strongly supporting efforts by the 
U.N. and Iraq to create an "International Compact for Iraq." The 
compact is aimed at providing greater debt relief and foreign 
assistance in exchange for political and economic reforms. However, 
this initiative, launched in the fall of 2006, is still being 
negotiated. 

Iraq Has Met Some IMF Targets, but Others Are More Challenging: 

To achieve debt restructuring, Iraq agreed to implement IMF conditions 
that stipulate specific economic reforms and milestones that the 
government needs to meet. The central objective of these reforms is to 
maintain macroeconomic stability with sustainable growth over the 
medium term. These conditions are contained in the IMF stand-by 
arrangement, which was approved in December 2005 and in subsequent 
reviews of the stand-by arrangement in July 2006. They include a wide 
range of reforms such as reducing the subsidies on petroleum products 
(e.g., raising prices of gasoline, kerosene, and similar products), 
limiting the budget deficit, and developing financial systems and 
audits that adhere to international standards. 

The new Iraqi government affirmed its commitment to the IMF program 
that had been agreed to by the transitional government. However, due to 
the delay in forming a permanent government and the inherent challenges 
in implementing economic reforms in the midst of an active insurgency, 
the government did not meet all its commitments, according to the IMF. 
Table 1 provides a selective list of conditions for Iraq and their 
status. 

Table 1: Status of Selected IMF Conditions for Iraq Debt Restructuring: 

IMF condition: Government budget deficit maintained below specific 
levels; 
Status: Iraq has maintained a budget surplus, due in part to the lack 
of spending by certain ministries of their capital budgets (see 
enclosure 8). 

IMF condition: Ceiling on government imports of petroleum products; 
Status: Iraq has reached the agreed-upon ceiling for the cost of these 
imports ($2.8 billion in 2006) and has requested a waiver from the IMF 
to import more. Since refinery capacity remains limited, this will 
likely be a problem in the future. The government committed to allow 
private imports of diesel, kerosene, and other fuel products to 
increase supplies and allow prices to rise to neighboring country 
levels (see enclosure 10). 

IMF condition: Reduced subsidies on petroleum products (gasoline, LPG, 
kerosene, diesel); 
Status: The government has increased prices on fuel products twice--
once in 2005 and again in June 2006--to keep them roughly in line with 
the IMF program. For example, the price of kerosene was increased from 
$0.01 to $0.19 per gallon and the price of gasoline from $0.05 to $0.40 
per gallon in June 2006. Further price increases are necessary to 
reduce price differentials with neighboring countries, but domestic 
fuel prices may still remain below prices in neighboring countries, 
according to the World Bank. 

IMF condition: Adoption of a government budget classification and chart 
of accounts in line with IMF standards; 
Status: Scheduled for completion June 30, 2006, this condition was 
rescheduled for December 31, 2006. According to U.S. officials, Iraq 
completed this condition. It is critical because it creates an 
accounting basis for the entire government and facilitates budgeting 
and planning. 

IMF condition: Complete a census of all public service employees 
(including the military); 
Status: Scheduled for completion June 30, 2006, this condition was 
rescheduled for December 31, 2006. Because wages and pensions account 
for 28 percent of the operational budget, the government needs an 
accurate employee count. 

Source: International Monetary Fund. 

[End of table] 

As the government seeks to implement the IMF reform program, it faces 
several challenges. Oil production and exports have been below expected 
levels, making overall economic expansion and job creation dependent on 
growth in the non-oil sectors of the economy. Inflation of 
approximately 50 to 60 percent in 2006 and increases in the prices of 
basic necessities such as food, fuel and electricity continue to be 
growing concerns. Corruption and lost oil revenues account for more 
than a billion dollars per year in lost government revenue, according 
to a 2006 report by the Ministry of Oil Inspector General. 
Unemployment, estimated at 25 percent to 40 percent in 2005 and even 
higher in 2006, contributes to the country's instability. Over the 
medium term--even with debt restructuring--Iraq will still have 
significant outstanding debt and accumulating interest. Without growth 
in oil revenues, the IMF notes that Iraq may need additional external 
financial assistance when the restructured loans become due. 

Oversight Questions: 

* What is the status of efforts to restructure Iraq's remaining foreign 
debt? Does it present challenges for Iraq's reconstruction and economic 
development? 

* What types of conditions are Persian Gulf creditor nations seeking 
with Iraq to restructure or forgive outstanding debt? 

* How will the International Compact with Iraq help secure additional 
debt relief? 

* Are the pace and substance of IMF-required reforms realistic, given 
the security and political situation in Iraq? 

* In what areas can the U.S. government provide additional technical 
assistance to help Iraq meet its IMF reform goals? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or Hchristoffj@gao.govH. 

[End of section] 

Reconstruction Challenges: 

Enclosure X: U.S. Efforts to Restore Iraq's Oil Sector Have Been Slowed 
by Major Challenges: 

Enclosure XI: U.S. Efforts to Improve Iraq's Electricity Sector Have 
Been Constrained by Security, Management, and Funding Challenges: 

[End of section] 

Enclosure X: U.S. Efforts to Restore Iraq's Oil Sector Have Been Slowed 
by Major Challenges: 

Issue: 

Iraq's oil reserves, estimated at 115 billion barrels, are the third 
largest in the world. The oil sector currently accounts for about two- 
thirds of Iraq's gross domestic product and over 90 percent of exports 
and revenues. However, Iraq's oil wells and associated infrastructure 
have deteriorated due to years of neglect, mismanagement, and 
international sanctions. Considerable looting after Operation Iraqi 
Freedom, the government of Iraq's reluctance or inability to approve 
equipment replacement or rehabilitation of oil field construction 
projects, and continued attacks on crude and refined-product pipelines 
also have contributed to Iraq's reduced oil production and export 
capacities. As of October 2006, the U.S. government allocated about 
$1.7 billion in Iraq Relief and Reconstruction Funds (IRRF) for the 
Iraqi oil sector, of which about $1.6 billion has been obligated and 
$1.1 billion disbursed.[Footnote 35] In this enclosure, we discuss (1) 
the status of efforts to meet U.S. goals for Iraq's oil sector and (2) 
key challenges the United States faces in improving Iraq's oil sector. 

Summary: 

Iraq's oil production and exports have consistently fallen below U.S. 
program goals. U.S. and Iraqi efforts to restore Iraq's oil sector have 
been impeded by the lack of security, corruption, sustainability, and 
funding challenges. The unstable security environment continues to 
place workers and infrastructure at risk while protection efforts 
remain insufficient. Widespread corruption and smuggling affect the 
distribution of refined oil products, such as gasoline. The U.S. 
reconstruction program has encountered difficulty with Iraq's ability 
to operate and maintain aging infrastructure. Further, uncertainties 
exist regarding the sources of future funding. These challenges could 
make it difficult to achieve current production and export goals, which 
are central to Iraq's government revenues and economic development. 

Iraq's Oil Production and Exports Have Not Met U.S. Program Goals: 

U.S.-funded projects have focused on restoring Iraq's oil production 
infrastructure, improving refining and export capacity, and providing 
training for operations and maintenance. As of December 11, 2006, the 
Army Corps of Engineers Gulf Region Division reported completing 97 of 
182 planned projects and is expected to complete the others by July 
2007. These projects are intended to help improve Iraq's oil production 
infrastructure, refinery, and export capacity. 

Despite U.S. efforts, Iraq's oil production and exports have 
consistently fallen below their respective program goals. After 
initially rebounding in 2003, oil production and exports averaged, 
respectively, 2.1 million and 1.5 million barrels per day (mbpd) in 
2006. U.S. program goals are to reach an average production capacity of 
3 mbpd and export levels of 2.2 mbpd.[Footnote 36] Despite not meeting 
U.S. production and export goals, export revenue has generally grown as 
world prices for crude oil have risen. 

Figure 1: Iraqi Oil Production, Export, and Revenue, June 2003 through 
November 2006: 

[See PDF for image] 

Source: Iraq Ministry of Oil data. 

[End of figure] 

Security, Corruption, Sustainability, and Funding Challenges Hinder 
Efforts to Improve Iraq's Oil Infrastructure: 

The U.S. government and Iraq face several key challenges in improving 
Iraq's oil sector. 

Addressing Infrastructure Security: 

Security conditions have affected Iraq's oil production and have, in 
part, led to project delays and increased costs. Insurgents have 
destroyed key oil infrastructure, threatened workers, compromised the 
transport of materials, and hindered project completion and repairs by 
preventing access to work sites. U.S. officials reported that major oil 
pipelines in the north continue to be sabotaged, shutting down oil 
exports and resulting in lost revenues. Pipe line repair crews are 
overwhelmed by the amount of work and unable to make rapid repairs. 

The U.S. government has developed a number of initiatives to protect 
the oil infrastructure and transfer this responsibility to the Iraqi 
government.[Footnote 37] Such efforts include improving the 
capabilities of infrastructure protection forces such as the Oil 
Protection Force, a protection force for static infrastructure sites. 
The U.S. military, with the assistance of other coalition forces, is 
also working to improve the capabilities of the Strategic 
Infrastructure Battalions (SIB). However, according to U.S. officials, 
some units are of questionable capability and loyalty. According to 
U.S. government officials and a recent Center for Strategic and 
International Studies report[Footnote 38], such security forces are 
underpaid, underequipped, poorly led, and of questionable quality. 
Additional information on the effectiveness and quality of the SIBs is 
classified. 

Combating Corruption and Smuggling: 

U.S. and international officials note that corruption in Iraq's oil 
sector is pervasive. In 2006, the World Bank and Ministry of Oil's 
Inspector General estimated that millions of dollars of government 
revenue is lost each year to oil smuggling or diversion of refined 
products. According to State Department officials and reports, about 10 
percent to 30 percent of refined fuels is diverted to the black market 
or is smuggled out of Iraq and sold for a profit. According to U.S. 
Embassy documents, the insurgency has been partly funded by corrupt 
activities within Iraq and from skimming profits from black marketers. 

In addition, Iraq lacks fully functioning meters to measure oil 
production and exports. In 1996, the United Nations (UN) first cited 
the lack of oil metering during the time Iraq was under UN sanctions. 
In addition, in 2004, the International Advisory and Monitoring Board 
for the Development Fund for Iraq recommended that metering equipment 
be expeditiously installed. According to the Ministry of Oil and the 
International Advisory and Monitoring Board (IAMB), an absence of 
functioning meters precludes control over the distribution and sale of 
crude and refined products. The U.S. government is currently taking 
steps to replace old and broken meters at the Al-Basra export terminal, 
Iraq's major oil export terminal. This project is scheduled for 
completion in April 2007. 

Improving Infrastructure Management and Sustainability: 

Problems in managing key oil projects have also led to delays. U.S. 
agency and contractor officials have cited difficulties in initially 
defining the scope, schedule, and cost of oil projects, as well as 
completing projects. The Ministry of Oil has had difficulty operating 
and maintaining its aging infrastructure, including some refineries 
originally constructed in the 1950s, 1960s, and 1970s. The ministry 
will have difficulty maintaining future production levels unless it 
initiates an ambitious rehabilitation program, according to State's 
Iraq Reconstruction Management Office (IRMO). Iraq's refineries are 
inefficient in their yield; for every barrel of crude oil sent to 
refineries only about half a barrel of refined fuel products is 
produced, according to IRMO. U.S. officials report that the sector's 
rebuilding efforts continue to be impeded by the lack of modern 
technology; qualified staff and expertise at the field, plant, and 
ministry level; an effective inventory control system for spare parts 
within the oil sector's 14 operating companies; and difficulties in 
spending budgets for equipment upgrades and replacements (see related 
brief on budget execution). The U.S. government has provided additional 
training and management assistance in response to these needs. 

Developing Adequate Sources of Future Funding: 

According to U.S. and foreign officials, the ability and willingness of 
the Iraqi government to fund improvements in its oil sector remain 
uncertain for a number of reasons: 

* Iraq lacks effective procurement, budgeting, and financial management 
systems to execute budgets efficiently, ensure transparency of oil 
revenues, and ensure the accountability of Iraqi ministry and plant 
managers. As of August 2006, the Ministry of Oil had spent only 0.1 
percent of its $3.5 billion capital budget, according to U.S. 
government reporting. 

* Current government subsidies have kept prices for refined oil 
products low and constrain opportunities for growth and investment. 
U.S. and international officials report that Iraq's low domestic fuel 
prices have stimulated black market activities and fuel smuggling out 
of the country; inadequate funding for maintenance and refinery 
upgrades; and domestic overconsumption. According to U.S. and 
international officials, the Iraqi budget is directly affected, since 
state-owned refineries cover less than half the domestic demand, and 
the Iraqi government has to import the rest at world market prices. 

