SIGAR Quarterly Report to Congress July 2011

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Special Inspector General for

Afghanistan ReconstructionSIGARJULY 30

2011

QUARTERLY REPORT TO THE UNITED STATES CONGRESS


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Cover Captions (clockwise from left):

Skilled Afghan workers help complete a micro-

hydropower plant in the village of Daste Riwat, har-

nessing the power of the Panjshir River. The facility

is one of 150 power plants that the U.S. Army Corps

of Engineers is building in 7 provinces, using CERP

funds. The last unit is scheduled to be completed

in Parwan province this quarter. (ISAF photo,MSgt Michael OConnor)

An Afghan child receives care from a U.S. medic

during a Village Medical Operations Program clinic

in Uruzgan province on May 28. U.S. Special Opera-

tions Forces collaborated with a coalition Female

Treatment Team, Afghan commandos, and local

physicians to provide medical services and build

partnerships. (U.S. Army photo, SSgt Kaily Brown)

Afghan road workers upgrade the main route

through the Panjshir River Valley on May 21.

Supported by U.S. funds, the project will help the

GIRoA achieve its goal of improving transportation

corridors that link Afghan communities with internaland external markets. (ISAF photo,

MSgt Michael OConnor)

ANA trainees learn squad attack skills during

basic training at the Regional Military Training

Center on May 10 in Kandahar. This quarter, more

than 26,000 ANA personnel graduated from train-

ing programs funded by the Afghanistan Security

Forces Fundan increase of more than 4,400

since last quarter. (U.S. Air Force photo,

TSgt Adrienne Brammer)


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The National Deense Authorization Act or FY 2008 (P.L. 110-181)

established the Special Inspector General or Aghanistan

Reconstruction (SIGAR).

SIGARs oversight mission, as defned by the legislation, is to provide or the indepen-

dent and objective

conduct and supervision o audits and investigations relating to the programs and

operations unded with amounts appropriated or otherwise made available or the

reconstruction o Aghanistan.

leadership and coordination o, and recommendations on, policies designed to pro-

mote economy, efciency, and eectiveness in the administration o the programs

and operations, and to prevent and detect waste, raud, and abuse in such programs

and operations.

means o keeping the Secretary o State and the Secretary o Deense ully and

currently inormed about problems and defciencies relating to the administration o

such programs and operation and the necessity or and progress on corrective action.

Aghanistan reconstruction includes any major contract, grant, agreement, or other

unding mechanism entered into by any department or agency o the U.S. government

that involves the use o amounts appropriated or otherwise made available or the

reconstruction o Aghanistan.

Source:P.L. 110-181, National Deense Authorization Act or FY 2008, 1/28/2008.

Special Inspector General or

Aghanistan ReconstructionSIGAR JULY 302011


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LY 30

011

PAKTIKA

KHOWST

TAKHAR

BADAKHSHAN

BAGHLAN

BAMYAN

FARYAB

WARDAK

KUNAR

KUNDUZ

NURISTAN

NANGARHAR

FARAH

NIMROZHELMAND

KANDAHAR

URUZGAN

ZABUL

GHOR

GHAZNI

BALKH

BADGHIS

KABUL

KAPISA

PAKTIYA

LOGAR

LAGHMAN

JOWZJAN

PARWAN

SAR-E PUL

HERAT

DAYKUNDI

SAMANGAN

PANJSHIR

Provinces where SIGAR has conductedaudit and investigation work

Current SIGAR ofces

SIGAR RESULTS TO DATE

AUDITS 45 reports published by the audit directorate; 14 ongoing audits

136 recommendations, 64 in the frst six months o 2011

Up to $58.5 million identifed in contractor reunds not returned to the U.S. government Forensic audits o $39 billion in reconstruction unds managed by DoD, DoS, and USAID

INVESTIGATIONS 89 ongoing investigations, 52 involving procurement and contract raud

5 convictions, including one o a U.S. military reserve ofcer or soliciting more than $1 million in bribes to

inuence the award o reconstruction contracts

Support or the arrest o 2 Aghan citizens on charges o bribery

32 reerrals or suspension and debarment

637 Hotline complaints received; 269 reerred or investigative action by SIGAR and other agencies


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400 ARMY NAVY DRIVE ARLINGTON, VIRGINIA 22202

Very respectully,

Herbert Richardson

Acting Special Inspector General or Aghanistan Reconstruction

SPECIAL INSPECTOR GENERAL FO R

AFGHANISTAN RECONSTRUCTION

July 30, 2011

I am pleased to submit SIGARs quarterly report to the Congress on the U.S. reconstruction eort in Aghanistan in

compliance with the statutory requirements o Section 1229 o P.L. 110-181. This report documents SIGARs activities and

updates the status o reconstruction programs since our April 30, 2011 report.

The Congress has provided nearly $72.7 billion to rebuild Aghanistan since 2002. Earlier this year, SIGAR adjusted its

audit and investigations plans and implemented a much more aggressive strategy to provide comprehensive oversight

o these unds. As a result, this quarter SIGAR can report a number o accomplishments, including potential savings and

several arrests:

identifed up to $58.5 million in contractor reunds not returned to the U.S. government

identifed $1.6 million in expired, unused unds that have now been returned to the U.S. Treasury

supported fve arrests, including a U.S. military reserve ofcer charged with soliciting more than $1 million in

bribes or reconstruction contracts reerred six individuals and contractors or suspension and debarment

During this reporting period, SIGAR issued ive audits and one congressionally mandated report. The audits relect

SIGARs determination to conduct a balanced mix o contract and program audits to detect waste, raud, and abuse, and

to promote economy, eiciency, and eectiveness in the administration o programs and operations. SIGARs review o

the contract between the U.S. Army Corps o Engineers and a company to provide workers compensation insurance

identiied up to $58.5 million in reunds that were not returned to the U.S. government. In another audit, SIGAR ound

that insuicient controls over U.S. unds in Aghanistan are hampering U.S. eorts to develop the Aghan inancial

sector. SIGAR also ound that the Aghan government has not cooperated consistently with the United States, thereby

undermining U.S. eorts to develop the sector. SIGARs audit o the Aghanistan Reconstruction Trust Fund (ARTF)the

principal vehicle through which the United States and other international donors provide direct assistance to the Aghan

governmentidentiied challenges that need to be addressed to eectively oversee these unds.

This quarter, SIGAR investigators opened 29 cases, supported investigations that resulted in the arrest o 3 U.S. citizens

and 2 Aghan citizens, and reerred 6 individuals or companies or suspension and debarment. In one case, a U.S. military

reserve oicer pled guilty to receiving more than $400,000 and attempting to solicit more than $1 million in bribes or

inluencing the award o reconstruction contracts. SIGARs continuing support o Aghan law enorcement agencies led

to the arrest o two Aghan citizensone charged with oering bribes and the other with soliciting bribes. SIGARs work

with Aghan law enorcement oicials is particularly important because o the large number o reconstruction contracts

the United States is awarding to Aghan companies. Finally, SIGAR is expanding its eort to build cases or the suspension

and debarment o contractors who have been involved in raud or who have perormed poorly in executing contracts.

SIGAR remains committed to conducting the oversight necessary to identiy raud, develop cases against individuals

and companies engaged in criminal activity, earn returns or the taxpayer, and oer recommendations to improve the

eectiveness o the U.S. reconstruction eort.


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EXECUTIVE SUMMARY

SIGAR accomplishments this quarter included the

ollowing:

identifed up to $58.5 million in contractor reunds

not returned to the U.S. government

identifed $1.6 million in expired, unused unds thathave now been returned to the U.S. Treasury

supported the arrest o a U.S. military reserve of-

cer charged with soliciting more than $1 million in

bribes or reconstruction contracts

assisted Aghan authorities with the arrest o

Aghan citizens charged with soliciting and oering

bribes to win reconstruction contracts

COMPLETED AUDITSThe fve audits SIGAR issued this quarter identifed a

number o contract and program management issuesand made 21 recommendations to recover unds,

increase accountability, improve program management,

and achieve better interagency cooperation:

USAIDs Kabul Community Development Program

Largely Met the Agreements Terms, but Progress

Toward Long-Term Goals Needs To Be Better

Tracked

U.S. Agencies Have Provided Training and Support

to Aghanistans Major Crimes Task Force, but

Funding and Reimbursement Issues Need To Be

Addressed

Limited Interagency Coordination and InsufcientControls over U.S. Funds in Aghanistan Hamper

U.S. Eorts To Develop the Aghan Financial Sector

and Saeguard U.S. Cash

The World Bank and the Aghan Government

Have Established Mechanisms To Monitor and

Account or Funds Contributed to the Aghanistan

Reconstruction Trust Fund, but Some Limitations

and Challenges Should Be Addressed

Weaknesses in the USACE Deense Base Act

Insurance Program Led to as Much as $58.5 Million

in Reunds Not Returned to the U.S. Government

and Other Problems

SPECIAL REPORT TO CONGRESSThis quarter, SIGAR submitted to the Congress a report

on the oversight o contractors and plans or reducing

the reliance o the United States on private security con-

tractors (PSCs) in Aghanistan as required by Section

1219 o the National Deense Authorization Act or

FY 2011. The review ound that rom October 2008

through March 2011, the inspectors general o the

Department o Deense, the Department o State, and

the U.S. Agency or International Development; the U.S.

