Inspector General's report

This bridge across the Tigris River was destroyed by U.S. and allied warplanes in 2003. Rebuilding it proved problematic -- and extremely expensive.

After U.S. and allied warplanes destroyed a key bridge carrying 15 oil and gas pipelines in northern Iraq during the 2003 conflict there, officials in Washington and Baghdad made its postwar reconstruction a top priority. But instead of spending two months to rebuild the span over the Tigris River at an estimated cost of $5 million, they decided for security reasons to bury the pipelines beneath it, at an estimated cost more than five times greater.

What ultimately happened there tells the story — in a microcosm — of a substantial chunk of the massive nine-year U.S. effort to reconstruct Iraq, the second-largest such endeavor in history (only the U.S. investment in Afghanistan has been larger).

Studies conducted before the digging of the new pipelines started showed that the soil was too sandy, but neither the Army Corps of Engineers overseeing the effort nor the main contractor at the site, Kellogg Brown and Root (KBR), heeded the warning. As a result, “tens of millions of dollars (were) wasted on churning sand” without making any headway, as Special Inspector General for Iraq Reconstruction Stuart W. Bowen Jr., described it in his recently published final report on the U.S. occupation.

By the time the digging effort was halted, and the old bridge and piping repaired — more than three years later — the bill had reached more than $100 million. “Because of the nature of the original contract, the government was unable to recover any of the money wasted on this project,” Bowen said. More than $1.5 billion in oil revenues may have been lost as a result of the delays. KBR did not respond to a request for comment.

The episode is emblematic of the contracting abuses and mismanagement that wasted at least $8 billion of the $60 billion spent by Washington on Iraq’s postwar recovery, under the guidance of what Bowen describes in his report as “adhocracy” largely controlled by the U.S. military — a structure that never “coalesced into a coherent whole” and often failed to achieve its aims.

With the U.S. military now gone from Iraq, and with the 10th anniversary of the invasion, Bowen’s retrospective summary of his audits offers useful insights into how well the U.S. government managed its occupation and the legacy it left behind. The mostly downbeat tone is set early, when the report summarizes final interviews Bowen conducted with 44 top U.S. and Iraq officials, who addressed the simple question of whether the decade-long project left Iraq in better shape.

Most of the Americans he spoke to -- including appointees of Presidents George W. Bush and Barack Obama -- were rueful, noting multiple miscalculations, poor planning, disorganization in Washington, and inadequate consultation with Iraqis. James Jeffrey, the U.S. ambassador in Iraq from 2010 to 2012, told Bowen that “the U.S. reconstruction money used to build up Iraq was not effective. ... We didn’t get much in return.”

Related: Iraq, 10 years on: Did invasion bring 'hope and progress' to millions as Bush vowed?

Only retired Army Gen. David Petraeus, who commanded U.S. forces in Iraq before shifting to Afghanistan and then briefly directing the CIA, was ebullient, claiming the effort had brought “colossal benefits to Iraq.”

Virtually every senior Iraqi, in sharp contrast, said the decade-long U.S. occupation was beset by huge misspending and waste, and had accomplished little. The biggest footprint Americans left behind, most of these Iraqi officials said, was more corruption and widespread money laundering. Such a huge investment “could have brought great change in Iraq,” Prime Minister Nuri al-Maliki said, but the gains were often “lost.”

Billions here, billions there
The bill for Iraq is hard to divide into neat categories, but in rough terms: Washington spent more than $15 billion to try and improve Iraq’s power and water supply, revive its schools and repair its roads and housing; it spent another $9 billion on health care, law enforcement, and humanitarian assistance; it spent $20 billion training and re-equipping Iraqi security forces; it spent roughly $8 billion to enhance the rule of law and battle narcotics; and it spent $5 billion helping to prop up the economy.

Bowen’s interviews with influential Iraqis reveal, however, that they don’t seem to have noticed all this investment or don’t seem grateful. One reason might be that households — as recently as 2011 — still got an average of only 7.6 hours of electricity a day, and a sixth of Iraq’s citizens lacked access to potable drinking water for more than two hours a day.

Both U.S. and Iraqi officials complained to Bowen that not enough was done during the occupation to stem corruption. An Iraqi government watchdog agency, the Board of Supreme Audit, noted last year that $800 million in profits from illicit activities was being transferred out of Iraq each week, effectively stripping $40 billion annually from the economy, according to Bowen’s report.

There are exceptions to the tales of fraud and waste. A State Department-funded childhood vaccination program helped cut the national infant mortality rate by nearly three-quarters. The Baghdad rail station was repaired on time and under budget. And telecommunications repairs have enabled mobile phone use to climb from 80,000 to 23 million subscribers.