* Iraq lacks a clear legal and fiscal framework to attract foreign 
investment. According to U.S. officials, until a new hydrocarbon law is 
passed, uncertainties exist surrounding the enforceability of 
contracts, how future oil revenues will be distributed, and what 
authority, if any, regional governments will have in signing oil 
exploration contracts with foreign firms. In addition, according to 
State officials, implementing regulations have yet to be issued for 
Iraq's Fuel Import Liberalization Law passed in early September 2006. 
These regulations could allow the private sector to import and 
distribute some refined products at market prices. 

Oversight Questions: 

* What is the Ministry of Oil's current strategy for meeting Iraq's 
growing fuel needs, and what assistance is the U.S. government planning 
to provide to help implement this strategy? 

* To what extent will an adequate fuel supply for electricity 
generation be included in Ministry of Oil planning? 

* What is the status of actions to ensure adequate security and 
maintenance of facilities built or renovated with U.S. funding? 

* How effective have U.S. efforts been in transferring responsibility 
for operations and maintenance of U.S. oil projects to the Iraqi 
government? How are these efforts integrated among U.S. agencies and 
the international community? 

* What U.S. efforts will help ensure that Iraq develops an adequate 
legal and regulatory framework to provide transparency and 
accountability of current and future oil revenues? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or christoffj@gao.gov. 

[End of section] 

Enclosure XI: U.S. Efforts to Improve Iraq's Electricity Sector Have 
Been Constrained by Security, Management, and Funding Challenges: 

Issue: 

Iraq's electricity infrastructure has deteriorated due to years of 
neglect during the previous regime, international sanctions, and the 
destruction caused by conflict, looting, and vandalism. An inadequate 
and unreliable supply of electricity affects both public perceptions of 
the government's ability to deliver basic services and the productivity 
of Iraq's oil sector, which is crucial to rebuilding the economy. As of 
October 2006, the U.S. government allocated about $4.2 billion of the 
Iraq Relief and Reconstruction Fund (IRRF) to Iraq's electricity 
sector; almost $2.7 billion of this amount has been disbursed.[Footnote 
39] In this enclosure, we discuss (1) the status of efforts to meet 
U.S. goals for Iraq's electricity sector and (2) the key challenges the 
U.S. faces in improving Iraq's electricity sector. 

Summary: 

In 2006, electricity reached 4,317 megawatt (mw) peak generation 
capacity per day but continued to fall short of the U.S. goal of 6,000 
mw. Production was also outpaced by increasing demand, which has 
averaged about 8,210 mw per day. The Ministry of Electricity's 2006- 
2015 master plan aims to rehabilitate and expand the national grid and 
will require substantial funding of about $27 billion. If this plan is 
implemented, the ministry estimates that Iraq will be able to meet 
projected demand for electricity in 2009. 

U.S. and Iraqi efforts to restore Iraq's electricity sector have been 
impeded by security, infrastructure management and sustainability, and 
funding challenges. The unstable security environment continues to put 
electrical workers and infrastructure at risk and protection efforts 
have been insufficient. It is also unclear whether Iraq can or will 
adequately manage and sustain U.S. projects, given inadequacies in 
operations and maintenance and an uncertain fuel supply. Further, 
uncertainties exist regarding the sources of future funds for the Iraqi 
electricity sector. These challenges could make it difficult to achieve 
an effective and efficient Iraqi electrical grid. 

Restoring Iraq's Electricity Sector Has Been Difficult: 

U.S. efforts focus on restoring or constructing generation, 
transmission, distribution, and automated monitoring and control system 
projects. As of December 2006, the Army Corps of Engineers Gulf Region 
Division (GRD) reported that 293 of its 523 planned projects had been 
completed and that it is expected to complete most of the others by the 
end of 2007. The U.S. Agency for International Development (USAID) 
reported completing all of its 29 projects. According to the State 
Department, as IRRF projects are completed, efforts are increasingly 
shifting from building large, U.S.-funded infrastructure projects to 
better protecting, maintaining, and sustaining the current 
infrastructure. 

Despite these gains, Iraq's electrical supply has not met initial 
program goals, remains unreliable, and is not meeting growing demand. 
While completed U.S. projects have added an estimated 2,093 mw[Footnote 
40] of new and rehabilitated generation capacity, U.S. efforts have not 
met the program goal of 6,000 mw established by the Coalition 
Provisional Authority (CPA) in 2004. Peak generation for 2006 averaged 
4,317 mw per day, slightly above the prewar levels of 4,200 mw. 
Moreover, electricity supply across the nation continues to be 
unreliable. From July through September 2006, the nation averaged 11.1 
hours, with Baghdad averaging 6.2 hours of power per day. Demand has 
also exceeded supply. In 2006, demand averaged 8,210 mw[Footnote 41] 
per day and reached a peak of 9,622 mw[Footnote 42] during the week of 
August 21, 2006 (see fig. 1). According to the U.S. government, the 
growth in demand for electricity has been stimulated by government 
energy subsidies and a surge in consumer purchases of appliances and 
electronics. 

Figure 1: Peak Electricity Produced and Demand in Iraq, May 2005- 
November 2006: 

[See PDF for image] 

Source: Iraq Ministry of Electricity data. 

[End of figure] 

In November 2006, the Ministry of Electricity presented an ambitious 
master plan for 2006 to 2015 to rehabilitate and expand the national 
grid; the plan will require substantial funding of about $27 billion. 
If this plan is implemented, the ministry estimates that Iraq will be 
able to meet its projected demand for electricity in 2009. 

Factors Hindering Efforts to Meet Electricity Needs: 

The U.S. government and Iraq face key challenges in meeting Iraq's 
electricity needs. 

Addressing Infrastructure Security: 

The deteriorating security environment continues to pose a serious 
challenge to Iraq's electricity system,[Footnote 43] leading, in part, 
to project delays and increased costs for security services. Electrical 
workers and infrastructure are inadequately protected and are subject 
to targeted attacks. The security situation also makes it difficult to 
get workers, parts, and equipment to sites. Moreover, looting and 
vandalism have continued since 2003, and major electrical transmission 
and fuel lines have been repeatedly sabotaged, cutting power to other 
parts of the country. According to Ministry of Electricity and U.S. 
officials, workers are frequently intimidated by anti-Iraqi forces, and 
have difficulty repairing downed lines. 

In an effort to stop the sabotage, the ministry contracted with tribal 
chiefs to protect the transmission lines running through their areas, 
paying them about $60 to $100 per kilometer, according to State's Iraq 
Reconstruction Management Office (IRMO). However, in October 2006, IRMO 
officials reported that this scheme was flawed and did not result in 
improved infrastructure protection. 

The U.S. government has developed other initiatives to better protect 
energy infrastructure.[Footnote 44] The United States has trained and 
equipped the Electrical Power Security Service (EPSS) and the Strategic 
Infrastructure Battalions (SIB) and partnered these security services 
with coalition forces. However, a U.S. official stated that the EPSS 
effort was unsuccessful and that some of the SIB units have 
questionable capability and loyalty. According to a U.S. government 
official and a recent Center for Strategic and International Studies 
report,[Footnote 45] these security forces have been underpaid, 
underequipped, and poorly led, and are of questionable quality. 
Additional information on the status of the SIBs is classified. 

Improving Infrastructure Management and Sustainability: 

The U.S. reconstruction program has encountered difficulties with 
Iraq's ability to sustain new and rehabilitated infrastructure and 
address fuel requirements. Iraq's electricity sector suffers from 
deteriorated, outdated, and inefficient infrastructure resulting from 
two decades of underinvestment in operations and maintenance, 
replacement, and expansion. This weakened infrastructure has led to 
unplanned outages.[Footnote 46] 

The rebuilding of the electricity sector has been slowed by the lack of 
training to enhance the skills of plant workers, inadequate spare 
parts, and an ineffective asset management and parts inventory system. 
Moreover, plants are sometimes operated beyond their recommended limits 
and use poor-quality fuels that rapidly deteriorate parts, involve 
longer maintenance downtimes, and increase pollution. According to U.S. 
government officials, Iraq needs to develop cleaner and more reliable 
sources of natural gas for its generators and to formulate an 
integrated fuel strategy to address these needs. Currently, Iraq's fuel 
supply does not meet demand and its quality is inconsistent. 

For example, of the 35 natural gas turbines the U.S. government 
installed in power generation plants, 16 are using diesel, crude, or 
heavy fuel oil due to the lack of natural gas and lighter fuels. As a 
result, maintenance cycles are reportedly three times as frequent and 
three times as costly. Poor-quality fuels also decrease the power 
output of the turbines by up to 50 percent and can result in equipment 
failure and damage, according to U.S. and Iraqi power plant officials. 
The U.S. government also estimates that Iraq is flaring enough natural 
gas to generate at least 4,000 mw of electrical power. Because of 
natural gas shortages, diesel has to be imported at a cost of about 
$1.2 billion a year, thus straining economic resources. 

The U.S. government is providing assistance to address these shortfalls 
through long-term operations and maintenance programs for thermal and 
gas turbine power plants and through other initiatives to help the 
ministry develop a sound operations and maintenance program. 

Developing Adequate Sources of Future Funding: 

Despite the Ministry of Electricity's recent development of a 10-year 
master plan, Iraq's ability to fund improvements in its electricity 
sector remains uncertain. 

* According to a World Bank assessment, Iraq lacks an adequate legal 
and regulatory framework and the procurement, budgeting, and financial 
management systems to execute budgets efficiently and ensure 
accountability at government ministries. 

* Iraq's electricity tariff, one of the lowest in the world, is below 
the cost of delivery and makes it difficult for Iraq to finance the 
improvements it needs to make. Moreover, Iraq's cost recovery is low 
due to inadequate metering, billing, and illegal taps into the system. 

* The ministry faces uncertainty regarding future donor commitments, 
although some future international support is expected to come through 
an International Compact launched in July 2006. Under the compact, Iraq 
would undertake economic, political, and security reforms to receive 
increased support from the international community. Donors have yet to 
agree on this compact. 

Oversight Questions: 

* What is the Ministry of Electricity's strategy for meeting Iraq's 
growing future electrical needs, and what assistance is the U.S. 
government providing to help implement this strategy? 

* What is the status of actions taken to ensure adequate security and 
maintenance for transmission lines and facilities built or renovated 
with U.S funding? 

* How effective have U.S. efforts been in transferring responsibility 
for operations and maintenance efforts for U.S. electricity projects to 
the Iraqi government? How are these efforts integrated among U.S. 
agencies and with international efforts? How is success measured? 

* What efforts are needed to ensure an adequate fuel supply for 
electricity generation in Iraq? How are the needs of the electricity 
sector integrated into Ministry of Oil planning? 

* Why did the United States purchase natural gas turbines to generate 
electricity when the necessary supply of natural gas was not assured in 
Iraq? 

GAO Contact: 

Joseph A. Christoff, Director, International Affairs and Trade, (202) 
512-8979 or Hchristoffj@gao.govH. 

[End of section] 

U.S. Military Readiness: 

Enclosure XII: Extended Operations Have Had Significant Consequences 
for the U.S. Military: 

Enclosure XIII: Securing Munitions Sites and Alleviating Armor 
Shortages Have Been Serious Problems: 

Enclosure XIV: Deficiencies in Supply Support for U.S. Ground Forces 
Have Resulted in Shortages of Critical Items: 

[End of section] 

Enclosure XII: Extended Operations Have Had Significant Consequences 
for the U.S. Military: 

Issue: 

Since September 11, 2001, U.S. military forces have experienced a high 
pace of operations to support homeland security missions, Operation 
Enduring Freedom in Afghanistan, and various combat and 
counterinsurgency operations in Iraq. These operations have required 
many units and personnel to deploy for multiple tours of duty and, in 
some cases, to remain for extended tours. The Department of Defense 
(DOD) faces significant challenges in maintaining readiness for 
overseas and homeland missions and sustaining rotational deployments of 
duty, especially if the duration and intensity of current operations 
continue at the present pace. Pursuant to a congressional mandate, we 
are examining readiness issues, including DOD's ability to support 
ongoing operations as well as other commitments. This enclosure 
highlights some of the consequences that extended operations have had 
on the U.S. military regarding personnel, equipment, and training. It 
also discusses some of the challenges DOD faces as it adjusts the 
composition and size of its forces. 