Government Accountability Ofce; and SIGAR issued65 reports that made 297 recommendations to improve

contracting. SIGAR also ound that although U.S.

implementing agencies continue to rely heavily on PSCs

to provide or site, convoy, and personnel security in

Aghanistan, these agencies are not systematically track-

ing deaths o Aghan civilians caused by PSCs.

NEW AUDITSThis quarter, SIGAR initiated our new audits:

USAIDs Contracts in Support o the Aghanistan

Stabilization Initiative

USAIDs Cooperative Agreement in Support o anAgriculture Program

Reliability o Funding and Contract Data Maintained

by the U.S. Central Command Joint Theater Support

Contracting Command (C-JTSCC) on Prime Vendors

or Major Reconstruction Contracts in Aghanistan

U.S. Army Corps o Engineers Operations and

Maintenance Contracts with ITT Corporation or

Aghan National Security Forces Facilities

SIGAR ACTIVITIES Q3, FY 2011This quarter, SIGAR completed fve audits that assessed reconstruction contracts and programs to

improve governance, development, and security in Aghanistan. SIGAR also submitted a mandated

review o contractor oversight to Congress and announced our new audits. SIGAR opened 29 new

investigations, bringing the number o ongoing cases to 89.


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EXECUTIVE SUMMARY

INVESTIGATIONSDuring this reporting period, SIGAR opened 29 cases

and supported investigations that resulted in the arrests

o fve people, including a U.S. military reserve of-

cer who pled guilty to soliciting more than $1 million

in bribes or reconstruction contracts and two U.S.

citizens charged with conspiracy to trafc in heroin.

SIGAR continues to support Aghan law enorcement

ofcials in their investigations o Aghan citizens alleged

to have been involved in raud and corruption relatedto reconstruction contracts. SIGAR views this work as

particularly important because o the large number o

contracts the United States is awarding to Aghan com-

panies. This quarter, SIGARs eorts contributed to the

arrest o two Aghan citizens.

U.S. Military Ofcer Pleads Guilty to BriberyIn June 2011, a U.S. military reserve ofcer pled guilty in

a ederal district court to bribery related to reconstruc-

tion contracts and conspiracy to distribute heroin. The

ofcer admitted to having received more than $400,000

in bribe money and expecting an additional $1 millionrom contractors in Aghanistan or having agreed to

inuence the award o reconstruction contracts valued

at approximately $23 million. This joint investigation,

which included partner agencies in the International

Contract Corruption Task Force (ICCTF), the Drug

Enorcement Administration, and the Department o

Homeland Security, also led to the arrest o two other

individuals or conspiracy to trafc in narcotics.

SIGAR Supports Investigations Leading to Arrestso Two AghansIn May 2011, a joint operation between members o the

AghanShaafyat (Transparency) Investigative Unit

(ASIU), the ICCTF, and SIGAR resulted in the arrest o

an Aghan citizen or soliciting a $150,000 bribe rom

a contractor who provides support or the U.S. Army

Corps o Engineers (USACE) at the Kabul International

Airport. This was the frst joint investigation between

U.S. law enorcement agencies and the ASIU that has

led to the arrest o an Aghan citizen.

In June 2011, a joint operation between SIGAR,

the ICCTF, the Aghan National Police Criminal

Investigative Division, and Aghan prosecutors culmi-

nated in the arrest o an Aghan contractor who had

oered $400,000 in bribes to a USACE contract special-

ist at Kandahar Air Field.

Suspension and Debarment ProgramThis quarter, SIGAR made 6 reerrals or suspension and

debarment o individuals and contractors, bringing the

total reerrals since 2009 to 32. SIGAR is conducting an

aggressive eort to improve contractor accountability

through its suspension and debarment program. SIGAR

views suspension and debarment as an important

adjunct to its investigative and audit responsibilities,

especially when non-U.S. nationals are concerned.

SIGAR is ocused on (1) identiying contractors alleged

to have been involved in raud or to have perormed

questionably on contracts, (2) making recommenda-

tions or suspension and debarment, and (3) developinga comprehensive training program or investigators and

auditors to acilitate the collection o evidence neces-

sary to support suspension and debarment actions.

SIGAR auditors meet with ofcials rom the Ministry o

Deense and CSTC-A in Kabul on May 19 to discuss the pro-

cess that the ANA uses to account or tens o thousands o

vehicles provided by the U.S. government. (SIGAR photo)


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TABLE OF CONTENTS

SECTION 1SIGAR OVERSIGHT 3 Audits

19 Investigations

24 SIGAR Budget

25 SIGAR Sta

SECTION 2AFGHANISTAN OVERVIEW29 Security Transition Begins

30 New Civilian and Military Leadership

31 FY 2012 National Deense Authorization Act (NDAA)32 Senate Report on U.S. Foreign Assistance to Aghanistan

34 Secretary o State Testifes Beore the Congress

34 Senate Subcommittee Holds Hearings on Reconstruction

Contracts

35 DoS Provides Certifcations Needed To Obligate

Reconstruction Funds

35 Looking Forward

SECTION 3RECONSTRUCTION UPDATE39 Overview

43 Status o Funds

55 Security

75 Governance

97 Economic and Social Development


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TABLE OF CONTENTS

SECTION 4OTHER AGENCY OVERSIGHT113 Completed Oversight Activities

118 Ongoing Oversight Activities

131 Investigations

131 Inspections

APPENDICES & ENDNOTES134 Appendix A: Cross-Reerence o Report

to Statutory Requirements

138 Appendix B: U.S. Government Appropriated Funds

140 Appendix C: SIGAR Audits

142 Appendix D: SIGAR Investigations and Hotline

143 Appendix E: Abbreviations and Acronyms

146 Endnotes


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SPECIAL INSPECTOR GENERAL I AFGHANISTAN RECONSTRUCTIONviii

Conducting Oversight

SIGAR auditors visit ANA Headquarters in Kabul this quarter

to continue an audit. SIGAR is ocusing on the ability o

CSTC-A and the ANSF to account or and maintain the tens o

thousands o vehicles that the United States has provided.

(SIGAR photo)


11/1641

1SIGAROVERSIGHT


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SPECIAL INSPECTOR GENERAL I AFGHANISTAN RECONSTRUCTION2

SIGAR OVERSIGHT

It is essential that we use all available

tools to ensure that U.S. dollars are

protected rom raud and diversion tothe insurgency. We must also ensure

that the Aghan government is a ull

partner in eorts to set a edgling

fnancial sector on sound ooting.

Herbert Richardson,Acting Special Inspector General

for Afghanistan Reconstruction

Source: SIGAR, news release, SIGAR Audit Reveals Risks to U.S. Aid Dollars, Development o Sound Aghan Financial Sector, 7/20/2011.


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REPORT TO THE UNITED STATES CONGRESS I JULY 30, 2011 3

SIGAR OVERSIGHT

COMPLETED AUDITS

Audit 11-11: USAIDs Kabul CommunityDevelopment Program (Governance/

Economic Development)

Audit 11-12: Support to the MCTF (Ruleo Law/Corruption)

Audit 11-13: Developing the FinancialSector (Financial Sector)

Audit 11-14: Oversight o the ARTF (DirectAssistance/Multi-Donor Trust Fund)

Audit 11-15: DBA Insurance Program(Security/Contract)

Audit 11-1SP: Analyzing Recommenda-tions on Contracting (Special Report to

Congress under NDAA)

NEW AUDITS USAID Contracts in Support o

Aghanistan Stabilization Initiative

USAID Cooperative Agreement in Sup-port o an Agriculture Program

Reliability o Data on PrimeReconstruction Vendors

USACE O&M Contracts or ANSFFacilities

ONGOING AUDITS USAID Contracts or LGCD Projects Construction at Kabul Military Training

Center

Construction at the Aghan NationalSecurity University

Private Security Support Services (I) Private Security Support Services (II) Accountability o ANSF Vehicles Agriculture Sector Development U.S. Civilian Uplit Costs in Aghanistan USAID Financial Audit Coverage o

Incurred Costs

Implementation o the AghanFirst Initiative

FORENSIC AUDITS DoD Transaction Data Related to

Reconstruction

USAID Transaction Data Related toReconstruction

DoS Transaction Data Related toReconstruction

SIGAR OVERSIGHT

The U.S. Congress established SIGAR to provide independent and objective

oversight o U.S. unds appropriated or otherwise made available or the recon-

struction o Aghanistan. In accordance with its legislative mandate, SIGAR

conducts audits and investigations to provide recommendations on policiesto (1) promote economy, efciency, and eectiveness in the administration o

programs and operations using reconstruction unds, and (2) prevent and detect

waste, raud, and abuse in these programs and operations. SIGARs enabling

legislation also requires it to keep the Secretary o State and the Secretary o

Deense ully inormed about problems relating to the administration o recon-

struction programs and to submit a report on SIGARs oversight work and on the

status o the U.S. reconstruction eort to the U.S. Congress no later than 30 days

ater the end o each fscal quarter.