But U.S. dreams of fostering a thriving, Western-style economy in the Middle East have not been realized. Almost all of Iraq’s gains have come from oil production, which is now roughly a third greater than it was in 2003. The oil industry is not a big employer, however, and “Iraq is still far from having a vibrant, market-based private sector,” Bowen reports.

Moreover, its military still “lacks critical capabilities in logistics, intelligence,” and repair, Bowen’s report states. It cannot defend its airspace or its coastline, and is weak in counterterrorism.

Parceling blame
Bowen’s report indirectly assigns blame for mismanaging the endeavor to the Bush White House, which had the authority to force U.S. government agencies to coordinate their work but failed to exercise it. Instead, he points out, no single office was assigned to lead the effort, making "stovepiping" — a myriad of narrowly focused efforts — “the apt descriptor,” the report said.

But the largest responsibility for the failures lies generally at the Pentagon and particularly in the Army, according to the report. The Defense Department “held decisive sway over $45 billion (87 percent) of the roughly $52 billion allocated to the major rebuilding funds that supported Iraq’s reconstruction.”

The agencies formally charged with dispensing foreign aid — the State Department and the Agency for International Development — played only a minor role in these accounting shortfalls, because they spent less than a fifth of the reconstruction funds. “State’s role in managing the reconstruction … ebbed and flowed in cycles driven by the personalities involved, with State frequently on the losing end of arguments,” Bowen reports.

It was the Pentagon that failed to plan “for a lengthy occupation or a large relief and reconstruction program,” Bowen noted, under the tutelage of a defense secretary — Donald Rumsfeld — who famously said, “If you think we’re going to spend a billion dollars of our money over there, you are sadly mistaken.”

Rumsfeld, the secretary of defense from 2001 to 2006, defended the war itself in a 2011 memoir, saying that its central element -- Saddam Hussein's removal -- made the Middle East a safer region. But he blamed other officials for many of the problems, saying that military officials did not request more troops and that civilian managers of the occupation stoked Iraqi nationalism by not giving local citizens enough power.

The Joint Chiefs of Staff, in a report last June on "lessons learned" in Iraq, acknowledged that "operations during the first half of the decade were often marked by numerous missteps and challenges as the U.S. government and military applied a strategy and force suited for a different threat and environment." But it said the military adapted its work and had more success in the second half of the decade. 

Other defense officials have acknowledged that a substantial chunk of the Pentagon’s spending in Iraq went to repair the looting and other damage done by Iraqis in the immediate period after the war ended, when U.S. troops were not tasked with keeping order. They also have confirmed that billions of dollars were diverted from civil reconstruction to security efforts after the military abuses at Abu Ghraib prison helped stoke widespread hostility to the U.S. occupation.

It was the Pentagon that opened a contracting office in Baghdad that Bowen said was chronically understaffed — despite the Defense Department's peak presence in Iraq of more than 170,000 personnel. The office nonetheless shoveled money out the door at such a high rate and with so little accountability that by 2005, the U.S. embassy there was incapable of matching “projects with the contracts that funded them,” according to Bowen’s report.

Average U.S. expenditures for Iraqi reconstruction in 2005, for example, were more than $25 million a day. When Bowen’s auditors went looking for documents supporting billions of dollars of fund transfers to the Iraqi government in that period, they discovered the paperwork was “largely missing.”

Pentagon-funded fuel purchases were particularly problematic: When Bowen’s office asked to see a log book documenting $1.3 billion in fuel purchases by the Coalition Provisional Authority, “the log book could not be found.” Defense officials also could not produce documents supporting their expenditure of over $100 million in cash found in a vault at the Republican Palace, the gilded Hussein mansion that became a headquarters of the occupation.

In the crisis atmosphere pervading the reconstruction effort for most of the decade, Pentagon contracts were often open-ended, with vague demands and no precise deadlines. Although the contracts had provisions allowing their conversion to fixed-price awards after some of the work was completed, “the government failed to exercise these options,” Bowen’s report said.

A special system of urgent payments by military commanders — created to tamp down the Iraqi insurgency and known as the Commander’s Emergency Response Program — dispensed $4 billion without any formal oversight. Military officials say it worked well, at least at the outset, but no Defense Department office assembled a comprehensive picture of how the money was spent. As a result, Bowen calls the claims of success “suspect.”