Summary: 

Although DOD has overcome difficult challenges in maintaining a high 
pace of operations over the past 5 years, extended operations in Iraq 
and elsewhere have had significant consequences for the U.S. military. 
Our work on personnel, equipment, and training issues has found 
problems with (1) DOD's ability to provide active and reserve forces, 
especially for some skills; (2) the recruitment and retention of 
personnel to fill shortages of critical positions, including those 
requiring the ability to speak foreign languages such as Arabic; (3) 
policies and guidance affecting the availability of reserve personnel; 
(4) heavy wear and tear on equipment, as well as equipment shortages in 
the reserve components; and (5) the effects of continued deployment of 
U.S. ground forces on military training. In addition, extended 
operations present challenges in determining the adjustments needed to 
the size and composition of the Army to meet both near-and long-term 
requirements.[Footnote 47] 

Operations Have Challenged DOD's Ability to Provide Forces: 

Ongoing operations in Iraq have challenged DOD's ability to supply 
active and reserve forces that are ready to deploy, particularly with 
regard to the Army and Marine Corps. Although the Army's goal is to 
deploy active personnel only 1 of every 3 years, many soldiers have 
deployed more frequently, and some personnel are preparing for their 
third rotations to Iraq. Active Marine Corps personnel are also 
deploying more frequently than the goals established by Marine Corps 
leaders. Moreover, ongoing operations have created a particularly high 
demand for certain combat support and combat service support skills, 
such as engineering, civil affairs, transportation, and military 
police. With limits placed on the availability of reserve component 
members with these skills (see discussion below), DOD is increasingly 
turning to the Navy and Air Force to help meet requirements for certain 
types of forces needed to support ground operations. The longer 
operations in Iraq continue, the greater the likelihood DOD will face 
increasing challenges in identifying sufficient numbers of such skilled 
personnel. 

DOD Faces Enlisted Personnel Recruitment and Retention Challenges: 

Operations in Iraq have contributed to the U.S. military's significant 
challenge in recruiting and retaining hundreds of thousands of service 
members each year. While the services have generally met their 
aggregate recruiting and retention goals, DOD has had problems 
recruiting and retaining sufficient numbers of individuals with the 
right skills and knowledge. Over 40 percent of DOD's 1,484 occupational 
specialties were consistently underfilled for fiscal years 2000 through 
2005, raising concerns about the military's ability to meet all of its 
missions. For example, during fiscal year 2003 when the Iraq war began, 
DOD was unable to fill almost 103,000 positions in consistently 
underfilled occupations; this number grew to 112,000 unfilled positions 
by 2005. Many of these consistently underfilled occupations are in 
critical areas, such as health care, human intelligence collection, and 
explosive ordnance disposal. 

DOD Policies and Guidance Have Limited the Availability of Reserve 
Forces: 

DOD has recognized that the department cannot execute major military 
operations without significant participation from its reserve 
components. However, its current mobilization and deployment policies 
and guidance restrict flexibility in staffing long-term operations such 
as the global war on terrorism. After September 11, 2001, DOD issued a 
series of policies and guidance to guide the use of reserves for the 
global war on terrorism in order to limit deployments and help sustain 
the all-volunteer force. Most significantly, it limited the services to 
one involuntary mobilization of their reserve component members for the 
global war on terrorism and limited reserve component mobilizations to 
Iraq and Afghanistan to 12 months "on the ground" in the U.S. Central 
Command area of operations, plus additional time for mobilization and 
demobilization activities. Thus, under the current policy, reserve 
component members who were involuntarily mobilized for operations 
related to the global war on terrorism cannot be involuntarily 
mobilized for the ongoing operation now referred to as "the long war." 
As additional personnel have been involuntarily mobilized, the services 
have come to rely more heavily on active forces, repeat volunteers, and 
new recruits to meet their sourcing requirements. 

Ongoing Operations Are Taking a Heavy Toll on Equipment: 

Ongoing military operations in Iraq are inflicting heavy wear and tear 
on equipment. Some equipment items used by U.S. forces are more than 20 
years old, and harsh combat and environmental conditions over time have 
further exacerbated equipment condition problems. The Army and the 
Marine Corps have initiated programs to reset (repair or replace) 
equipment and are likely to incur large expenditures in the future. We 
are currently assessing these programs, including the extent to which 
the services are tracking reset costs and the extent to which their 
reset plans maintain unit equipment readiness while meeting ongoing 
operational requirements. 

In addition, the Army National Guard and Army Reserve have transferred 
large quantities of equipment to deploying units, an approach that has 
contributed to growing equipment shortages in nondeployed units. Also, 
reserve units have left large quantities of equipment overseas, and DOD 
has not yet developed plans to replace the equipment. The Army National 
Guard reports that its nondeployed units have less than one-third of 
their required equipment, and the Army Reserve reports that its units 
have about half of the modern equipment they need to deploy. These 
shortages also could adversely affect reserve units' ability to perform 
homeland defense missions and provide support to civil authorities in 
the event of natural disasters or terrorist attacks. 

Continuing Deployment of Ground Forces Has Affected Military Training: 

The continuing deployment of ground forces to support ongoing 
operations has affected military training. The military services have 
been focused on preparing units to assume missions and to operate in 
conditions specific to Iraq and Afghanistan, with less time available 
to prepare for other wartime and homeland defense missions. In 
addition, personnel and units are being asked to perform missions or 
functions different from those they were designed for and are being 
retrained accordingly. For example, field artillery units have been 
used to perform some military police duties and therefore spend time 
training for these missions before deploying. To support deploying 
units, units that remain behind must give up personnel and equipment, 
thus limiting their ability to train as a unit or to train on certain 
equipment that they might be required to operate once deployed. Also, 
units are faced with replacing officer and senior enlisted personnel 
pulled to serve as trainers for Iraqi and Afghani security forces. 

Challenges Remain in Adjusting the Composition and Size of Forces: 

Ongoing operations have raised questions about whether DOD has 
adequately reassessed and adjusted the size and composition of its 
forces, particularly with regard to the Army. Although the Army has 
begun to adjust its force structure, significant challenges remain. For 
example, in 2004, the Army began to implement a $52.5 billion 
initiative throughout the active and reserve components to establish 
modular brigades that are intended to be more readily deployable to 
overseas operations such as Iraq than their predecessor units, which 
were designed for Cold War postures. The Army's goal of establishing 
fully capable modular units will be difficult given long-standing 
equipment and personnel shortfalls, particularly while the Army is also 
managing the training and deployment of forces to Iraq. 

Further, to help support operations in Iraq, the Army has made some 
adjustments in its active-reserve mix to establish additional units 
that are in high demand. The Marine Corps has made similar changes. 
However, the Office of the Secretary of Defense had not conducted a 
recent comprehensive data-driven analysis to assess the number of 
active personnel needed by the services to implement the defense 
strategy and to provide needed capabilities within acceptable levels of 
risk. 

Prior Recommendations: 

In prior reports, we have made numerous recommendations addressing the 
military issues covered in this paper, including the following: 

* With regard to the recruitment and retention of enlisted personnel, 
we recommended that DOD develop a management action plan to help 
components identify and address the causes of their recruiting and 
retention challenges.[Footnote 48] DOD partially concurred with this 
recommendation. 

* As the result of our work on the availability of reserve forces, we 
recommended that DOD develop a strategic framework that sets human 
capital goals concerning the availability of its reserve component 
forces to meet the longer-term requirements of the global war on 
terrorism under various mobilization authorities and identify personnel 
policies that should be linked within the context of the strategic 
framework.[Footnote 49] DOD partially concurred with this 
recommendation. 

* In our work on Army National Guard equipment readiness, we 
recommended that the Army develop and submit to Congress a plan and 
funding strategy that addresses the equipment needs of the Army 
National Guard for the global war on terrorism and addresses how the 
Army will transition from short-term equipping measures to long-term 
equipping solutions.[Footnote 50] DOD agreed with this recommendation. 

* In reporting on the Army's modularity program, we recommended that 
the Army develop and provide the Secretary of Defense and Congress with 
a comprehensive plan for assessing the Army's progress toward achieving 
the benefits of modularity. We recommended the plan include specific, 
quantifiable performance metrics to measure progress toward meeting the 
goals and objectives established in the Army Campaign Plan.[Footnote 
51] DOD agreed to develop expanded performance metrics. 

Oversight Questions: 

* To what extent has DOD evaluated its ability to support any 
adjustments in troop levels in the administration's revised strategy, 
including the availability of personnel, equipment and training 
necessary if the strategy calls for increases? 

* What options are available to DOD for making more personnel, 
including both active duty and reserve personnel, available for future 
rotations while sustaining an all-volunteer force? 

* To what extent have DOD components developed a management action plan 
to identify and address the causes of their recruiting and retention 
challenges? 

* To what extent will equipment reset plans maintain unit equipment 
readiness while meeting ongoing operational requirements? 

* What is the state of readiness of our armed forces? To what extent 
has DOD evaluated whether units are ready and trained to respond to 
operations other than Iraq or Afghanistan? 

* Are the Army and Marine Corps appropriately sized, with the right 
composition and mix of units and personnel skills, to support ongoing 
operations, while remaining prepared for missions that could arise at 
home or abroad? 

GAO Contact: 

Henry L. Hinton, Jr., Managing Director, Defense Capabilities and 
Management, (202) 512-4300 or hintonh@gao.gov. 

[End of section] 

Enclosure XIII: Securing Munitions Sites and Alleviating Armor 
Shortages Have Been Serious Problems: 

Issue: 

U.S. ground forces in Iraq have come under frequent and deadly attacks 
from insurgents using weapons such as improvised explosive devices 
(IED), mortars, and rocket launchers. IEDs, in particular, have emerged 
as the number one threat against U.S. forces. Insurgents have made many 
IEDs from munitions looted from storage sites in Iraq. This enclosure 
discusses (1) the security provided by U.S. forces over conventional 
munitions storage sites in Iraq and (2) the challenges the Department 
of Defense (DOD) has faced in meeting increased requirements for body 
and truck armor to protect U.S. ground forces. 

Summary: 

As a result of the overwhelming size and number of conventional 
munitions storage sites in Iraq, combined with prewar planning 
assumptions that proved to be invalid, U.S. forces did not adequately 
secure those sites and looting was widespread. Despite the potential 
risk posed by unsecured sites, DOD's actions in response to lessons 
learned during Operation Iraqi Freedom (OIF) have focused on countering 
IEDs and not on the strategic implications of munitions sites for 
future operations.[Footnote 52] 

Efforts to protect U.S. ground forces with increased body and truck 
armor have been characterized by shortages and delays, which have 
reduced operational capabilities and forced combat commanders to accept 
additional risk in completing their missions.[Footnote 53] We are 
currently reviewing force protection measures, including body armor, 
for current operations, as well as the organization and management of 
the Joint IED Defeat Organization (JIEDDO), which was established in 
January 2006 with a mission of countering the IED threat. 

U.S. Did Not Prevent Looting of Munitions Sites: 

A fundamental gap existed between OIF war plan assumptions and the 
experiences of U.S. and coalition forces in Iraq, contributing to an 
insufficient number of troops on the ground to prevent the widespread 
looting of conventional munitions storage sites. Looted munitions have 
emerged as a continuing asymmetric threat to U.S. and coalition forces. 
The human, strategic, and financial costs of the failure to provide 
sufficient troops on the ground have been high, since IEDs made from 
looted explosives have caused about half of all U.S. combat fatalities 
and casualties in Iraq and have killed hundreds of Iraqis. In addition, 
unsecured conventional munitions sites have helped sustain insurgent 
groups and threatened the achievement of the OIF strategic goal of 
creating a stable Iraqi nation. 

DOD's actions have primarily focused on countering IEDs and not on the 
security of conventional munitions storage sites as a strategic 
planning and priority-setting consideration for future operations. 
Although good first steps, these actions do not address what we believe 
is a critical OIF lesson learned: If not secured during initial combat 
operations, an adversary's conventional munitions storage sites can 
represent an asymmetric threat to U.S. forces that remain in country. 

Acquisition Delays and Distribution Problems Resulted in Body Armor 
Shortages: 

DOD faced challenges in supplying sufficient quantities of body armor 
to meet the requirements for U.S. military forces in Iraq. Temporary 
shortages of body armor occurred because of acquisition delays related 
to the lack of key materials and distribution problems in theater. 
Increasing military requirements for body armor exceeded the 
manufacturer's capacity to produce enough of the Army's new Interceptor 
body armor,[Footnote 54] particularly after October 2003, when U.S. 
Central Command required body armor for all U.S. personnel in its area 
of responsibility. Before that, the Army required body armor for all 
soldiers in Iraq but not for all U.S. personnel. As a result of the 
shortages, many individuals purchased body armor that was available in 
the private sector with their own funds. 