This section describes SIGARs activities since April 30, 2011. Sections 2 and 3

provide an update on U.S. programs to rebuild Aghanistan. SIGAR highlights this

quarter included the ollowing:

published fve audits and submitted one congressionally mandated report identifed up to $58.5 million in contractor reunds not returned to the U.S.

government

identifed $1.6 million in expired, unused unds that have now been returned

to the U.S. Treasury

announced our new audits

opened 29 investigations and closed 15

supported the arrest o a U.S. military reserve ofcer charged with soliciting

more than $1 million in bribes or reconstruction contracts

assisted Aghan authorities with the arrest o Aghan citizens charged with

soliciting and oering bribes to win reconstruction contracts

reerred six individuals and contractors or suspension and debarment

AUDITSDuring this reporting period, SIGAR issued fve audit reports that examined

reconstruction contracts and programs related to governance, anti-corruption,

development, and security. These audits identifed a number o contract and

program management issues and made 21 recommendations to recover unds,

increase accountability, improve program management, and achieve better inter-

agency cooperation. In addition, SIGAR completed and submitted to Congress a


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SIGAR OVERSIGHT

review o contractor oversight mandated by the National Deense Authorization

Act or Fiscal Year 2011 (NDAA, P.L. 111-383). SIGAR also began work on 4 newaudits, bringing the total number o ongoing audits to 14. In addition, SIGAR is

conducting three orensic reviews o major reconstruction unds.

Completed Audit ReportsThe fve audits SIGAR published this quarter included assessments o a U.S.

Agency or International Development (USAID) cooperative agreement, inter-

agency eorts to strengthen Aghanistans fnancial sector and saeguard U.S.

cash owing through the Aghan economy, the capacity o the Aghan govern-

ment to monitor and account or international donor unds, U.S. assistance to

build the capabilities o Aghanistans Major Crimes Task Force, and the U.S.

Army Corps o Engineers (USACE) Deense Base Act Insurance Program.

Audit 11-11: Governance and Economic DevelopmentUSAIDs Kabul Community Development Program Largely Met the Agreements Terms, but

Progress Toward Long-Term Goals Needs To Be Better Tracked

In March 2009, USAID awarded a one-year, $25 million cooperative agreement

to CARE International, on a non-competitive basis, to establish the Community

Development Program-Kabul (CDP-K). The CDP-K provides cash-or-work

to 50,000 Aghan citizens in the Kabul area. In March 2010, USAID extended

the cooperative agreement or 18 months. Under this second phase, USAID

increased unding to a total o $60 million and expanded program goals to beneft

78,000 Aghans and und long-term projects to improve the living and working

conditions o target communities.

OBJECTIVES

SIGAR conducted this audit because job creation is an important element o the

U.S. reconstruction strategy in Aghanistan and because cash-or-work projects

involve inherent risks o raud, waste, and abuse. This audit had three objectives:

Evaluate the processes and procedures USAID ollowed to award this coop-

erative agreement.

Determine whether the program was being implemented within the cost,

schedule, and outcome terms o the agreement.

Assess the implementation o internal controls over cash disbursements.

FINDINGS

1. USAID ollowed established procedures in deciding to award a cooperative

agreement on a non-competitive basis to CARE International to implement

the CDP-K. USAID also provided additional oversight or the program to miti-

gate the risks o raud, waste, and abuse that are inherent in cash-or-work

projects. In addition, USAID adhered to the requirements to document the

award and expansion o the program.

COMPLETED AUDITS

Audit 11-11: USAIDs Kabul CommunityDevelopment Program Largely Met the

Agreements Terms, but Progress Toward

Long-Term Goals Needs To Be Better

Tracked

Audit 11-12: U.S. Agencies Have Provid-ed Training and Support to Aghanistans

Major Crimes Task Force, but Funding

and Reimbursement Issues Need To Be

Addressed

Audit 11-13: Limited Interagency Coordi-nation and Insufcient Controls over U.S.

Funds in Aghanistan Hamper U.S. Eorts

To Develop the Aghan Financial Sector

and Saeguard U.S. Cash

Audit 11-14: The World Bank and theAghan Government Have Established

Mechanisms To Monitor and Account or

Funds Contributed to the AghanistanReconstruction Trust Fund, but Some

Limitations and Challenges Should Be

Addressed

Audit 11-15: Weaknesses in the USACEDeense Base Act Insurance Program

Led to as Much as $58.5 Million in

Reunds Not Returned to the U.S. Gov-

ernment and Other Problems

Audit 11-1SP: Analysis o Recommenda-tions Concerning Contracting in Aghani-

stan, as Mandated by Section 1219

o the Fiscal Year 2011 NDAA (Special

Report to Congress)


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SIGAR OVERSIGHT

2. CARE International largely complied with the terms under phase one o the

cooperative agreement and appears to be on track to meet the schedule,cost, and outcomes established or phase two. However, CARE International

ailed to complete certain required studies, such as the impact o the pro-

gram on local ood prices, which could have helped to guide program

implementation and measure the programs impact on the benefciaries.

Moreover, USAID ailed to ormally incorporate some program goals into

phase two o the agreement, such as developing projects with long-term

economic impact. Consequently, there has been no reporting on whether the

program is achieving longer-term goals.

3. CARE International has implemented numerous checks and balances to

prevent inappropriate cash disbursements. Nevertheless, A.F. Ferguson, an

independent company hired to monitor and evaluate CAREs internal con-

trols, ound that CARE needs to improve these controls to address limited

irregularities.

RECOMMENDATIONS

To ensure that the CDP-Ks broader objectives are achieved and appropriate

oversight o unds is provided, SIGAR recommended that the USAID Mission

Director require that:

1. USAID and CARE International program sta document the specifc nature

and defnition o CDP-Ks expanded project goals or this and any potential

ollow-on awards.

2. CARE International address to what degree these goals were met when it

submits its close-out report to USAID later this year, along with any lessonslearned with regard to why, i applicable, certain long-term goals were not

met.

3. USAID and CARE determine to what degree, i any, CARE International

should reimburse USAID or the costs associated with required studies that

were not completed.

4. USAID and CARE reconcile remaining internal control issues identifed by

A.F. Ferguson as soon as possible.

AGENCY COMMENTS

USAID concurred with all our o SIGARs recommendations. USAID noted that

it would work with CARE International program sta to document the expanded

project goals under phase two o the cooperative agreement and ensure thatrelated lessons learned and recommendations or urther activities are included

in CAREs project close-out report. USAID stated that it will determine to what

degree, i any, CARE should reimburse USAID or the costs associated with

required studies that were not completed. USAID also said it will work closely

with CARE to review CAREs cash disbursement process and promptly rectiy

any remaining internal control issues.


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SIGAR OVERSIGHT

Audit 11-12: Rule o Law/Corruption

U.S. Agencies Have Provided Training and Support to Aghanistans Major Crimes Task Force,but Funding and Reimbursement Issues Need To Be Addressed

In 2009, the Aghan government established the Major Crimes Task Force

(MCTF) as the principal agency responsible or investigating and processing

major cases o corruption, kidnapping, and organized crime cases. Because

corruption and organized crime undermine the legitimacy o the Aghan govern-

ment, pose signifcant obstacles to investment and economic growth, and uel

the insurgency, several U.S. government agencies are involved in providing sup-

port to strengthen the MCTF.

OBJECTIVES

SIGAR conducted this audit as part o its continuing eort to assess U.S. eorts

to build the capacity o Aghan institutions to detect and deter corruption. This

audit had two objectives:

Determine the nature and extent o U.S. assistance or the MCTF.

Evaluate whether U.S. assistance was provided in accordance with appli-

cable laws and regulations.

FINDINGS

1. The U.S. government provided at least $15.3 million to assist the MCTF

through FY 2010. These unds supported the training and mentoring o

MCTF investigators as well as the reurbishment and maintenance o MCTF

acilities. U.S. ofcials expect to provide an additional $24 million to assist

the MCTF in FY 2011. The Department o Deense (DoD) has provided themajority o U.S. assistance unding or the MCTF. DoD manages this assis-

tance through the Combined Security Transition Command - Aghanistan

(CSTC-A). The Department o States (DoS) Bureau o International

Narcotics and Law Enorcement Aairs (INL), the Federal Bureau o

Investigation (FBI), and the Drug Enorcement Administration have also

provided assistance to the MCTF.