Overcharging
Weak oversight predictably led to rampant overcharging. A firm based in Dubai managed to keep around $4 billion in Pentagon construction contracts, for example, despite routinely marking up the price of switches and plumbing parts between 3,000 and 12,000 percent, according to an audit Bowen conducted in 2011. Kellogg Brown and Root was among a handful of large contractors that kept winning U.S. funds, despite repeated claims by the Pentagon and others of overcharging by the firm and its subcontractors. The firm has said it conducted its work with “integrity, transparency, accountability, and discipline.”

Some military officers and civilian defense officials participated in the looting. A probe by Bowen’s office of the American official overseeing early reconstruction in Hilla, for example, yielded evidence of widespread bribes, bid-rigging, money laundering, kickbacks and illegal gifts in a scheme that included four colonels, who all got prison terms. An Army major who was the main contracting official at a base in Kuwait oversaw fraud in the purchase of bottled water and warehouse construction that involved 21 others.

Perhaps Bowen’s most depressing conclusion is that the U.S. government is no better prepared for reconstruction work in other countries than it was in 2002. No single government office has responsibility for such operations, he notes, and no tracking system has been established to help oversee related contracting.

Bowen recommends that the Obama administration create a new U.S. office for “contingency operations,” and even includes draft legislation on it in his report. But in an austere fiscal climate, and with Obama’s team set against future military occupations, hopes for reform appear scant.

Clearly a number of lawmakers "have signed on to this solution," said Bowen's deputy Glenn D. Furbish, a top auditor in SIGIR for the past eight years. "Hopefully, we will not get into these things again ... [and] I hope people pay attention to what he has to say ... But it is questionable whether these [reforms] are going to go forward. Given the current political environment, I am not particularly optimistic."

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The ranking Republican on a Senate panel on Wednesday accused the Department of Homeland Security of hiding embarrassing information about its so-called "fusion" intelligence sharing centers, charging that the program has wasted hundreds of millions of dollars while contributing little to the country's counterterrorism efforts. 

In a 107-page report released late Tuesday, the Senate Permanent Subcommittee on Investigations said that Homeland Security has spent up to $1.4 billion funding fusion centers -- in effect, regional intelligence sharing centers--  that have produced "useless" reports while at the same time collecting information on the innocent activities of American Muslims that may have violated a federal privacy law. 

The fusion centers, created under President George W. Bush and expanded under President Barack Obama, consist of  special   teams of  federal , state and local officials collecting and analyzing  intelligence on suspicious activities throughout the country.  They have been hailed by Homeland Security Secretary Janet Napolitano as “one of the centerpieces”  of the nation’s counterterrorism efforts.

But Sen. Tom Coburn of Oklahoma,  the ranking Republican on the panel, charged Wednesday that Homeland Security had tried to bury evidence of problems at the centers.

"Unfortunately, DHS has resisted oversight of these centers," he said. "The Department opted not to inform Congress or the public of serious problems plaguing its fusion centers and broader intelligence efforts.  When this subcommittee requested documents that would help it identify these issues, the department initially resisted turning them over, arguing that they were protected by privilege, too sensitive to share, were protected by confidentiality agreements, or did not exist at all. The American people deserve better. I hope this report will help generate the reforms that will help keep our country safe." 

A spokesman for Homeland Security said in a statement to NBC News Tuesday that the Senate report was "out of date, inaccurate and misleading." Matt Chandler, a spokesman for Napolitano, said the Senate panel "refused to review relevant data, including important intelligence information pertinent to their findings."  Another Homeland Security official, who spoke with NBC News on condition of anonymity, said the department has made improvements to the fusion centers and that the skills of officials working in them are “evolving and maturing.”  

The American Civil Liberties Union also issued a statement saying the report underscores problems that it and other civil liberity groups have been flagging for years. "The ACLU warned back in 2007 that fusion centers posed grave threats to Americans' privacy and civil liberties, and that they needed clear guidelines and independent oversight," said Michael German, ACLU senior policy counsel. "This report is a good first step, and we call upon Congress to hold public hearings to investigate fusion centers and their ongoing abuses.”

In addition to the value of much of the fusion centers’ work, the Senate panel  found  evidence of what  it called  “troubling” reports by some  centers that may have violated the civil liberties and privacy of U.S. citizens.  The evidence cited in the report could fuel a continuing controversy over claims that the FBI and some local police departments, notably New York City’s, have spied on American Muslims without a justifiable law enforcement reason for doing so. Among the examples in the report: 

• One fusion center drafted a report on a list of reading suggestions prepared by a Muslim community group, titled “Ten Book Recommendations for Every Muslim.” The report noted that four of the authors were listed in a terrorism database, but a Homeland Security reviewer in Washington chastised the fusion center,  saying, “We cannot report on books and other writings” simply because the authors are  in a terrorism database. “The writings themselves are protected by the First Amendment unless you can establish that something in the writing indicates planning or advocates violent or other criminal activity.”
• A fusion center in California prepared a report about a speaker at a Muslim center in Santa Cruz who was giving a daylong motivational talk—and a lecture on “positive parenting.” No link to terrorism was alleged. 
• Another fusion center drafted a  report on a U.S. citizen speaking at a local mosque that speculated that --  since the speaker had been listed in a terrorism data base — he may have been  attempting “to conduct fundraising and recruiting” for a foreign terrorist group. 