According to the Defense Logistics Agency, the organization that 
manages body armor for the Army, the shortfall in vests and ceramic 
plates was due to the lack of Kevlar (a type of fiber) for 
manufacturing the vests and a lack of material for manufacturing the 
plates. Attempts to accelerate the fielding of the new armor had some 
success but also created additional logistics problems, including the 
inaccurate reporting of on-hand quantities. 

We are currently reviewing force protection measures, including body 
armor requirements, testing, and oversight, for current operations. 

Production and Installation Problems Resulted in Shortages of Army and 
Marine Truck Armor: 

DOD also faced the challenge of supplying sufficient amounts of armor 
for Army and Marine Corps trucks. U.S. military forces in Iraq have 
experienced shortages of truck armor due to problems with production 
and installation of armor kits. Although the Army first identified a 
requirement for 3,780 truck armor kits for five types of 
trucks[Footnote 55] in November 2003, it did not produce all of the 
kits until February 2005 and did not install the kits to meet the 
initial requirement until May 2005--18 months after the requirement was 
identified. Requirements continued to increase after May 2005, but the 
time lag to meet them lessened. A number of factors contributed to the 
time needed to provide truck armor to deployed Army troops. As a 
result, troops were placed at greater risk as they conducted wartime 
operations in vehicles not equipped with the preferred level of 
protection. For example, the Army missed a valuable opportunity to have 
substantial numbers of truck armor kits available for OIF by not fully 
capitalizing on approved requirements for these kits established in 
1996. In addition, production time lengthened because contracts were 
awarded for amounts less than total requirements due to increasing 
needs for truck armor and inadequate funding. Sufficient documentation 
was lacking to determine why funding was not available when needed, 
limiting effective oversight over funding decisions. Material shortages 
and limited kit installation rates also affected the availability of 
truck armor. 

The Marine Corps also experienced shortages of truck armor during OIF. 
The Marine Corps belatedly met requirements for the production and 
installation of add-on truck armor in September 2004--8 months after 
the requirements were identified. Two factors affected the timely 
production and installation of Marine Corps truck armor. First, the 
lack of a synchronized approach between the Marine Corps and the Army 
resulted in the Marine Corps identifying its truck armor requirements 
and seeking armor solutions 2 months after the Army. This delay may 
have limited the Marine Corps' ability to field interim armor that met 
IED protection requirements and may have contributed to delays in 
providing add-on truck armor to deployed Marine Corps forces. The 
Marine Corps did not officially identify a requirement for truck armor 
and did not begin seeking out armor materials from industry until 
January 2004--2 months after the Army began its truck armor program in 
November 2003. According to Marine Corps officials, the armor-grade 
steel needed for sufficient IED protection was not available from 
suppliers in time to meet the Marine Corps' deployment timeline of 
March 2004. As a result, the Marine Corps fielded the interim armor 
with only limited IED protection. Second, mission needs restricted the 
rate at which the Marine Corps could replace its interim armor with add-
on armor and install integrated armor. 

DOD has taken actions to improve the timely availability of truck 
armor. For example, the Army is developing a long-term armoring plan to 
improve the availability of truck armor for future operations. The 
Marine Corps increased the rate of installation for integrated armor by 
expanding its armor installation capacity. The Marine Corps is also 
taking longer-term actions, such as developing a plan to address the 
availability of truck armor for future operations. 

GAO Is Reviewing JIEDDO: 

In response to Senate Report 109-292, we have initiated a review of 
JIEDDO. The objectives of our ongoing review are to determine (1) 
whether JIEDDO's overall management and organizational structure, 
including funding, personnel, and strategic planning processes, 
effectively support its mission; (2) the challenges, if any, that 
affect JIEDDO's ability to quickly and effectively identify, develop, 
test, and support technology and training solutions; and (3) the level 
of coordination that exists between JIEDDO and other DOD and non-DOD 
organizations to leverage existing capabilities and prevent duplication 
of efforts. 

Prior Recommendations: 

In December 2006, we recommended that the Chairman of the Joint Staff 
conduct a theaterwide survey and risk assessment regarding unsecured 
conventional munitions in Iraq and incorporate conventional munitions 
storage site security as a strategic planning factor into all levels of 
planning policy and guidance, including joint doctrine, instructions, 
manuals, and other directives.[Footnote 56] DOD partially concurred 
with our recommendations. 

In prior reports, we have recommended actions to ensure funding needs 
for urgent wartime requirements are identified quickly, requests for 
funding are well documented, and funding decisions are based on risk 
and an assessment of the highest priority requirements. For example, in 
March 2006, we recommended that the Army establish a process to 
document and communicate all urgent wartime funding requirements for 
supplies and equipment at the time they are identified and the 
disposition of funding decisions.[Footnote 57] DOD concurred with the 
intent of the recommendation. More recently, we have recommended 
actions to ensure that the services make informed and coordinated 
decisions about what materiel solutions are developed and procured to 
address common urgent wartime requirements.[Footnote 58] DOD generally 
agreed with these recommendations. 

Oversight Questions: 

* Has DOD conducted a theaterwide survey and risk assessment regarding 
unsecured conventional munitions storage sites in Iraq? Has DOD 
developed a risk mitigation strategy for unsecured sites in Iraq? 

* Has DOD incorporated the security of conventional munitions storage 
sites as a strategic planning factor into all levels of planning policy 
and guidance? 

* Is the supply chain adequately supporting the troops' needs for body 
armor and truck armor during combat operations? Are the Army and Marine 
Corps coordinating the requirements, testing, and production of body 
armor and evaluating its effectiveness in the field? 

* Is JIEDDO structured to effectively accomplish its mission and 
account for its expenditures? 

* What steps has DOD taken to stay abreast of evolving force protection 
threats and to identify and employ appropriate mitigation measures? 

GAO Contacts: 

Davi M. D'Agostino, Director, Defense Capabilities and Management, 
(202) 512-5431 or dagostinod@gao.gov; and William M. Solis, Director, 
Defense Capabilities and Management, (202) 512-8365 or solisw@gao.gov. 

[End of section] 

Enclosure XIV: Deficiencies in Supply Support for U.S. Ground Forces 
Have Resulted in Shortages of Critical Items: 

Issue: 

To support Operation Iraqi Freedom (OIF), the Department of Defense 
(DOD) undertook a massive logistics effort, moving millions of tons of 
cargo, including critical equipment, spare parts, and other supplies 
several thousand miles to the Persian Gulf. This effort began in late 
2001, accelerated in the fall of 2002 just before major combat 
operations were launched in March 2003, and continues today as U.S. 
forces undertake stabilization efforts in Iraq. However, U.S. forces 
have still experienced shortages of critical supply items. This 
enclosure discusses (1) systemic deficiencies in DOD's supply support 
for U.S. ground forces during OIF and (2) actions DOD has taken to 
improve supply support. 

Summary: 

OIF tested the DOD logistics system and the industry's capability to 
meet rapidly increasing demands, and in many instances the supply chain 
failed to respond quickly enough to meet the needs of modern warfare. 
In prior reports, we have reported on shortages of critical 
items[Footnote 59] and the systemic deficiencies in supply support that 
led to these shortages. These deficiencies included (1) inaccurate and 
inadequately funded Army war reserve requirements, (2) inaccurate 
supply forecasts, (3) insufficient and delayed funding, (4) delayed 
acquisition, and (5) ineffective distribution.[Footnote 60] DOD 
developed short-term solutions to manage item shortages during OIF, and 
DOD and the services have begun to undertake systemic, long-term 
changes to fix some of the supply problems identified. 

Inaccurate and Inadequately Funded Requirements: 

The Army's out-of-date and inadequately funded war reserve requirements 
for spare parts negatively affected the availability of armored vehicle 
track shoes, lithium batteries, and tires. At the time of our April 
2005 report, the Army had not conducted annual updates to its war 
reserve requirements since 1999. In addition, Army war reserve 
requirements had not been fully funded for many years, indicating that 
the Army had made a risk management decision not to fund war reserves. 
This decision forced war reserve managers to prioritize the use of 
available funding, which meant that some items had no war reserve to 
support initial operations. In our March 2006 report on Army truck 
armor, we similarly found that the Army made a decision not to fund 
prior requirements for truck armor identified in 1996; thus, the Army 
did not have a significant number of add-on armor kits available when 
the need for them arose in Iraq. 

Inaccurate Supply Forecasts: 

DOD was unable to accurately forecast supply requirements for armored 
vehicle track shoes, lithium batteries, Meals-Ready-to-Eat, and tires. 
The Army's computer models for forecasting item demand did not have the 
capability to switch to a wartime forecasting mode as required. 
Further, the Defense Logistics Agency's model was not effective for all 
supply items. As a result, item managers had to manually develop 
forecasts for OIF, but they did not always have sufficient or timely 
information on estimated deployment sizes or the duration of 
operations. In some cases, they underestimated the actual demand, which 
resulted in supply shortages during operations. 

Insufficient and Delayed Funding: 

In April 2005, we reported that delays in funding impeded the 
availability of armored vehicle track shoes, lithium batteries, and 
tires. Specifically, during OIF, the Army Materiel Command asked for 
additional funding to support forecasted OIF requirements but did not 
receive these funds in a timely manner. In March 2006, we similarly 
reported that funding was not always available to award truck armor 
contracts when requirements were identified. As a result, production 
time lengthened because contracts were awarded for amounts less than 
total requirements. In all of the cases we reported, sufficient 
documentation was lacking to determine why funding was not available 
when needed, thus limiting effective oversight over funding decisions. 

Delayed Acquisition: 

Problems with delayed acquisition led to several shortages of critical 
supply and equipment items. For example, in April 2005, we reported 
that a lack of key materials and long production lead-times resulted in 
shortages of body armor and lithium batteries. Similarly, in March and 
June 2006, we reported that shortages of key materials, such as steel, 
negatively affected the availability of Army and Marine Corps truck 
armor kits. In addition to these shortages, in April 2005, we reported 
that DOD's decision not to maximize available production capacity 
adversely affected the availability of up-armored High-Mobility Multi- 
Purpose Wheeled Vehicles (HMMWV) and add-on armor kits. The acquisition 
challenges we reported impeded DOD's ability to quickly respond to 
rapidly increasing demands, resulting in equipment items not being 
available to warfighters when needed. 

Ineffective Distribution: 

As a result of an ineffective joint distribution system during OIF, DOD 
was unable to distribute sufficient quantities of four items we 
reported on in April 2005--assault amphibian vehicle generators, body 
armor, Meals-Ready-to-Eat, and tires. Among the problems we identified 
with theater distribution were (1) conflicting doctrine, or military 
principles, defining the authority of the geographic combatant 
commander to synchronize the distribution of supplies from the United 
States to the theater; (2) improper packaging of air shipments from the 
United States, which forced personnel in theater to spend extra time 
opening and sorting shipments; (3) insufficient transportation 
equipment and supply personnel in theater; and (4) the inability of 
logistics information systems to support the requisition and shipment 
of supplies into and throughout Iraq. To address OIF distribution 
problems, DOD established a deployment and distribution operations 
center in Kuwait to coordinate the arrival of supplies in theater and 
consolidated air cargo pallets for shipment to a single supply support 
activity. According to DOD, these two initiatives improved the flow of 
supplies into and around the OIF theater. 

DOD Actions Taken to Improve Supply Support: 

DOD, the services, and the defense agencies have taken actions to 
improve supply availability. Many short-term solutions to lessen the 
impact of supply shortages were instituted during combat operations. 
For example, as a result of the lithium battery shortage, the Joint 
Staff developed the "critical few list" to improve the availability of 
items that the services and combatant commands report as critical to 
their worldwide operations. DOD is also beginning to make systemic, 
long-term changes to correct some of its supply problems. One of the 
more notable is that the Secretary of Defense designated the U.S. 
Transportation Command as responsible for improving distribution. With 
the encouragement of the Office of Management and Budget, DOD has also 
developed a plan to improve supply chain management. The plan focuses 
on three areas--forecasting requirements, materiel distribution, and 
asset visibility. We have previously reported on DOD's efforts to 
improve supply distribution and supply chain management.[Footnote 61] 

Prior Recommendations: 

We have made a number of prior recommendations aimed at improving the 
effectiveness of DOD's supply system in supporting deployed forces for 
contingency operations. For example, we have made recommendations to 
improve the accuracy of war reserve requirements, support prewar 
planning through supply forecasting, minimize future acquisition 
delays, and improve supply distribution. DOD agreed with the intent of 
the recommendations and cited actions it had taken or was taking to 
eliminate supply chain deficiencies. However, it did not clearly 
identify timelines for fully implementing most of these 
recommendations, and we subsequently modified our recommendations to 
require that DOD specify when actions will be completed. 