2. DoD, through interagency agreements, provides unding to the FBI and INL

to support the MCTF. In order to obligate DoD unds, the FBI and INL signed

memoranda o understanding with the Deense Security Cooperation Agency

(DSCA). SIGAR identifed three accountability issues related to U.S. support

or the MCTF. First, the DSCA and the FBI had not de-obligated $1.6 million

in unused unds that expired as o September 2010. During the audit, theagencies returned the $1.6 million to the U.S. Treasury. Second, INL has not

provided the required quarterly fnancial reporting on its use o DoD unds,

including $6.2 million in MCTF unds or operations and maintenance. Third,

CSTC-A and INL do not yet have a system to charge and collect reimburse-

ments rom international partners receiving services at MCTF acilities.


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SIGAR OVERSIGHT

RECOMMENDATIONS

SIGAR made two recommendations to improve accountability and ensure thatthe U.S. government is appropriately reimbursed or some o its costs relating to

support o the MCTF.

To improve accountability over U.S. assistance to the MCTF, SIGAR recom-

mended that the Assistant Secretary o State or International Narcotics and Law

Enorcement Aairs take the ollowing action:

1. Provide an accounting o the $6.2 million already transerred to INL to

cover operations and maintenance costs or the MCTF Camp Falcon acil-

ity, as required by the memorandum o agreement between the Ofce o the

Secretary o Deense and INL.

To ensure that the U.S. government is reimbursed, as appropriate, or some

o the costs o assistance to the MCTF, SIGAR recommended that the AssistantSecretary o State or International Narcotics and Law Enorcement Aairs, in

consultation with the Commanding General o CSTC-A, take the ollowing action:

2. Develop and implement a system to bill, collect, and appropriately use such

unds received rom non-U.S. international personnel receiving services at

the MCTF Camp Falcon acilities.

AGENCY COMMENTS

A drat o this report included a recommendation that the FBI de-obligate its

unused MCTF unds. Because the FBI subsequently did so, SIGAR deleted the

recommendation. In their comments, the U.S. Embassy and INL said that INL

had implemented the frst recommendation by submitting an accounting o the

expenditures covering operations and maintenance costs. However, in reviewingthe documentation, SIGAR determined that INL did not present inormation on

the goods and services provided with the $6.2 million or indicate how the unds

were allocated, as required by the memorandum o agreement. The U.S. Embassy

and INLs comments also supported the second recommendation, indicating

that CSTC-A and INL had taken some actions to address it. In addition, CSTC-A

concurred with this recommendation and indicated that DoS has taken over ull

responsibility or Camp Falcon operations and maintenance.

Audit 11-13: Financial SectorLimited Interagency Coordination and Insufcient Controls over U.S. Funds in Aghanistan

Hamper U.S. Eorts To Develop the Aghan Financial Sector and Saeguard U.S. Cash

Since 2002, Congress has appropriated more than $70 billion to rebuild

Aghanistans security, governance, and economic sectors. Some o these unds

have been converted to cash and ow through the Aghan economy. To ensure

that the Aghan fnancial sector can absorb these unds and to develop the

Aghan governments capacity to sustain a viable market economy, U.S. agencies

have implemented programs to (1) increase the capacity o Aghanistans cen-

tral bankDa Aghanistan Bank (DAB)to regulate fnancial institutions in the

country and (2) strengthen U.S. and Aghan law enorcement monitoring o and

controls over the ow o U.S. aid through the Aghan economy.


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OBJECTIVES

The near collapse o Kabul Bank in September 2010 caused continued uncer-

tainty about the health o Aghanistans remaining banks. Questions about

the export o large amounts o cash through the Kabul International Airport

prompted SIGAR to conduct an audit o the U.S. eort to develop the fnancial

sector and account or U.S. unds owing through the Aghan economy. The

audit had two objectives:

Evaluate U.S. eorts to improve the capacity o the Aghan government to

regulate the fnancial sector, which includes DAB, 17 commercial banks, and

hawalas (inormal fnancial organizations).

Assess the controls that U.S. agencies use to track U.S. unds as they ow

through the Aghan economy.

FINDINGS

Although U.S. assistance has helped the Aghan government improve its ability to

regulate its fnancial sector, two challenges limit the eectiveness o the U.S. eort:

U.S. agencies have not ully coordinated the implementation o their fnancial

sector development programs.

Aghan ministries have not cooperated consistently with the United States,

thereby delaying U.S. programs or preventing them rom succeeding.

Although U.S. agencies have taken steps to strengthen their oversight o U.S.

unds owing through the Aghan economy, the U.S. government still has limited

visibility over where this money goes, leaving these unds vulnerable to raud or

diversion to insurgents.

RECOMMENDATIONS

SIGAR made our recommendations to improve interagency coordination on

fnancial sector development programs and to strengthen oversight over the ow

o U.S. unds through the Aghan economy.

To help leverage available resources and expertise and avoid duplication

o agency eorts on fnancial sector issues, SIGAR recommended that the

U.S. Ambassador to Aghanistan instruct the members o the Financial Sector

Working Group to:

1. Develop an interagency strategy to coordinate eorts to work with Aghan

banks to increase their electronic unds transer (EFT) internal processes,

and transaction accountability capabilities.

To strengthen oversight over the ow o U.S. unds through the Aghan

economy and to support overall U.S. reconstruction goals in Aghanistan, SIGAR

recommended that the Secretary o State and the Secretary o Deense instruct

their contracting and fnancial authorities to:

2. Institute steps to record the serial numbers o cash disbursed to contrac-

tors and provide these data to U.S. law enorcement ofcials (including the

Aghan Threat Finance Cell), as well as FinTRACA or another appropriate

Aghan source.


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SIGAR OVERSIGHT

3. Develop a plan to ensure that Aghan banks that provide payments to recipi-

ents o U.S. EFT payments record the serial numbers o cash paid to theserecipients by using bulk currency counters and that these data are reported

to U.S. law enorcement ofcials (including the Aghan Threat Finance

Cell), as well as FinTRACA or another appropriate Aghan source.

4. Insert a standard clause into U.S. contracts, grants, and cooperative agreements

with entities operating in Aghanistan requiring that these contractors pay

their subcontractors through either an EFT-capable bank or a licensed hawala,

where possible. Alternatively, i a determination is made that such a clause

would not be easible under existing regulations, submit a ormal proposal to

Congress with legislative language allowing the inclusion o such a clause.

AGENCY COMMENTS

A drat o this report included a recommendation that the U.S. Ambassador to

Aghanistan instruct members o the Embassys Financial Sector Working Group

to include the Department o Homeland Security (DHS) in their planning meetings

and ensure that all U.S. agencies that support the development o the fnancial

sector be included in Financial Sector Working Group discussions. Because DHS

was subsequently added to the group, SIGAR deleted the recommendation. In its

response to the drat report, the U.S. Embassy Kabul generally agreed with the

recommendations, but cited some difculties implementing them. For example, in

response to SIGARs recommendation that U.S. agencies develop an interagency

strategy to coordinate eorts to work with Aghan banks to increase their EFT

internal processes and transaction accountability capabilities, the Embassy noted

that accomplishing this task will require consensus among and action by Aghanministries, the U.S. government, and other donors implementing reconstruction

and development projects in Aghanistan. The Embassy concurred with the last

recommendation, stating that it will add a clause to its contracts requiring imple-

menting partners to make payments only through EFTs or licensed hawalas. DoD

chose not to comment.

Audit 11-14: Direct Assistance/Multi-Donor Trust FundThe World Bank and the Aghan Government Have Established Mechanisms To Monitor and

Account or Funds Contributed to the Aghanistan Reconstruction Trust Fund, but Some

Limitations and Challenges Should Be Addressed

In 2010, the United States and other donors pledged to provide 50% o their

development assistance through the Aghan national budget within two years.The Aghanistan Reconstruction Trust Fund (ARTF), which is administered by the

World Bank, is the principal vehicle through which donors are currently providing

direct assistance to the Aghan government. Since 2002, 32 international donors

have contributed nearly $4.3 billion to the ARTF, which supports the Aghan

governments non-security operating costs and development projects. The United

States, the largest single contributor, has provided $972 million to the und.


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OBJECTIVES

SIGAR conducted this audit because the United States has invested nearly

$1 billion in the ARTF over the last nine years. In addition, the current empha-

sis on direct assistance makes it important to understand how the World Bank

monitors and accounts or ARTF unds, and to know whether the Aghan govern-

ment can account or unds it receives through the ARTF. The audit had two

objectives:

Assess the extent to which the World Bank and the Aghan government have

established and implemented mechanisms to independently monitor and

account or donor contributions to the ARTF.

Assess the extent to which the Aghan government has developed the capac-

ity to monitor and account or ARTF unds.