“The number of things that scare me about this report are almost too many to write into this (form),” a Homeland Security reviewer wrote after analyzing the report. The reviewer noted that “the nature of this event is constitutionally protected activity (public speaking, freedom of assembly, freedom of religion.)”

The Senate panel found 40 reports -- including the three listed above -- that were drafted at fusion centers by Homeland Security officials, then later “nixed” by officials in Washington after reviewers “raised concerns the documents potentially endangered the civil liberties or legal privacy protections of the U.S. persons they mentioned.” 

Despite being scrapped, however, the Senate report concluded that “these reports should not have been drafted at all.” It also noted that the reports were stored at Homeland Security headquarters in Washington, D.C., for  a year or more after they had been  canceled —a potential violation of the U.S. Privacy Act, which prohibits federal agencies from storing information on U.S. citizens’ First Amendment-protected activities if there is no valid reason to do so.

The report said the retention of these reports also appears to contradict Homeland Security’s own guidelines, which state that once a determination is made that a document should not be retained, “The U.S  person identifying information is to be destroyed immediately.”

The investigation was led by the Republican staff of the subcommittee but the report was approved by chairman Sen. Carl Levin, D-Mich and Coburn.  It stated that much basic information about the fusion centers – including exactly how much they cost the federal government — was difficult to obtain. Although the fusion centers are overseen by Homeland Security, they are funded primarily through grants to local governments by the Federal Emergency Management Agency. Although Homeland Security “was unable to provide an accurate tally,” the panel estimated the federal dollars spent on the centers between 2003 and 2011 at between $289 million and $1.4 billion.

The panel’s criticism of the fusion centers was shared in part by Michael Leiter, the former director of the National National Counter-Terrorism Center and now an NBC News analyst. “Since 9/11, the growth of state and local fusion centers has been exponential and regrettably in many instances it has produced an ill-planned mishmash rather than a true national system that is well-integrated with existing organizations like the FBI-led Joint Terrorism Task Forces,” Leiter wrote in an email when asked about the report.  

In its response to the Senate panel , Homeland Security said that the canceled reports could still be retained “for administrative purposes such as audit and oversight.”

The report cited multiple examples of what it called fusion center reports that had little if any value to counterterrorism efforts.

One fusion center report cited described how a certain model car had folding rear seats to the trunk, a feature that it said could be useful to human traffickers. This prompted a Homeland Security reviewer to note that such folding rear seats are “featured on MANY different  makes and model of vehicles” and “there is nothing of any intelligence value in this report.”

Another fusion center report, entitled “Possible Drug Smuggling Activity,”  recounted the experiences of two state wildlife officials who spotted a pair of men  in a bass boat “operating suspiciously” in the body of water off the U.S.-Mexico border. The report noted that the fishermen “avoided eye contact” and that their boat appeared to be low in the water, “as if it were laden with cargo” with high winds and choppy waters.

“The fact that some guys were hanging out in a boat where people normally do not fish MIGHT be an indicator of something abnormal, but does not reach the threshold of something we should be reporting,” a Homeland Security reviewer wrote, according to the Senate panel. “I … think that this should never have been nominated for production, nor passed through three reviews.”

In the Homeland Security Department’s response, spokesman Matt Chandler said the Senate subcommittee “refused to review relevant data, including important intelligence information pertinent to their findings.” 

The senior Homeland Security official who spoke to NBC News said that, while the Senate panel reviewed fusion center reports from 2009 and 2010, a more recent June 2011 case in Seattle shows that a fusion center played a key role in helping to thwart a terrorist plot against a local U.S. military processing center.

Chandler added:  “The (Senate) report  fundamentally misunderstands the role of the federal government in supporting fusion centers and overlooks the significant benefits of this relationship to both state and local law enforcement and the federal government. Among other benefits, fusion centers play a key role by receiving classified and unclassified information from the federal government and assessing its local implications, helping law enforcement on the frontlines better protect their communities from all threats, whether it is terrorism or other criminal activities.” 

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