Oversight Questions: 

* What actions has DOD taken to improve the accuracy of war reserve 
requirements and wartime supply requirements? 

* To what extent has DOD funded its war reserve and other equipment 
requirements, and what are the operational impacts of any unfunded 
requirements? 

* What actions has DOD taken to improve the timely availability of 
funding for wartime supply needs and emerging equipment requirements? 

* What actions has DOD taken to assess the industrial base's capacity 
to meet increasing wartime supply and equipment needs and to minimize 
acquisition delays? 

* What actions have DOD and the U.S. Transportation Command implemented 
to improve theater distribution during wartime? 

GAO Contact: 

William M. Solis, Director, Defense Capabilities and Management, (202) 
512-8365 or Hsolisw@gao.govH. 

[End of section] 

Improving Acquisition Outcomes: 

Enclosure XV: DOD Needs to Improve Its Capacity to Manage Contractors: 

[End of section] 

Enclosure XV: DOD Needs to Improve Its Capacity to Manage Contractors: 

Issue: 

The Department of Defense (DOD) has relied extensively on contractors 
to undertake major reconstruction projects and provide logistical 
support to its troops in Iraq. For example, DOD has responsibility for 
a significant portion of the more than $30 billion in appropriated 
reconstruction funds and has awarded and managed many of the large 
reconstruction contracts, such as the contracts to rebuild Iraq's oil, 
water, and electrical infrastructure, and to train and equip Iraqi 
security forces. Further, U.S. military forces in Iraq have used 
contractors to a far greater extent than in prior operations to provide 
interpreters and intelligence analysts, as well as more traditional 
services such as weapons systems maintenance and base operations 
support. The Army alone estimates that almost 60,000 contractor 
employees currently support ongoing military operations in Southwest 
Asia and has spent about $15.4 billion on its single largest support 
contract--the Logistics Civil Augmentation Program (LOGCAP)--between 
2001 and 2004. These contracts are often cost-plus type contracts, 
which allow the contractor to be reimbursed for reasonable, allowable, 
and allocable costs to the extent prescribed in the contracts. This 
enclosure discusses actions needed to improve (1) DOD's reconstruction 
outcomes and (2) its use of logistics support contractors. 

Summary: 

The United States has made significant investments through 
reconstruction and logistics support contracts, but this investment has 
not always resulted in the desired outcomes. Many reconstruction 
projects have fallen short of expectations, and DOD has yet to resolve 
long-standing challenges in its management and oversight of contractors 
in deployed locations. These challenges often reflect shortcomings in 
DOD's capacity to manage contractor efforts, including having 
sufficiently focused leadership, guidance, a match between requirements 
and resources, sound acquisition approaches, and an adequate number of 
trained contracting and oversight personnel. Further, because 
information on the number of contractor employees and the services they 
provide is not aggregated within DOD or its components, DOD cannot 
develop a complete picture of the extent to which it relies on 
contractors to support its operations. With about 29 percent of DOD's 
planned construction work remaining and the need for continued 
logistical support for deployed forces, it is essential to improve 
DOD's capacity to manage its contractors if the department is to 
increase its return on its investment. 

Better Reconstruction Outcomes Require Improved Contract Management: 

Amid some signs of progress, the United States and its coalition 
partners face numerous political, security, and economic challenges in 
rebuilding Iraq. Within this environment, many reconstruction projects 
have fallen short of expectations, resulting in increased costs, 
schedule delays, and reduced scopes of work. These outcomes have 
contributed to the inability of the United States to fully meet its 
goals with respect to oil, electricity, and water sectors. Poor 
acquisition outcomes are not unique to Iraq, and the contracting 
challenges are emblematic of systemic issues faced by DOD. In fact, GAO 
designated DOD's contract management activities as a high-risk area 
more than a decade ago. In our January 2005 report, we noted that DOD 
needed to use sound business practices when buying goods and services 
and have the right skills and capabilities in its acquisition workforce 
to properly manage these acquisitions.[Footnote 62] 

A prerequisite to having good outcomes is a match between well-defined 
requirements and available resources. Shifts in priorities and funding 
invariably have a cascading effect on individual contracts. To produce 
desired outcomes within available funding and required time frames, DOD 
and its contractors need to clearly understand reconstruction 
objectives and how they translate into the contract's terms and 
conditions: the goods or services needed, the level of performance or 
quality desired, the schedule, and the cost. When such requirements 
were not clear, DOD often entered into contract arrangements that posed 
additional risks. In June 2004, we reported that DOD often authorized 
contractors to begin work before key terms and conditions, including 
the work to be performed and its projected costs, were fully 
defined.[Footnote 63] In September 2006, we reported that, under this 
approach, DOD contracting officials were less likely to remove the 
costs questioned by auditors if the contractor had incurred these costs 
before reaching agreement on the work's scope and price.[Footnote 64] 
In one case, the Defense Contract Audit Agency questioned $84 million 
in an audit of a task order for an oil mission. In this case, the 
contractor did not submit a proposal until a year after the work was 
authorized, and DOD and the contractor did not negotiate the final 
terms of the contract until more than a year after the contractor had 
completed the work. The absence of well-defined requirements and 
clearly understood objectives complicates efforts to hold DOD and 
contractors accountable for poor acquisition outcomes. 

An unstable contracting environment--when wants, needs, and contract 
requirements are in flux--also requires greater attention to oversight, 
which relies on a capable government workforce. However, the Special 
Inspector General for Iraq Reconstruction found that one of the 
Coalition Provisional Authority's (CPA) critical shortcomings in 
personnel was the inadequate link between position requirements and 
necessary skills. Similarly, in January 2004, an interagency assessment 
team found that the number of contracting personnel was insufficient to 
handle the increased workload expected with the influx of fiscal year 
2004 funding. In part, the CPA's decision to award seven contracts in 
early 2004 to help better coordinate and manage the fiscal year 2004 
reconstruction efforts recognized this shortfall. As a result, however, 
DOD is relying on contractors to help manage and oversee other 
contractors. 

DOD's lack of capacity contributed to challenges in using interagency 
contracting vehicles.[Footnote 65] In certain instances, rather than 
develop and award its own contracts, DOD used contracts already awarded 
by other agencies. While this practice may improve efficiency and 
timeliness, these contracts need to be effectively managed and their 
use requires a higher than usual degree of business acumen and 
flexibility on part of the workforce. During the initial stages of 
reconstruction, we and the DOD Inspector General found instances in 
which DOD improperly used interagency contracts. For example, we found 
that the lack of effective management controls, including insufficient 
oversight and a lack of adequate training, led to breakdowns in the 
issuance and administration of task orders for interrogation and other 
services by the Department of the Interior on behalf of DOD.[Footnote 
66] Similarly, the Inspector General found that a DOD component 
circumvented contracting rules when awarding contracts on behalf of the 
CPA by using the General Services Administration's federal supply 
schedule, in part due to DOD's failure to plan for the acquisition 
support the CPA needed to perform its mission. 

The need to award contracts and begin reconstruction efforts quickly 
also contributed to DOD using other than full and open competition 
during the initial stages of reconstruction. While full and open 
competition can be a tool to mitigate acquisition risks, DOD officials 
had only a relatively short time--often only weeks--to award the first 
major reconstruction contracts. We recently reported that available 
data indicate that between October 1, 2003, through March 31, 2006, the 
vast majority of DOD's contract obligations were on competed 
contracts.[Footnote 67] 

To improve its capacity to plan and award contracts and manage 
contractor performance, DOD has merged the Project and Contracting 
Office with the U.S. Army Corps of Engineers' Gulf Region Division. 
Additionally, DOD established the Joint Contracting Command-Iraq to 
consolidate and prioritize contracting activities and resolve 
contracting issues, among other things. In some sectors, DOD has 
attempted to directly contract with Iraqi firms, rather than rely on 
the large U.S. design-build contracts that it had awarded in early 
2004. Although DOD expects this approach will reduce costs, it will 
likely increase the administrative and oversight burden on DOD's 
acquisition workforce. Overall, about 29 percent of DOD's planned 
construction program was incomplete as of October 2006. 

Action Needed to Address Long-standing Problems with Management and 
Oversight of Military Support Contractors: 

DOD has long used contractors to provide supplies and services to 
deployed forces, but the scale of contractor support that DOD relies on 
in locations such as Iraq has increased considerably from prior 
operations. Since 1997, we have reported on DOD's management and 
training shortcomings related to contractors supporting deployed 
forces, including the lack of senior DOD leadership, the lack of 
visibility and knowledge of the number of contractors and the services 
they provide, and an inadequate number of trained personnel to ensure 
the efficient and effective use of contractor resources. 

We recently found these long-standing problems continue to hinder DOD's 
management and oversight of support contractors.[Footnote 68] For 
example, despite DOD actions to improve its guidance on the use of 
contractors to support deployed forces, we found few measures had been 
taken by the relevant office within the Office of the Secretary of 
Defense to ensure that DOD components complied with this guidance. 
Similarly, despite facing many of the same difficulties in managing and 
overseeing contractors in Iraq as it faced in prior operations, no 
organization within DOD or its components is responsible for 
systematically collecting and sharing institutional knowledge regarding 
using support contractors. As a result, new units deploying to Iraq run 
the risk of repeating past mistakes. DOD has recently established an 
office to address contractor support issues, but the office's specific 
roles and responsibilities have not yet been clearly defined. 

Further, because information on the number of contractor employees or 
the services they provide is not aggregated by any organization within 
DOD or its components, senior leaders and military commanders cannot 
develop a complete picture of the extent to which they rely on 
contractors to support their operations. For example, when senior 
military leaders began to develop a base consolidation plan, officials 
were unable to determine how many contractors were deployed and 
therefore ran the risk of over-or under-building the capacity of the 
consolidated bases. Having limited visibility can also unnecessarily 
increase contracting costs to the government. For example, an Army 
official estimated that about $43 million is lost every year on free 
meals provided to contractor employees at deployed locations who also 
receive a per diem food allowance. 

Additionally, DOD does not have sufficient numbers of contractor 
oversight personnel at deployed locations, precluding its ability to 
obtain reasonable assurance that contractors are meeting contract 
requirements efficiently and effectively. An Army official acknowledged 
that the Army is struggling to find the capacity and expertise to 
provide the contracting support needed in Iraq. A LOGCAP program 
official noted that, if adequate staffing had been in place, the Army 
could have realized substantial savings on the LOGCAP contract through 
more effective reviews of new requirements. DOD is also at risk of 
being unable to monitor and assess contractor performance. A Defense 
Contract Management Agency official responsible for overseeing the 
LOGCAP contractor's performance at 27 locations noted that he was 
unable to visit all of those locations during his 6-month tour to 
determine the extent to which the contractor was meeting the contract's 
requirements. 

Military personnel continue to receive limited or no training on the 
use of contractor support as part of their predeployment training. The 
lack of training hinders commanders' ability to adequately plan for the 
use of contractor support and inhibits the ability of contract 
oversight personnel to manage and oversee contractors in deployed 
locations. Limited or no training also can lead to confusion regarding 
roles and responsibilities military commanders have in overseeing 
contractors at deployed locations. For example, in several instances, 
military commanders attempted to direct or ran the risk of directing a 
contractor to perform work outside the scope of the contract, even 
though commanders are not authorized to do so and such cases can result 
in increased costs to the government. 

Prior Recommendations: 

We have made several recommendations to improve DOD acquisition 
outcomes, including those intended to assure that adequate acquisition 
staff and other resources are available to support future operations, 
to emphasize the need to define contract requirements in a timely 
manner, to improve the management of interagency contracting, and to 
resolve long-standing issues with regard to the management and use of 
support contractors. DOD has generally agreed with our recommendations 
and has actions under way to address them. 

Oversight Questions: 

* What steps is DOD taking to ensure it has the capacity and knowledge 
to successfully execute remaining reconstruction efforts? 

* What actions has DOD taken to ensure that its business arrangements, 
including its use of contracts awarded by other agencies, result in the 
acquisition of goods and services in an appropriate, timely, and cost- 
effective manner? 

* To what extent is DOD improving its ability to identify the number of 
contractor employees and the types of services they provide as it 
considers how to support deployed forces in Iraq? 

* What steps is DOD taking to ensure that contractor support training 
is consistently provided to deployed forces? 

* What actions has DOD taken to ensure that it has a sufficient number 
of trained contracting and contract management personnel in place in 
Iraq? 

* What can be done to establish contracting arrangements in advance to 
support future contingency operations? 

* What limitations should be placed on the role that contractors play 
in conflict zones? 