FINDINGS

1. The World Bank and the Aghan government have established three means to

independently monitor and account or ARTF unds; however, these mecha-

nisms have some limitations. The oversight instruments consist o the World

Banks standard procedures or overseeing World Bankunded projects, an

independent monitoring agent to track the Aghan governments non-security-

related operating expenses fnanced by the ARTF under the Recurrent Cost

Window, and mandatory audits by the Aghan Control and Audit Ofce.

Oversight is not as robust as it could be because monitoring o non-security

operating costs is limited to fnancial reviews and audits. Moreover, limited

independent validation o ARTF spending is conducted outside o Kabul, and

the World Bank does not disseminate reports on the results and outcomes oARTF-unded development projects to all ARTF donors.

2. The Aghan ministries have generally increased their ability to manage and

account or government fnances, including ARTF unds. Nevertheless, the

Aghan government aces challenges developing and maintaining the civil

service expertise needed to manage and account or ARTF unds. As a result

o the capacity constraints, the Aghan government continues to rely on

Aghan contractors and international frms, which are paid using a portion o

ARTF unds.

RECOMMENDATIONS

SIGAR made three recommendations to improve oversight o ARTF unds and

ensure that ministries build the capacity to account or unding.To strengthen and enhance oversight o ARTF unds, SIGAR recommended

that the U.S. Ambassador to Aghanistan, in coordination with other ARTF

donors, urge the World Bank to:

1. Include explicit language in the new Recurrent Cost Window monitoring

agents contract and terms o reerence to require the agent to make neces-

sary arrangements to conduct site visits in both Kabul and the provinces, on

a sample basis, to veriy the eligibility o the Aghan governments operating

expenditures.


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SIGAR OVERSIGHT

2. Enhance reporting to all donors on development project results and out-

comes by regularly including this inormation in its quarterly reports todonors or by systematically distributing supervision mission reports to all

ARTF donors.

To ensure that Aghan ministries urther develop and sustain the sta exper-

tise needed to manage and account or development unding, including ARTF

unds, SIGAR recommended that the U.S. Ambassador to Aghanistan, in coordi-

nation with the World Bank and other donors:

3. Assist the Aghan government with capacity-building eorts, such as

developing plans to completely transition to Aghan civil service sta and

completing pay and grade reorm, which would enhance the Aghan govern-

ments ability to attract and retain qualifed sta.

AGENCY COMMENTS

The U.S. Embassy Kabul noted steps that the World Bank is taking to respond to

the frst two recommendations and described several ongoing eorts to address

the third recommendation to enhance the Aghan governments capacity to man-

age and account or development unding.

In its response, the World Bank discussed steps it is taking to respond to the

three recommendations. For example, the World Bank indicated that it plans to

ensure that explicit language is included in the new Recurrent Cost Window moni-

toring agents contract and terms o reerence to require provincial site visits.

Audit 11-15: Security/Contract Audit

Weaknesses in the USACE Deense Base Act Insurance Program Led to as Much as

$58.5 Million in Reunds Not Returned to the U.S. Government and Other Problems

The U.S. Deense Base Act (DBA) requires ederal government prime contrac-

tors and subcontractors to provide workers compensation insurance or their

employees who work overseas. Congress enacted the DBA to ensure that

individuals working abroad or the U.S. government would have workers com-

pensation insurance, i they are injured or killed on the job. Since 2008, the U.S.

Army Corps o Engineers (USACE) and the U.S. Central Command Joint Theater

Supporting Contract Command (C-JTSCC) have contracted with Continental

Insurance Company (CNA) to serve as their only DBA provider. Since then, CNA

has collected about $225 million in premiums.

OBJECTIVES

Because contractors are reimbursed or their DBA costs, the program makes it

easier or smaller contractors to aord the costs associated with ederal con-

tracting. DBA insurance is particularly important in Aghanistan, because o the

hostile working environment and the limited size and resources o many subcon-

tractors, particularly Aghan companies. This audit had three objectives:

Determine the extent to which DBA premium rates were set at appropriate

levels.


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SIGAR OVERSIGHT

Assess USACEs and the C-JTSCCs internal controls or ensuring that prime

contractors and subcontractors obtain insurance in compliance with the DBA. Evaluate the process or billing and reimbursing contractors or DBA costs.

FINDINGS

1. SIGAR ound that USACE agreed to higher premium rates than stipulated

under the terms o the contract and did not exercise strong oversight o

CNAs perormance under the contract. For example, it did not hold CNA

responsible or ulflling all o the reporting requirements in the contract.

SIGAR determined that such oversight was needed because CNAs data were

not always complete, accurate, or current. For example, CNA reported cases

as losses, even ater it had been inormed that it would be reimbursed by the

Department o Labor or cases under the War Hazards Compensation Act

(WHCA).

2. The internal controls employed by USACE and C-JTSCC ailed to ensure that

prime contractors and subcontractors purchased and maintained the correct

amount o insurance.

3. SIGAR identifed problems with CNAs current process or billing and reim-

bursing contractors or DBA costs. First, CNA commingles unds rom

multiple sources, which violates U.S. unding restrictions, including the

Purpose Statute and, possibly, the Anti-Defciency Act. Second, USACE and

the C-JTSCC contracting ofcers have limited visibility over DBA costs. As a

result, some contractors have purchased less insurance than they agreed to

under the terms o their contracts. In addition, SIGAR determined that CNA

has given $58.5 million in reunds to contractors or DBA insurance since2005, at least some o which is due back to the U.S. government.

RECOMMENDATIONS

SIGAR made eight recommendationsour to the Acting Commanding General

o USACE to strengthen the DBA insurance contract and our to the Acting

Commanding General o USACE and the Commander o the C-JTSCC to

strengthen the DBA insurance program and take steps to recover any reunds

that may be due to the U.S. government. SIGAR recommended that the Acting

Commanding General o USACE:

1. Modiy the current contract with CNA to require that an invoice be provided

or each contract showing the fnal amount paid or DBA insurance or

that contract. This action should address the problem associated with thePurpose Statute violation SIGAR identifed.

2. Determine whether the Purpose Statute violation that SIGAR identifed also

constitutes an Anti-Defciency Act violation and, i so, ollow the report-

ing requirements set orth in the Act and in guidance rom the Ofce o

Management and Budget.

3. Modiy the current contract with CNA to clariy and make explicit the

requirement that incurred losses exclude claims identifed or reimbursement

under the WHCA. Specifcally, the contract should stipulate who identifes


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SIGAR OVERSIGHT

the claims or reimbursement, when they are to be removed rom the loss

report, how much time CNA has to remove them, and how cases with claim-ants outside the United States should be handled.

4. Modiy the current contract with CNA to require an independent actuary

review o reserve adequacy particular to the claims covered under the con-

tract with USACE and to submit the review to USACE on an annual basis.

To strengthen the DBA insurance program and take steps to recover any

reunds that may be due to the U.S. government, SIGAR recommended that the

Acting Commanding General, USACE, and the Commander, C-JTSCC:

5. Issue guidance to contracting ofcers to strengthen their oversight o DBA

insurance. This guidance should remind contracting ofcers o the impor-

tance o adjusting the DBA CLIN when contract modifcations signifcantly

aect the amount o labor needed to perorm the contract. The guidanceshould also require contracting ofcers to receive the fnal invoice rom the

insurance carrier or each contract beore reimbursing the contractor.

6. Take steps to remind subcontractors o the requirement to and importance

o purchasing DBA insurance. These steps could include issuing a memo on

DBA insurance policies and procedures to prime contractors, to be shared

with all subcontractors.

7. Determine how much o the $58.5 million in reunded money is recoverable

by USACE and the C-JTSCC.

8. Take immediate action to recover the unds that USACE and the C-JTSCC

determined to be recoverable.

AGENCY COMMENTSIn commenting on a drat o the report, USACE and the C-JTSCC concurred with

SIGARs recommendations and noted measures that they will take to implement

them.

Audit 11-1SP: Special Report to CongressAnalysis o Recommendations Concerning Contracting in Aghanistan, as Mandated by

Section 1219 o the Fiscal Year 2011 NDAA

This quarter, SIGAR submitted to Congress a report on the oversight o contrac-

tors and plans or reducing the reliance o the United States on private security

contractors (PSCs) in Aghanistan, as required by Section 1219 o the National

Deense Authorization Act (NDAA) or FY 2011. In accordance with discussions

with congressional sta, SIGAR agreed to (1) analyze the recommendations

made to DoD, DoS, and USAID regarding contracting in Aghanistan rom FY 2008

through March 2011, and (2) assess the current situation regarding the use o

PSCs in Aghanistan, including the extent to which PSCs have been responsible

or Aghan civilian deaths.

From October 2008 through March 2011, the inspectors general o DoD, DoS,

and USAID; the U.S. Government Accountability Ofce (GAO); and SIGAR issued

65 reports with 297 recommendations to improve contracting in Aghanistan.


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SIGAR OVERSIGHT

SIGARs analysis identifed 14 contracting themes. O the 297 recommendations,

177 (about 60%) ell into fve broad categories: issues related to non-compliance, questioned costs, and the need or urther

audit work

contract oversight

post-award contract actions

quality and quantity o the U.S. government workorce

project schedule and perormance metrics

U.S. implementing agencies continue to rely heavily on PSCs to provide or

site, convoy, and personnel security in Aghanistan. Concerns about PSCs recently

culminated in the Aghan government developing a strategy to transer many

o the security unctions to a newly ormed state-run body, the Aghan Public

Protection Force (APPF). The strategy, which went into eect on March 22, 2011,is designed to allow PSCs to continue providing security services to contrac-

tors implementing reconstruction projects or one year and to the International

Security Assistance Force (ISAF) or two years as the APPF develops the capac-

ity to assume responsibility or these services.

SIGAR ound that data on Aghan deaths caused by PSCs has not been system-

atically tracked and may not be complete. For example, although USAID tracks

the deaths o implementing partner personnel and their security details, it does

not report on civilian deaths caused by PSCs. Ofcials o U.S. Forces - Aghanistan

(USFOR-A) have not reported any Aghan civilians killed by DoD-contracted

PSCs since August 2009. DoS reported our Aghan civilian deaths as a result o

trafc accidents involving PSCs.

Status o SIGAR RecommendationsIn the frst six months o 2011, SIGAR made 64 recommendations to improve

contract oversight and promote economy, efciency, and eectiveness in the

administration o programs and operations using reconstruction unds. This

nearly doubles the number o recommendations made since SIGAR was estab-

lished in 2008. O the 136 recommendations SIGAR has made, U.S. government

agencies have already implemented 54.

New Audits Announced This QuarterDuring this reporting period SIGAR initiated our new auditsone o a USAID

development contract, one o a USAID cooperative agreement, one to examinethe reliability o unding and contract data maintained by the C-JTSCC, and one

o the USACE contract or the operations and maintenance o Aghan National

Security Forces (ANSF) acilities.

USAIDs Contracts in Support o the AghanistanStabilization InitiativeIn July 2009, USAIDs Ofce o Transition Initiatives awarded two three-year

contracts, with a combined value o more than $300 million to support the U.S.

NEW AUDITS

USAIDs Contracts in Support o theAghanistan Stabilization Initiative

USAIDs Cooperative Agreement inSupport o an Agriculture Program

Reliability o Funding and Contract Data

Maintained by the U.S. Central Com-mand Joint Theater Support Contracting

Command (C-JTSCC) on Prime Vendors

or Major Reconstruction Contracts in

Aghanistan

U.S Army Corps o Engineers Operationsand Maintenance Contracts with ITT

Corporation or Aghan National Security

Forces Facilities


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SIGAR OVERSIGHT

governments Aghanistan Stabilization Initiative (ASI) in the southern and

eastern regions o Aghanistan. In close cooperation with ISAF, the ASI seeksto improve the economic and social environment in Aghanistan though small

community-enhancement projects.

USAIDs Cooperative Agreement in Support o anAgriculture ProgramIn September 2008, USAID entered into a cooperative agreement with International

Relie and Development to support the Aghanistan Vouchers or Increased

Production in Agriculture (AVIPA) Plus program. USAID extended this program

until June 2011, or a total cost o $450 million. Key components include seed

and ertilizer distribution, cash-or-work projects to stimulate local economies,

small grant programs to provide arming equipment, and training and capacity-

development programs.

Reliability o Funding and Contract Data Maintained by the U.S.Central Command Joint Theater Support Contracting Command(C-JTSCC) on Prime Vendors or Major Reconstruction Contractsin AghanistanThis audit will ollow up on the SIGAR audit, DoD, State, and USAID Obligated

Over $17.7 Billion to About 7,000 Contractors and Other Entities or Aghan

Reconstruction During Fiscal Years 20072009, which identifed the contractors

and implementing partners associated with reconstruction work in Aghanistan.

In comments on the report, the C-JTSCC stated that it was undertaking several

initiatives to improve the quality o contract data that it maintains and reduce thenumber o data errors. Subsequently, SIGAR received additional inormation call-

ing into question the reliability o the C-JTSCCs data. Specifcally, the C-JTSCC

may have reported obligations that diered signifcantly rom total contract

values. In June, the Senate Committee on Homeland Security and Governmental

Aairs, Subcommittee on Contracting Oversight cited specifc concerns about

the accuracy and reliability o the C-JTSCC data provided to SIGAR. This audit

will determine the cause o the discrepancies, the measures that the C-JTSCC

has taken to address the discrepancies, and the additional steps, i any, that the

C-JTSCC needs to take to ensure the accuracy and reliability o its contract data.

U.S. Army Corps o Engineers Operations and Maintenance

Contracts with ITT Corporation or Aghan National SecurityForces FacilitiesIn July 2010, USACE awarded two frm-fxed-price contracts, valued at a total o

$800 million, to ITT Systems Corporation to provide operations and maintenance

or ANSF acilities. These contracts cover Aghan army and police acilities in

northern and southern Aghanistan. The contracts consist o one base year plus

our optional years. According to the program manager, these contracts may

cover more than 660 sites. These contracts also require that the contractor train


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SIGAR OVERSIGHT

Aghan workers in all aspects o operations and maintenance. Currently, the DoD

Ofce o Inspector General is conducting a separate audit on the training aspecto the contracts.

Ongoing Audits: ContractSIGAR has fve ongoing audits o contracts. They address contracts to improve

governance in Aghanistan, build inrastructure or the Aghan National Security

Forces (ANSF), and provide security or the U.S.-unded reconstruction eort.

USAID Contracts or Local Governance and CommunityDevelopment ProjectsSIGAR is examining the perormance, costs, and outcomes o USAIDs contracts

in support o its Local Governance and Community Development projects.

Construction at the Kabul Military Training CenterSIGAR is assessing construction contracts or the Kabul Military Training Center

inrastructure projects. From FY 2007 through FY 2010, the Air Force Center or

Engineering and the Environment (AFCEE) obligated approximately $161 million

or fve task orders under three indefnite-delivery/indefnite-quantity contracts at

the Center. Under these contracts, AFCEE awarded a combination o cost-plus-

fxed-ee, frm-fxed-price, and time-and-materials task orders. Work required

under these task orders included planning, construction, and oversight unctions

with dierent completion dates.

Construction at the Aghan National Security UniversitySIGAR is assessing construction contracts or the Aghan National Security

University (ormerly called the Aghan Deense University). AFCEE awarded a

cost-plus-fxed-ee task order under an indefnite-delivery/indefnite-quantity con-

tract or construction at the Aghan National Security University in the Qaragh

area o Kabul. At the time o the award, the task order was valued at approxi-

mately $70 million, and the project was to be completed in June 2010. Since then,

AFCEE has issued fve modifcations to the task order, adding and removing

requirements, increasing the amount obligated to about $83 million, and extend-

ing the completion date through June 2011.

Private Security Support Services (I)SIGAR is examining whether USACE received the services it needed within the

terms o the contract and any modifcations rom its private security contractor.

Private Security Support Services (II)SIGAR is conducting an audit o a private security contractor that provided

services or one o USAIDs largest contractors. This audit is ocused on cost,

schedule, and outcomes o the subcontract, as well as on contract oversight.

ONGOING AUDITS

Contract

USAID Contracts or Local Governanceand Community Development Projects

Construction at the Kabul MilitaryTraining Center

Construction at the Aghan NationalSecurity University

Private Security Support Services (I)

Private Security Support Services (II)

Reconstruction Programs and Operations

Accountability o ANSF Vehicles

U.S. Assistance To DevelopAghanistans Capacity in the Agricul-

ture Sector

Costs and Sustainability o the U.S.Civilian Uplit in Aghanistan

USAIDs Financial Audit Coverageo Costs Incurred Under Contracts,

Cooperative Agreements, and Grants or

Aghanistan Reconstruction

Implementation o the Aghan FirstInitiative or Contracting


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SIGAR OVERSIGHT

Ongoing Audits: Programs and OperationsSIGAR has fve ongoing audits o programs and operations that are critical to the

U.S. eort to build the ANSF, improve governance, and lay the oundation or

economic growth in Aghanistan.

Accountability o ANSF VehiclesThe United States has provided tens o thousands o vehicles to the ANSF and

plans to provide thousands more through at least 2012. Most o these vehicles

have been purchased through the Foreign Military Sales (FMS) program, which is

administered by the DSCA. This audit, which is ocused on vehicles, will provide

insight into the overall ability o CSTC-A and the ANSF to account or and ensure

the maintenance o vehicles.