GAO Contacts: 

John P. Hutton, Acting Director, Acquisition and Sourcing Management, 
(202) 512-4841 or Hhuttonj@gao.govH; and William M. Solis, Director, 
Defense Capabilities and Management, (202) 512-8365 or 
Hsolisw@gao.govH. 

[End of section] 

Objectives, Scope, and Methodology, and Staff Acknowledgments: 

Enclosure XVI: Objectives, Scope, and Methodology: 

Enclosure XVII: Staff Acknowledgments: 

[End of section] 

Enclosure XVI: Objectives, Scope, and Methodology: 

To monitor U.S. efforts in Iraq, we focused on (1) the U.S. strategy 
and costs of operations in Iraq, (2) security issues, (3) governance 
challenges, (4) reconstruction challenges, (5) U.S. military readiness, 
and (6) acquisition outcomes. Our analysis is based on completed and 
ongoing work. As part of this work, we made multiple visits to Iraq 
during 2006. For the enclosures that include new information, we 
provided copies to the relevant agencies for advanced review and 
technical comments, which we incorporated as appropriate. We conducted 
our review in accordance with generally accepted government auditing 
standards. The information on foreign law in this report does not 
reflect our independent legal analysis, but it is based on interviews 
and secondary sources. 

Strategy and Costs: 

We examined (1) the U.S. strategy in Iraq, and (2) U.S. resource 
commitments in Iraq. 

To assess the U.S. strategy in Iraq, we obtained and analyzed records, 
reports, and data from U.S. government and military officials in 
Washington, D.C., and Baghdad, Iraq. We also examined the reports of 
other oversight entities that performed internal control and management 
reviews. We assessed the strategy using the six desirable 
characteristics of an effective national strategy developed in previous 
GAO work. National strategies with these characteristics offer 
policymakers and implementing agencies a management tool that can help 
ensure accountability and more effective results. The six 
characteristics are (1) a clear purpose, scope, methodology; (2) a 
detailed discussion of the problems, risks, and threats the strategy 
intends to address; (3) the desired goals and objectives, and outcome- 
related performance measures; (4) a description of the U.S. resources 
needed to implement the strategy; (5) a clear delineation of the U.S. 
government roles, responsibilities, and mechanisms for coordination; 
and (6) a description of how the strategy is integrated internally 
among U.S. agencies and externally with the Iraqi government and 
international organizations. We evaluated the National Strategy for 
Victory in Iraq (NSVI) alone and in conjunction with seven related 
classified and unclassified supporting documents that Department of 
State (State) and Department of Defense (DOD) officials said 
encompassed the U.S. strategy. 

To describe U.S. resource commitments in Iraq, we reviewed prior GAO 
products examining the reported obligations and funding for military 
operations in support of the global war on terrorism (GWOT). We also 
reviewed DOD's reported obligations as of September 2006. In our prior 
work, we compared supplemental and annual appropriations identified for 
GWOT to the military services' reported obligations and cost 
projections and examined the extent to which DOD has taken steps to 
improve its cost-reporting procedures and the reliability of its 
reported GWOT obligation data. To compare the military services' 
reported obligations against available funding appropriated for GWOT, 
we analyzed copies of DOD's monthly Supplemental and Cost of War 
Execution Report and reviewed applicable supplemental and annual 
appropriations and DOD reports on the transfer of funds between various 
appropriation accounts. We also interviewed key officials from the 
Office of the Under Secretary of Defense (Comptroller) and the Army, 
Navy, Marine Corps, and Air Force to determine if their projected GWOT 
obligations are within funding levels. As previously reported, we found 
the data in DOD's monthly Supplemental and Cost of War Execution Report 
to be of questionable reliability. Consequently, we are unable to 
ensure that DOD's reported obligations for GWOT are complete, reliable, 
and accurate, and they should therefore be considered approximations. 
In addition, DOD has acknowledged that systemic weaknesses with its 
financial management systems and business operations continue to impair 
its financial information. To examine the steps DOD has taken to 
improve the reliability of its reported GWOT obligations, we 
interviewed key officials from the DOD Comptroller and the Army, Navy, 
Marine Corps, and Air Force to determine the extent to which our 
previous recommendations have been implemented. We also reviewed any 
new guidance issued by DOD regarding the analysis and reporting of 
obligations for contingencies. In addition, we performed limited 
testing of the reported GWOT obligations for military personnel and 
discussed with DOD and military service financial managers their 
specific processes and procedures used to ensure that reported GWOT 
obligation data provided by the subordinate commands are accurate and 
reliable. 

Security Conditions: 

To address security issues, we focused on (1) trends in security 
conditions in Iraq and in Multinational Force-Iraq's (MNF-I) plans for 
transferring security responsibilities to the Iraqi government and 
security forces, (2) how MNF-I measures the capabilities of the Iraqi 
security forces, and (3) accountability procedures for U.S.-funded 
equipment provided to the Iraqi security forces. Although we reviewed 
classified documents during our completed and ongoing Iraq security 
engagements, the information in this report is based on unclassified 
documents only. 

To provide information on areas (1) and (2), we relied extensively on a 
number of prior GAO reports.[Footnote 69] Where appropriate, we updated 
data on security trends and progress in developing Iraqi security 
forces and transferring security responsibilities to them. To update 
data on trends in the security situation, we obtained and assessed MNF- 
I data on enemy-initiated attacks against the coalition and its Iraqi 
partners from the Defense Intelligence Agency. We determined that the 
data were sufficiently reliable for establishing general trends in the 
number of attacks. To assess and update data on progress in developing 
Iraqi security forces, we reviewed DOD and State reports, transcripts 
of MNF-I and U.S. Embassy press conferences, and MNF-I guidance on 
Iraqi readiness assessments. 

To address accountability for U.S.-funded equipment provided to the 
Iraq security forces, we reviewed (1) the laws and regulations 
governing property accountability for U.S.-funded equipment that DOD 
has applied to the U.S. train-and-equip program for Iraq, and (2) MNF- 
I's accountability for U.S.-funded equipment that it has issued to 
Iraqi security forces. 

To examine the laws and regulations that govern property 
accountability, we reviewed relevant legislation appropriating funds to 
train and equip the Iraqi security forces, pertinent DOD regulations, 
and relevant U.S. military orders. We interviewed officials from State 
and DOD, including the DOD Office of the Secretary of Defense, Deputy 
Undersecretary of Defense (Logistics and Material Readiness); Defense 
Security and Cooperation Agency; the Defense Logistics Agency; Tank- 
automotive and Armaments Command; and Defense Reconstruction and 
Support Office. We did not review individual contracts to determine 
whether they contained equipment accountability provisions. 

To review MNF-I's accountability for U.S.-funded equipment that it has 
issued to Iraqi security forces, we reviewed documentation and 
interviewed current and former officials of the U.S. Central Command 
(CENTCOM), MNF-I, and Multinational Security Transition Command-Iraq 
(MNSTC-I) in Baghdad, Iraq; Tampa, Florida; Washington, D.C; and Fort 
Leavenworth, Kansas. To provide our preliminary observations on the 
amount of equipment reported by MNF-I as issued to the Iraqi security 
forces, we interviewed key officials to gain an understanding of the 
MNSTC-I property book data and information reported by the former MNSTC-
I commander. We determined that the property books, as of October 2006, 
were sufficiently reliable for the purposes of our report. We did not 
assess the reliability of the commander's data. According to former 
MNSTC-I officials, the data represent equipment tracked at the national 
warehouses or the regional distribution centers. Based on interviews 
with current and former MNSTC-I officials, we noted the weaknesses in 
the data and determined that the data were sufficiently reliable for 
the purposes of our report. 

Governance Challenges: 

To address governance issues, we examined (1) U.S. and international 
assessments of Iraq's ministries, (2) the status of ministry capacity 
development efforts, (3) the factors affecting Iraqi ministry efforts 
to spend capital budgets, and (4) Iraq's foreign debt and the 
challenges it faces in meeting International Monetary Fund (IMF) 
conditions. 

To describe U.S. and international assessments of Iraq's ministries, we 
reviewed official reports, such as Measuring Stability and Security in 
Iraq (Department of Defense), Survey of Anticorruption Programs 
(Department of State), and Briefing Book for the Government of Iraq 
(World Bank). We interviewed officials from the Departments of State 
and Defense, the U.S. Agency for International Development (USAID), and 
the World Bank about the status of Iraq's ministries and the challenges 
they face. We also discussed the status of Iraq's ministries with U.S. 
officials at the U.S. Embassy in Iraq. 

To address U.S. efforts to build Iraq ministry capacity, we reviewed 
U.S. documents, such as the Iraq Reconstruction Management Office 
(IRMO) Weekly Status Reports, contracts and statements of work for 
capacity development efforts, reports to Congress pursuant to Section 
1227 (c) of the National Defense Authorization Act for fiscal year 
2006, and multiple U.S. briefings and status reports about U.S. 
capacity development efforts and coordination. We interviewed U.S. 
officials from the Departments of State, Defense, Justice, and the 
Treasury and USAID who are responsible for implementing capacity 
development programs. We discussed with them (1) coordination among 
their agencies and (2) their roles. We interviewed officials of the 
World Bank and the United Nations about lessons learned from 
international capacity building and their current program efforts in 
Iraq. We identified and reviewed the various approaches to assessing 
ministry capacity used by USAID, State, and Defense. 

To address the factors affecting Iraqi ministry efforts to spend 
capital budgets, we reviewed budget expenditure reports of Iraqi 
Ministries prepared by the Department of the Treasury. We compiled 
these data to provide summary data. We also discussed these data with 
U.S. Treasury officials in the United States and Iraq. We also reviewed 
IMF and World Bank documents on developments in Iraq. We interviewed 
officials from the Departments of State, IRMO, USAID, and the World 
Bank about issues related to budget execution. 

To identify oversight questions related to Iraq's foreign debt and the 
challenges it faces in meeting IMF conditions, we examined documents 
from the IMF (including Iraq's stand-by arrangement), the Paris Club of 
international creditors, and relevant U.S. agencies and international 
organizations. To determine the amount of outstanding debt in 2004 
(prior to debt restructuring) and 2006, we used official IMF estimates 
of Iraq's external debt. Since the IMF estimates for 2006 included debt 
restructuring by non-Paris Club official creditors that had not been 
completed, we used the IMF estimate from 2004 for these countries. 

Reconstruction Challenges: 

To address reconstruction challenges, we examined (1) U.S. efforts to 
restore Iraq's oil sector, and (2) U.S. efforts to improve Iraq's 
electricity sector. 

To determine the progress made in restoring oil and electricity, we 
reviewed weekly and daily status reports prepared by U.S. agencies, 
including the Army Corps of Engineers, State, and IRMO. We compiled 
these data and analyzed the results to provide summary data. To discuss 
progress in improving the electricity sector, we also met with U.S., 
Iraqi, and United Nations (UN) officials at a November 2006 electricity 
conference sponsored by the UN Development Program at the Dead Sea, 
Jordan. To determine the effect of Iraq's security environment on the 
U.S. rebuilding program, we interviewed Army Corps of Engineers, 
Defense, State, USAID, and Department of Energy officials in the United 
States and Iraq. We also obtained documents from State and Defense on 
security issues and funding. To help assess U.S. oversight of the 
program, we interviewed U.S. agency officials in the United States and 
Iraq and reviewed management reports used to help monitor progress, 
including the Corps' Sector Consolidated Results Updated Meeting 
reports for the oil and electricity sectors. 

U.S. Military Readiness: 

To address the impact of U.S. operations on U.S. force readiness, we 
examined (1) the impact of extended operations in Iraq on the U.S. 
military, (2) munitions security and protection of U.S. ground forces, 
and (3) supply support for U.S. ground forces. 

To discuss the impact of extended operations on the U.S. military, we 
relied extensively on a number of prior GAO products addressing 
personnel, force structure, equipment, training, and other Iraq-related 
military issues. These products, which are cited in Encl. XII, provide 
detailed information on our scope and methodology. 

To assess the security provided by DOD over conventional munitions 
storage sites captured in Iraq, we reviewed DOD, Joint Staff, and 
service policies, guidance, procedures, and plans. We obtained 
documentation and interviewed officials from the U.S. Joint Forces 
Command; the U.S. Central Command, U.S. Army Forces Command; Third 
Army, which is also known as the U.S. Army Central and Coalition Forces 
Land Component Command; Joint Improvised Explosive Device (IED) Defeat 
Task Force; Defense Intelligence Agency; National Geospatial- 
Intelligence Agency; National Ground Intelligence Center; and Central 
Intelligence Agency. In addition, we interviewed previous command 
officers and active duty personnel who served as operational war 
planners prior to Operation Iraqi Freedom (OIF). Finally, we reviewed 
various iterations of operational plans and stability plans prepared by 
U.S. Central Command and the Coalition Forces Land Component Command. 
To assess DOD's actions to mitigate risks associated with an 
adversary's conventional munitions storage sites for future operations 
based on OIF lessons learned, we examined joint staff and service- 
specific lessons learned reports. We also reviewed joint doctrine and 
multiservice doctrines, tactics, techniques, and procedures, and the 
Joint IED Defeat handbook to determine how those documents address the 
security of conventional munitions storage sites. 