U.S. Assistance To Develop Aghanistans Capacity in theAgriculture SectorThe United States has invested $1.4 billion to develop Aghanistans agriculture

sector. To better ensure the long-term sustainability o U.S.-unded projects, U.S.

agencies have provided more than $100 million or capacity-building activities,

including increasing the capabilities o the Ministry o Agriculture, Irrigation, and

Livestock to better serve armers and promote private-sector development. This

audit has been rescoped to assess capacity-building eorts in the agriculture sector.

Costs and Sustainability o the U.S. Civilian Uplit in AghanistanThe U.S. strategy in Aghanistan relies, in part, on the U.S. governments ability

to deploy and sustain a civilian eort to build governance and support economicdevelopment across the country. DoS has authorized 1,223 civilians as o May 31,

2011. Conducted jointly with the DoS Ofce o Inspector General, this audit is a

ollow-on audit o the costs o implementing the civilian uplit, as well as sustain-

ing and supporting the civilian presence in Aghanistan.

USAIDs Financial Audit Coverage o Costs Incurred UnderContracts, Cooperative Agreements, and Grants orAghanistan ReconstructionAccording to USAIDs Ofce o Inspector General, USAIDs obligations or recon-

struction in Aghanistan totaled approximately $11.7 billion or FY 20022010.

USAID provided most o these unds to contractors and non-proft organiza-

tions through contracts, cooperative agreements, and grants. Financial audits

o costs incurred under these fnancial mechanisms provide valuable oversight

o appropriated unds by determining the appropriateness o direct and indirect

costs, as well as identiying weaknesses in internal controls and compliance with

applicable laws and regulations. This audit will assess USAIDs eorts to conduct

required fnancial audits o its awards.


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Implementation o the Aghan First Initiative or ContractingU.S. Forces - Aghanistan (USFOR-A) and the U.S. Embassy Kabul have adopted

an Aghan First approach to contracting to promote economic growth, capacity

development, and related counter-insurgency objectives by encouraging the use

o Aghan frms to meet U.S. requirements or supplies and services. This audit is

assessing the Aghan First Initiative.

Forensic AuditsPublic Law 110-181, as amended, requires that beore SIGAR is terminated, it

must prepare and submit to the appropriate congressional committees a fnal

orensic audit report on programs and operations unded with amounts appro-

priated or otherwise made available or the reconstruction o Aghanistan.

SIGAR is conducting orensic reviews o three major reconstruction undsthe Aghanistan Security Forces Fund (ASFF), which is managed by DoD;

the Economic Support Fund (ESF), which is managed by USAID; and the

International Narcotics Control and Law Enorcement (INCLE) account, which

is managed by DoSto identiy waste, raud, and abuse o taxpayer dollars.

Forensic Review o DoD Transaction Data Related toAghanistan ReconstructionIn March 2010, SIGAR initiated a review o DoD appropriation, obligation,

and expenditure transaction data related to the ASFF. Congress has appropri-

ated nearly $39.5 billionto the ASFF since the und was created in FY 2005.

Approximately $12.9 billion had been disbursed as o FY 2010.

Obtaining data to perorm testing has been a challenge because once DoDobligates ASFF unds, it transers a signifcant amount o these unds immedi-

ately to an FMS trust-und account to await disbursement.

As o June 28, 2011, the Deense Finance and Accounting Service (DFAS) had

provided SIGAR with fles covering approximately $5.8 billion in disbursements

processed through the FMS account. These fles allow only a limited orensic

review because they do not include a number o data felds. SIGAR is currently

trying to get inormation on the remaining data sets. Meanwhile, SIGARs oren-

sic team is scrubbing the available data sets to isolate unique vendor IDs and

create a master vendor list that will identiy vendors across all agencies. SIGAR

will use this list to perorm cross-agency orensic testing.

SIGAR has conducted a orensic review o $1.7 billion o direct ASFF-related

disbursements (non-FMS) rom USACE or FY 2005 through 2009. Tests were

perormed to isolate anomalies, such as duplicate payments and vendors on the

excluded party lists. SIGAR is awaiting direct access to the Corps o Engineers

Financial Management System (CEFMS) voucher database in order to review

these exceptions and source documentation.

FORENSIC AUDITS

Forensic Review o DoD TransactionData Related to Aghanistan

Reconstruction

Forensic Review o USAID TransactionData Related to Aghanistan

Reconstruction

Forensic Review o DoS TransactionData Related to Aghanistan

Reconstruction


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SIGAR OVERSIGHT

Forensic Review o USAID Transaction Data Related to

Aghanistan ReconstructionSIGAR has asked USAID or additional source documentation or exceptions

identifed during its initial review o more than 73,000 transactions amounting to

$7.4 billion in disbursements, rom 2002 through July 2010. Much o this docu-

mentation is housed in the feld, which accounts or the delay. SIGAR has also

obtained updated transaction data through March 2011. This data is being recon-

ciled with additional data eeds to veriy its accuracy and completeness. When

that task is complete, the orensic team will perorm another round o testing.

SIGAR is obtaining data updates on a quarterly basis and will perorm continu-

ous monitoring o USAID transactions.

Forensic Review o DoS Transaction Data Related toAghanistan ReconstructionIn June 2010, SIGAR launched its orensic review o transaction data related to

the INCLE account, which has been unded with $2.86 billion through March 31,

2011. On July 19, 2011, SIGAR received initial data sets totaling $2.4 billion in

disbursements rom FY 2002 through June 2011. SIGAR is reviewing and cleans-

ing the data and is initiating orensic analysis on the transactional detail.

INVESTIGATIONSDuring this reporting period, SIGAR opened 29 new cases and supported investi-

gations that resulted in the arrest o fve people, including a U.S. military reserve

ofcer who pled guilty to soliciting more than $1 million in bribes or reconstruc-

tion contracts and two U.S. citizens or conspiracy to possess and distributeheroin. SIGARs continued eort to assist Aghan law enorcement bodies con-

tributed to the arrest o two Aghan citizens. SIGAR also expanded its suspension

and debarment program, which seeks to make all contractorsU.S., Aghan, and

third-country nationalsmore accountable. Through this program, SIGAR aims

to prevent contractors who have been engaged in raud or perormed poorly

rom being awarded subsequent reconstruction contracts. This quarter, SIGAR

made six reerrals or suspension and debarments.

Ongoing CasesThis quarter, SIGAR opened 29 investigations and closed 15, bringing the total

number o ongoing cases to 89. Most o the new cases involve procurementraud and corruption, which are SIGARs top investigative priorities. O the new

cases, 14 are investigations o procurement raud, and 10 are o allegations o

corruption and bribery. The other fve cases concern thet o government prop-

erty, suspension and debarment matters and civil investigations. Figure 1.1 on

the ollowing page provides a breakdown o SIGARs ongoing cases by category.

This quarter, SIGAR closed 15 cases. Four resulted in legal action, either

through suspension and debarment, a pending arrest, or a pending equitable


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SIGAR OVERSIGHT

adjustment with the government. Six cases were ound to be unsubstantiated,

and fve cases were closed or lack o prosecutorial merit.

U.S. Military Reserve Ofcer Pleads Guilty to Bribery;Two Additional ArrestsIn June 2011, a U.S. military reserve ofcer pled guilty in ederal district court to

bribery related to reconstruction contracts and conspiracy to distribute heroin.

The ofcer, whose identity SIGAR is withholding to protect ongoing investiga-

tions, admitted to having received more than $400,000 in bribe money and being

owed an additional $1 million by contractors in Aghanistan or having pledged toinuence the award o reconstruction contracts valued at approximately

$23 million. The joint investigation was initiated by SIGAR and included mem-

bers o the International Contract Corruption Task Force (ICCTF), the Drug

Enorcement Administration (DEA), and the Department o Homeland Security

Immigration and Customs Enorcement (DHS-ICE). The investigation led to the

DEAs arrest o two other individuals on heroin-related charges and conspiracy to

trafc in narcotics, six days beore the ofcer pled guilty.

Federal authorities arrested the reserve ofcer in April 2011 in Virginia, as

he/she attempted to take possession o a $500,000 cash payment that the ofcer

believed to be part o the outstanding bribe money. In addition to bribery, ed-

eral authorities charged the ofcer with possession o heroin and conspiracy to

distribute it.

This investigation began in April 2010, when SIGAR received inormation that

a U.S. military reserve ofcer had received bribes in exchange or inuencing

the award o reconstruction contracts in 2008 and 2009. SIGAR also learned that

the reserve ofcer, who had already let Aghanistan, believed that he/she was

still owed a large sum o bribe money rom contractors. In collaboration with

other ICCTF members, SIGAR opened a criminal investigation and developed a

plan to engage the ofcer in a discussion about the outstanding bribes. During

2

4

10 20

52

Total: 89

Source: SIGAR Investigations Directorate, 7/1/2011.