To address protection of U.S. ground forces in Iraq, we focused on the 
availability of body armor and truck armor to meet requirements. Our 
methodology for evaluating the supply of body armor--one of nine supply 
items we selected for detailed case studies--is discussed in the 
section below on supply support for U.S. ground forces. To examine the 
availability of truck armor, we focused on medium and heavy tactical 
trucks used by Army and Marine Corps forces in the U.S. Central Command 
area of responsibility, which included those in Iraq and Afghanistan. 
To identify the extent to which truck armor was produced and installed 
to meet identified requirements, we visited numerous DOD, Army, and 
Marine Corps organizations to obtain data on the requirements, funding, 
production, and installation of truck armor kits. We considered the 
armor requirement as met for each type of truck when the quantity of 
armor kits produced and installed onto vehicles equaled the 
requirement. Based on the information gathered, we identified factors 
that affected the time to provide truck armor kits to deployed forces. 
We also identified DOD's, the Army's, and the Marine Corps' short-term 
and long-term efforts to improve the availability of truck armor. 

To assess supply support for U.S. ground forces, we developed detailed 
case studies of nine supply items that were reported to be in short 
supply during OIF between October 2002 and September 2004. To identify 
the extent and impact of supply shortages, we visited numerous DOD 
logistics organizations to obtain data on the production, availability, 
and distribution of supply items at the national level. We interviewed 
members of units that had returned from the theater to determine the 
extent and impact of item shortages on their operations. We identified 
deficiencies that affected the availability of two or more of the case 
study items. We worked with DOD logistics agencies, operational units, 
and service and geographic commands to evaluate the significance of 
these deficiencies. We also identified DOD's and the military services' 
short-term and long-term efforts to address these shortages. Our 
methodology for assessing supply support of truck armor is discussed in 
the section above on protection of U.S. forces. To assess DOD's 
progress in resolving supply distribution deficiencies, we reviewed 
DOD's organizational structure, transformation strategy, and major 
initiatives to improve the distribution system, including the U.S. 
Transportation Command's progress in implementing its responsibilities 
as DOD's "distribution process owner" and the extent to which DOD's 
logistics transformation strategy provides a framework for guiding and 
synchronizing distribution improvement efforts. We obtained information 
on five initiatives that DOD highlighted as major efforts to resolve 
distribution problems. We also reviewed DOD's plan to address long-term 
systemic weaknesses in supply chain management. 

Improving Acquisition Outcomes: 

To examine efforts to improve acquisition outcomes, we relied primarily 
on our completed and ongoing reviews of efforts to rebuild Iraq that we 
have undertaken since 2003, as well as our work related to selected DOD 
contract management issues. We also reviewed audit reports and lessons 
learned reports issued by the Special Inspector General for Iraq 
Reconstruction and work completed by the Inspector General, Department 
of Defense. To determine the extent to which DOD has improved its 
management and oversight of contractors supporting deployed forces, we 
met with DOD and military department officials and reviewed changes to 
key policies and guidance. We visited selected DOD components and 
military commands in the United States and held discussions with 
military commanders, staff officers, and other officials that had 
deployed to Iraq or elsewhere in Southwest Asia during the 2003-2006 
time frame to discuss their experiences and the challenges they faced 
managing and overseeing contractors in a deployed location. We also 
traveled to Southwest Asia, including Iraq, to meet with combat units 
and to discuss the use of contractor support with military and 
installation commanders and other military personnel. We also met with 
26 U.S. and foreign contractors who provide support to DOD in Southwest 
Asia to discuss contracting and contract management issues. 

[End of section] 

Enclosure XVII: Staff Acknowledgments: 

Key contributors to this report include Nanette Barton, Ann Borseth, 
David Bruno, Donna Byers, Dan Cain, Joseph A. Christoff, Carole Coffey, 
Lynn Cothern, Tracey Cross, Davi D'Agostino, Tim DiNapoli, Mike Ferren, 
Rich Geiger, Tom Gosling, Whitney Havens, Lisa Helmer, Patrick Hickey, 
Henry L. Hinton Jr., Rhonda Horried, John Hutton, Mike Kennedy, Bruce 
Kutnick, Steve Lord, Judy McCloskey, Tet Miyabara, Kate Monahan, Dave 
Moser, Mary Moutsos, Ken Patton, Sharon Pickup, Jason Pogacnik, Jim 
Reynolds, Donna Rogers, Cary Russell, Dave Schmitt, Amy Sheller, 
William Solis, Lorelei St. James, Janet St. Laurent, Derek Stewart, 
John Van Schaik, and Tim Wedding. 

Ben Atwater, Rob Ball, Leslie Bharadwaja, Michael Derr, Susan Ditto, 
George Duncan, Etana Finkler, Muriel Forster, Brent Helt, Wesley 
Johnson, Hynek Kalkus, Andy Marek, Jim Michels, Don Morrison, Marc 
Schwartz, Michael Simon, Jena Sinkfield, Cynthia Taylor, Gergana 
Trainor, Kristy Williams, Wilda Wong, and Tony Wysocki provided 
technical assistance. 

FOOTNOTES 

[1] The NSVI and key supporting documents are collectively referred to 
as the U.S. strategy for Iraq. 

[2] GAO, Rebuilding Iraq: More Comprehensive National Strategy Needed 
to Help Achieve U.S. Goals, HGAO-06-788 H(Washington, D.C.: July 11, 
2006). 

[3] See GAO, Combating Terrorism: Evaluation of Selected 
Characteristics in National Strategies Related to Terrorism, HGAO-04-
408T H(Washington, D.C.: Feb. 3, 2004); and Defense Management: 
Comprehensive Strategy and Periodic Reporting Are Needed to Gauge 
Progress and Costs of DOD's Global Posture Restructuring, HGAO-06-486C 
H(Washington, D.C.: May 26, 2006). 

[4] We evaluated the NSVI along with seven related classified and 
unclassified supporting documents. These documents were identified by 
State's Office of the Coordinator for Iraq, State's Bureau of Near 
Eastern Affairs, DOD's Defense Reconstruction Support Office, and DOD's 
Near Eastern South Asian Affairs office as having key details about the 
strategy. The documents included (1) the National Security Presidential 
Directive 36 (May 2004), (2) the MNF-I Campaign Plan (August 2004), (3) 
the MNF-I/ U.S. Embassy Baghdad Joint Mission Statement on Iraq 
(December 2005), (4) the Multinational Corps-Iraq Operation Order 05-03 
(December 2005), (5) the National Strategy for Supporting Iraq (updated 
January 2006), (6) State's quarterly section 2207 reports to Congress 
(January and April 2006); and (7) the April 2006 Joint Campaign Plan 
issued by the Chief of Mission and the Commander of the MNF-I. 

[5] For purposes of this enclosure, the term "costs" refers to the 
obligations that have been incurred by U.S. agencies in Iraq. 
Obligations are incurred through actions such as orders placed, 
contracts awarded, services received, or similar transactions made 
during a given period that will require payments during the same or a 
future period. 

[6] DOD's reported costs in Iraq do not include the costs of classified 
activities. 

[7] For example, see GAO, Global War on Terrorism: Fiscal Year 2006 
Obligation Rates Are within Funding Levels and Significant Multiyear 
Procurement Funds Will Likely Remain Available for Use in Fiscal Year 
2007, HGAO-07-76 H(Washington, D.C.: Nov. 13, 2006); and Global War on 
Terrorism: DOD Needs to Improve the Reliability of Cost Data and 
Provide Additional Guidance to Control Costs, HGAO-05-882 H(Washington, 
D.C.: Sept. 21, 2005). 

[8] This operation, which defends the U.S. homeland against terrorist 
attacks, began in 2001. 

[9] GAO, Global War on Terrorism: Observations on Funding, Costs, and 
Future Commitments, HGAO-06-885T H(Washington, D.C.: July 18, 2006); 
and Future Years Defense Program: Actions Needed to Improve 
Transparency of DOD's Projected Resource Needs, HGAO-04-514 
H(Washington, D.C.: May 7, 2004). 

[10] The multinational force in Iraq was known as Combined Joint Task 
Force-7 until May 2004. 

[11] In March 2004, Iraqi security forces numbered about 203,000, 
including about 76,000 police, 78,000 facilities protection officers, 
and about 38,000 in the civilian defense corps. The Departments of 
State and Defense later stopped including facilities protection 
officers in their count of Iraqi security forces. 

[12] MNF-I first revised the security transition plan in its August 
2004 campaign plan and later in the April 2006 joint MNF-I/U.S. Embassy 
Baghdad Campaign Plan. Detailed information on these plans is 
classified. See GAO, DOD Reports Should Link Economic, Governance, and 
Security Indicators to Conditions for Stabilizing Iraq, HGAO-06-152C 
H(Washington, D.C.: Oct. 18, 2005) for classified information on MNF- 
I's original campaign plan; and Plans for Stabilizing Iraq, HGAO-06-
673C H(Washington, D.C.: July 27, 2006) for classified information on 
the Joint MNF-I/U.S. Embassy Baghdad Campaign Plan. 

[13] We recently reviewed U.S. efforts to assist the Iraqi Ministries 
of Defense and Interior in developing support capabilities, 
particularly in the areas of logistics, command and control, and 
intelligence. We plan to report separately on these matters due to the 
sensitive nature of the information. 

[14] The United States had set a goal of training and equipping about 
325,000 Iraqi security forces by December 2006. This figure consists of 
137,000 military personnel under the Ministry of Defense and 188,000 
Ministry of Interior police and other forces. According to DOD and MNF- 
I reports, the Prime Minister of Iraq has announced initiatives to man 
combat units at 110 percent of their authorization levels and to expand 
the size of the army. If implemented, these moves would raise the end 
strength of Iraqi security forces to about 362,000 and would extend the 
training and equipping of Iraqi forces through January 2008. 

[15] GAO, Stabilizing Iraq: An Assessment of the Security Situation, 
HGAO-06-1094T H(Washington, D.C.: Sept. 11, 2006); and Rebuilding Iraq: 
Preliminary Observations on Challenges in Transferring Security 
Responsibilities to Iraqi Military and Police, HGAO-05-431T 
H(Washington, D.C.: Mar. 14, 2005). 

[16] Ramadan is the ninth month of the Islamic calendar. Over the past 
4 years, Ramadan began about October 27, 2003; October 16, 2004; 
October 5, 2005; and September 24, 2006. 

[17] U.S. force levels for 2005 and 2006 came from Brookings 
Institution, Iraq Index: Tracking Variables of Reconstruction & 
Security in Post-Saddam Iraq (Washington, D.C: Dec. 21, 2006). 

[18] The 2006 number includes special operations forces and support 
forces. 

[19] The Iraqi army, national police, Department of Border Enforcement, 
and strategic infrastructure battalions use the basic TRA format. MNF- 
I assesses the capability of Iraqi police to perform law enforcement 
operations using a different TRA report. 

[20] Headquarters service companies are rated levels 1 through 4 based 
on their ability to provide combat support and combat service support 
to units. 

[21] The Coalition Provisional Authority was the U.N.-recognized 
authority led by the United States and the United Kingdom that was 
responsible for the temporary governance of Iraq. Multinational Force- 
Iraq was known as Combined Joint Task Force-7 until May 2004. 

[22] Traditional security assistance programs operate under State 
Department authority and are managed in country by the Department of 
Defense through security assistance organizations under the direction 
and supervision of the Chief of the U.S. Diplomatic Mission. 

[23] DOD defines accountability as the obligation imposed by law, 
lawful order, or regulation, accepted by an organization or person for 
keeping accurate records, to ensure control of property, documents or 
funds, with or without physical possession (DODI 5000.64, 
Accountability and Management of DoD-Owned Equipment and Other 
Accountable Property, E2.2). 

[24] A property book is a formal set of property accounting records and 
files. 

[25] See Emergency Supplemental Appropriations Act for Defense and for 
the Reconstruction of Iraq and Afghanistan, 2004, P.L. 108-106; 
Emergency Supplemental Appropriations Act for Defense, the Global War 
on Terror, and Tsunami Relief, 2005, P.L. 109-13; Emergency 
Supplemental Appropriations Act for Defense, the Global War on Terror, 
and Hurricane Recovery, 2006, P.L. 109-234; Department of Defense 
Appropriations Act, 2007, P.L. 109-289. 

[26] See DOD 5105.38-M, Security Assistance Management Manual, C7.5. 
The Foreign Military Sales program is a traditional security assistance 
program where eligible recipient governments purchase from the U.S. 
government defense articles, services, or training, often using grants 
provided under the Foreign Military Financing program. 

[27] DOD 5100.76-M, Physical Security of Sensitive Conventional Arms, 
Ammunition, and Explosives, C1.1.1; DOD 4000.25-M, Defense Logistics 
Management System, C18.7.4.3; and DOD 4000.25-2-M, Military Standard 
Transaction Reporting and Accounting Procedures, C12.7.4.3. 

[28] DOD 4000.25-2-M, Military Standard Transaction Reporting and 
Accounting Procedures, C12.7.4.3; DOD 4000.25-M, Defense Logistics 
Management System, C18.7.4.3. 

[29] According to former and current MNSTC-I officials, MNF-I has 
issued equipment from a variety of sources. The equipment includes 
items procured with funds from the United States, Iraq, and other 
coalition countries, as well as weapons captured since the start of 
Operation Iraqi Freedom and then redistributed to Iraqi forces. 

[30] MNF-I Directive 04-015, OST Supply and Equipment Distribution 
Guidance (May 2004); MNC-I FRAGO 155 [12 June 2004 DTU] to MNC-I OPORD 
04-01, Iraqi Security Force Property Accountability Requirements (June 
2004). 

[31] See Department of Defense, Measuring Stability and Security in 
Iraq (Washington, D.C.: August 2006 and November 2006); Department of 
State, Survey of Anticorruption Programs Embassy Baghdad, Iraq 
(Washington, D.C.: August 2006); The World Bank, Briefing Book for the 
Government of Iraq Part 1: Key Policy Issues (Washington, D.C.: July 
2006). 

[32] World Bank, IRAQ: Operation Procurement Review (June 2005). 

[33] Most of the debt to Persian Gulf states is for financial 
assistance offered to the former Saddam Hussein regime during the 1980- 
1988 Iraq-Iran war. 

[34] In 1990, the United Nations (UN) imposed economic sanctions on 
Iraq following the invasion of Kuwait. The Iraqi government 
subsequently defaulted on its debts to the United States and other 
international creditors. Following the end of major combat operations 
in May 2003, the UN lifted sanctions and sheltered Iraq from certain 
debt claims. UN Security Council Resolution 1483 decided that, until 
December 31, 2007, Iraqi petroleum, natural gas, and petroleum products 
shall generally be immune from legal proceedings against them. 

[35] Department of State, Quarterly Update to Congress; 2207 Report 
(Washington, D.C.: Oct. 2006). 

[36] According to State Department officials, the U.S. goals differ 
from the government of Iraq's official production goal of 2.5 mbpd and 
the International Monetary Fund (IMF) target of 2.3 mbpd (annual 
average). 

[37] The Special Inspector General for Iraq Reconstruction, 
Unclassified Summary of SIGIR's Review of Efforts to Increase Iraq's 
Capability to Protect Its Energy Infrastructure, SIGIR-06-038 
(Arlington, Va.: Sept. 27, 2006). 

[38] Anthony Cordesman, Center for Strategic and International Studies, 
Iraqi Force Development and the Challenge of Civil War: The Critical 
Problems and Failures the U.S. Must Address if Iraqi Forces Are to 
Eventually Do the Job, (Washington, D.C.: Nov. 30, 2006). 

[39] U.S. Department of State, Quarterly Update to Congress; 2207 
Report (Washington, D.C., October 2006). Funds were appropriated to the 
Iraq Relief and Reconstruction Fund in the Emergency Wartime 
Supplemental Appropriations Act, 2003, P.L. 108-11, and the Emergency 
Supplemental Appropriations Act for Defense and for the Reconstruction 
of Iraq and Afghanistan, 2004, P.L. 108-106. 

[40] A megawatt is a measure of the rate at which electric energy can 
be transferred and is used as a measure of electric generation 
capacity. One megawatt equals 1 million watts. 

[41] This number is equal to 164,939 megawatt hours and is calculated 
by multiplying 8,210 megawatts by 20.09 hours. 

[42] This number is equal to 193,306 megawatt hours and is calculated 
by multiplying 9,622 megawatts by 20.09 hours. 

[43] MNF-I attack data on infrastructure are classified. The Iraq 
Reconstruction and Management Office (IRMO) has worked with the 
Ministry of Electricity to improve its infrastructure attack data, but 
it is not always feasible to distinguish between attacks, weather 
events, and equipment failures, according to IRMO officials. 

[44] The Special Inspector General for Iraq Reconstruction (SIGIR), 
Unclassified Summary of SIGIR's Review of Efforts to Increase Iraq's 
Capability to Protect Its Energy Infrastructure, SIGIR-06-038 
(Washington, D.C., Sept. 27, 2006). 

[45] Anthony Cordesman, Center for Strategic and International Studies, 
Iraqi Force Development and the Challenge of Civil War: The Critical 
Problems and Failures the U.S. Must Address if Iraqi Forces Are to 
Eventually Do the Job (Washington, D.C., Nov. 30, 2006). 

[46] Also, Iraq continues to lack an automated control system that 
would decrease reliance on manual operators and help alert operators of 
imbalances in power transmission. According to the State Department, 
the United States is funding improvements that will help increase the 
current system's reliability. 

[47] For further information on the issues discussed in this enclosure, 
see GAO, Military Personnel: DOD Needs Action Plan to Address Personnel 
Recruitment and Retention Challenges, HGAO-06-134 H(Washington, D.C.: 
Nov. 17, 2005); Military Personnel: Reserve Components Need Guidance to 
Accurately and Consistently Account for Volunteers on Active Duty for 
Operational Support, HGAO-07-93 H(Washington, D.C.: Oct. 31, 2006); 
Reserve Forces: Army National Guard and Army Reserve Readiness for 21st 
Century Challenges, HGAO-06-1109T H(Washington, D.C., Sept. 21, 2006); 
Force Structure: DOD Needs to Integrate Data into Its Force 
Identification Process and Examine Options to Meet Requirements for 
High-Demand Support Forces, HGAO-06-962 H(Washington, D.C.: Sept. 5, 
2006); Defense Logistics: Preliminary Observations on Equipment Reset 
Challenges and Issues for the Army and Marine Corps, HGAO-06-604T 
H(Washington, D.C.: Mar. 30, 2006); Military Training: Funding Requests 
for Joint Urban Operations Training and Facilities Should Be Based on 
Sound Strategy and Requirements, HGAO-06-193 H(Washington, D.C.: Dec. 
8, 2005); Military Personnel: DOD Needs to Address Long-Term Reserve 
Force Availability and Related Mobilization and Demobilization Issues, 
HGAO-04-1031 H(Washington, D.C.: Sept. 15, 2004); Homeland Defense: DOD 
Needs to Assess the Structure of U.S. Forces for Domestic Military 
Missions, HGAO-03-670 H(Washington, D.C.: July 11, 2003); Force 
Structure: Army Needs to Provide DOD and Congress More Visibility 
Regarding Modular Force Capabilities and Implementation Plans, HGAO-06-
745 H(Washington, D.C.: Sept. 6, 2006); and Reserve Forces: Plans 
Needed to Improve Army National Guard Equipment Readiness and Better 
Integrate Guard into Army Force Transformation Initiatives, HGAO-06-111 
H(Washington, D.C.: Oct. 4, 2005.) 

[48] HGAO-06-134H. 

[49] HGAO-04-1031H. 

[50] HGAO-06-111H. 

[51] HGAO-06-745H. 

[52] These issues are discussed in a classified GAO report, Operation 
Iraqi Freedom: DOD Should Apply Lessons Learned Concerning the Need for 
Security over Conventional Munitions Storage Sites to Future Operations 
Planning, HGAO-07-71C H(Washington, D.C.: December 20, 2006). We plan 
to issue an unclassified version of this report in January 2007. 

[53] For further information on these issues, see GAO, Defense 
Logistics: Actions Needed to Improve the Availability of Critical Items 
during Current and Future Operations, HGAO-05-275 H(Washington, D.C.: 
Apr. 8, 2005); Defense Logistics: Several Factors Limited the 
Production and Installation of Army Truck Armor during Current Wartime 
Operations, HGAO-06-160 H(Washington, D.C.: Mar. 22, 2006); and Defense 
Logistics: Lack of a Synchronized Approach between the Marine Corps and 
Army Affected the Timely Production and Installation of Marine Corps 
Truck Armor, HGAO-06-274 H(Washington, D.C.: June 22, 2006). 

[54] The Interceptor body armor is designed to provide protection 
against rifle rounds through the combined use of ceramic tiles and 
polyethylene fiber. 

[55] This requirement excludes tanker trucks. The completion of armor 
kit installation for tankers was expected by January 2007. 

[56] HGAO-07-71CH. 

[57] HGAO-06-160H. 

[58] HGAO-06-274H. 

[59] Items we reviewed included lithium batteries, tires, vehicle track 
shoes, add-on body armor, Meals-Ready-to-Eat, up-armored High-Mobility 
Multi-Purpose Wheeled Vehicles (HMMWV) and kits, and vehicle 
generators. We have also reviewed delays in the production and 
installation of Army and Marine Corps truck armor. 

[60] For further information on issues discussed in this enclosure, see 
GAO, Defense Logistics: Actions Needed to Improve the Availability of 
Critical Items during Current and Future Operations, HGAO-05-275 
H(Washington, D.C.: Apr. 8, 2005); Defense Logistics: Several Factors 
Limited the Production and Installation of Army Truck Armor during 
Current Wartime Operations, HGAO-06-160 H(Washington, D.C.: Mar. 22, 
2006); and Defense Logistics: Lack of a Synchronized Approach between 
the Marine Corps and Army Affected the Timely Production and 
Installation of Marine Corps Truck Armor, HGAO-06-274 H(Washington, 
D.C.: June 22, 2006). 

[61] GAO, Defense Logistics: DOD Has Begun to Improve Supply 
Distribution Operations, but Further Actions Are Needed to Sustain 
These Efforts, HGAO-05-775 H(Washington, D.C.: Aug. 11, 2005); DOD's 
High-Risk Areas: High-Level Commitment and Oversight Needed for DOD 
Supply Chain Plan to Succeed, HGAO-06-113T H(Washington, D.C.: Oct. 6, 
2005); and DOD's High-Risk Areas: Challenges Remain to Achieving and 
Demonstrating Progress in Supply Chain Management, HGAO-06-983T 
H(Washington, D.C.: July 25, 2006). 

[62] GAO, High-Risk Series: An Update, HGAO-05-207 H(Washington, D.C.: 
January 2005). 

[63] GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures 
and Management Challenges, HGAO-04-605 H(Washington, D.C.: June 1, 
2004). 

[64] GAO, Rebuilding Iraq: Continued Progress Requires Overcoming 
Contract Management Challenges, HGAO-06-1130T H(Washington, D.C.: Sept. 
28, 2006); and Iraq Contract Costs: DOD Consideration of Defense 
Contract Audit Agency's Findings, HGAO-06-1132 H(Washington, D.C.: 
Sept. 25, 2006). 

[65] GAO identified management of interagency contracting a high-risk 
area in January 2005. See HGAO-05-207H. 

[66] GAO, Interagency Contracting: Problems with DOD's and Interior's 
Orders to Support Military Operations, HGAO-05-201 H(Washington, D.C.: 
Apr. 29, 2005). 

[67] GAO, Rebuilding Iraq: Status of Competition for Iraq 
Reconstruction Contracts, HGAO-07-40 H(Washington, D.C.: Oct. 6, 2006). 

[68] GAO, Military Operations: High-Level DOD Action Needed to Address 
Long-standing Problems with Management and Oversight of Contractors 
Supporting Deployed Forces, HGAO-07-145 H(Washington, D.C.: Dec. 18, 
2006). 

[69] GAO, Stabilizing Iraq: An Assessment of the Security Situation, 
HGAO-06-1094T H(Washington, D.C.: Sept. 11, 2006); Rebuilding Iraq: 
Preliminary Observations on Challenges in Transferring Security 
Responsibilities to Iraqi Military and Police, HGAO-05-431T 
H(Washington, D.C.: Mar. 14, 2005); and Rebuilding Iraq: Resource, 
Security, Governance, Essential Services, and Oversight Issues, HGAO-04-
902R H(Washington, D.C.: June 28, 2004). 

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