1

SIGAR INVESTIGATIONS: ONGOING INVESTIGATIONS, AS OF JUNE 30, 2011

0 30 40 50

Procurement/Contract Fraud

Public Corruption/Bribery

Civil

Miscellaneous

Thet

Assessments

2

28

FIGURE 1.1


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SIGAR OVERSIGHT

the summer and all o 2010, SIGAR established an e-mail relationship with the

reserve ofcer, who wrote that he/she was still due money or steering contracts

to certain contractors.

SIGAR agents, in concert with ICCTF member agencies, orchestrated several

meetings with the reserve ofcer during the latter hal o 2010 and early monthso 2011. During these meetings, which were electronically monitored, the reserve

ofcer explained how he/she had inuenced the contracting process, identifed

specifc contractors and the contracts involved, and provided detailed inorma-

tion on the bribes that he/she had received and the amounts that were still owed.

In addition, the ofcer described how he/she transerred portions o the bribe

money rom Aghanistan to the United States. The reserve ofcer discussed hav-

ing an Aghan warlord help collect the outstanding bribe money that was owed

by Aghan contractors.

During the meetings with undercover ederal agents, the reserve ofcer

expressed a desire to become involved in smuggling heroin rom Southwest Asia

to the United States. At this point, SIGAR invited the DEA to join the investiga-

tion. Subsequently, the reserve ofcer introduced a SIGAR cooperating source to

heroin dealers who were interested in purchasing Southwest Asian heroin. The

DEA had prior knowledge o these individuals.

SIGAR Assists Aghan Authorities with Investigation and ArrestIn June 2011, a joint operation between members o the AghanShaafyat

(Transparency) Investigative Unit (ASIU), the ICCTF, and SIGAR resulted in

the arrest o an Aghan citizen who had demanded a $150,000 bribe rom a

A team o investigators in Kandahar prepares to arrest an Aghan contractor on bribery

charges in June. The arrests ollowed a joint investigation by SIGAR, other members o the

ICCTF, ANP investigators, and Aghan prosecutors. (SIGAR photo)


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SIGAR OVERSIGHT

contractor who provides support to USACE at Kabul International Airport. Thiscase is the frst joint investigation between U.S. law enorcement agencies and

the ASIU resulting in the arrest o an Aghan citizen. The case generated signif-

cant interest at the highest levels o both the U.S. military and Aghan leadership.

The investigation began immediately ater the ICCTF received a complaint

that Mohammad Idress Qasimi, who worked as an interpreter, had demanded a

bribe rom a U.S.-unded contractor. Through their established contacts with the

ASIU, SIGAR agents elicited the support o the Aghan Attorney Generals Ofce

to conduct a joint investigation. Under the direction o Deputy Attorney General

Dr. Rahmatullah Nazari, two ASIU investigating prosecutors helped coordinate

the investigation. SIGAR provided $20,000 to be paid to Qasimi as a down pay-

ment on the bribe. The Aghan authorities arrested Qasimi immediately ater he

accepted the money, and the Aghan National Police (ANP) o Police District 10

took him into custody. SIGAR and ICCTF agents observed the arrest and subse-

quent processing o Qasimi by the ANP. The $20,000 was returned to SIGAR.

Aghan Contractor Oering Bribes ArrestedIn June 2011, a joint operation between SIGAR and members o the ICCTF in

cooperation with the ANP Criminal Investigative Division (CID) and Aghan pros-

ecutors in Kandahar led to the arrest o an Aghan contractor who had on two

SIGAR investigators participate in the arrest in June o an Aghan citizen or allegedly demand-

ing a bribe rom a U.S.-unded reconstruction contractor. This was the frst arrest o an Aghan

based on the collaboration o U.S. law enorcement agencies and the Aghan Shaafyat

Investigative Unit. (SIGAR photo)


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SIGAR OVERSIGHT

that is responsible or the contract. SIGAR plans to integrate inormation rom

other criminal investigative agencies into this program. With signifcant assis-tance rom the U.S. Armys Major Procurement Fraud Unit and Task Force 2010,

SIGAR has made progress in developing a more coordinated approach to suspen-

sion and debarment. As a result o this eort, SIGAR reerred six individuals to

the Department o the Army or proposed debarment during this quarter. As o

June 30, 2011, SIGAR recommendations have resulted in 3 debarments. In addi-

tion, SIGAR has submitted 32 reerrals, including the 6 made during this quarter,

or the debarments o individuals and contractors.

SIGAR Augments Investigative Sta in AghanistanThis quarter SIGAR added two Foreign Service National Investigator positions to

the Investigative Directorate in Kabul. These investigators were vetted throughthe U.S. Embassy Regional Security Ofce and meet stringent security and

background criteria. They bring the linguistic and cultural expertise needed to

substantially bolster SIGARs ability to interact with Aghan government ofcials

and Aghan citizens. Both o the individuals recruited by SIGAR have several

years o experience working with U.S. law enorcement and military components

in Aghanistan.

The two investigators will work directly with SIGAR special agents in the

feld, conducting interviews, gathering evidence, and reviewing documents.

They will travel between the SIGAR duty locations throughout Aghanistan to

assist SIGAR agents in conducting case work, gathering inormation and devel-

oping intelligence, and holding raud awareness programs with the Provincial

Reconstruction Teams.

SIGAR Hotline and Complaints Management SystemThis quarter, the SIGAR Hotline received 71 complaints. O these, SIGAR has

reerred 6 or urther investigation by its own agents, reerred 6 to other agen-

cies, is reviewing 14, is evaluating 16, and has closed 29. SIGAR investigators

have 30 days to evaluate complaints and decide whether they merit urther

review and reerral. The SIGAR Hotline has received 637 complaints since 2009.

SIGAR BUDGETFrom 2008, when SIGAR was established, through FY 2011, the Congress has

appropriated $71.6 million to cover the organizations operating expenses.SIGARs FY 2012 budget request o $44.4 million will enable the organization to

hire the auditors and investigators needed to provide oversight o a U.S. recon-

struction eort that under President Obamas FY 2012 budget request would

expand by an additional $17.3 billion.


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SIGAR OVERSIGHT

SIGAR STAFFSIGARs sta consists o 121 ederal employees. Because o the signifcant

increases in reconstruction unding in FY 2011 and FY 2012, SIGAR plans to build

its sta to a total o 180 ull-time employees in FY 2012.

SIGARs agreements with the U.S. Embassy Kabul and USFOR-A allow it to

station 33 personnel at the Embassy and 12 at military bases in the feld. SIGAR

auditors and investigators are now working at several locations in Aghanistan.

SIGAR also employs two oreign service nationals in its Kabul ofce. In addition,

SIGAR supports its work with sta assigned to short-term temporary duty in

Aghanistan.

Acting Special Inspector General Herbert Richardson swears in new SIGAR auditors and

investigators in June. This quarter, reconstruction unding increased, and SIGAR continued to

build its capacity to detect waste, raud, and abuse in the use o those unds. (SIGAR photo)


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Training the Police

U.S. Army mentors examine a PKM machine gun during

weapons training or the Aghan National Police at the Joint

Regional ANP Center in Kandahar on June 6. U.S. Army

specialists are attached to the regional logistics center to

oversee the progress o police training. (U.S. Air Force photo,

SSGT Stephen D. Schester)


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2AFGHANISTANOVERVIEW


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AFGHANISTAN OVERVIEW

We will not police [Aghanistans]

streets or patrol its mountains

indefnitely. That is the responsibility othe Aghan government .What we can

do, and will do, is build a partnership

with the Aghan people that endures

one that ensures that we will be able

to continue targeting terrorists

and supporting a sovereign

Aghan government.

U.S. President Barack Obama

Source: U.S. President Barack Obama, Remarks by the President on the Way Forward in Aghanistan, 6/22/2011.


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This quarter, SIGAR noted a number o developments that will aect the recon-

struction program in Aghanistan. Most important, the United States and its

international partners began transitioning responsibility or security to the

Aghan National Security Forces (ANSF). President Barack Obama announcedthat the United States would begin withdrawing troops, and the Aghan govern-

ment took the lead on security in seven areas o the country.

Several other developments also will inuence reconstruction:

A new U.S. Ambassador and U.S. orce commander arrived in Kabul.

The House o Representatives passed its version o the fscal year (FY) 2012

National Deense Appropriations Act, which would provide nearly $14 billion

or Department o Deense (DoD) reconstruction programs.

The Senate Committee on Foreign Relations issued a report on U.S. oreign

assistance to Aghanistan.

The Congress held several hearings on Aghanistan.

The Department o State (DoS) provided the certifcations necessary to obli-

gateDoSin reconstruction unds.

SECURITY TRANSITION BEGINSOn June 22, 2011, President Obama announced that the United States would

remove 10,000 troops rom Aghanistan by the end o 2011 and 23,000 more by

summer 2012. These troops account or the military surge that started in 2009.

The President said the United States is able to begin this reduction in orces

because o the progress it has made to deeat al-Qaeda, reverse the momentum

o the Taliban, and train Aghan security orces to deend their own country.

At the end o July, the United States began this withdrawal with a ew hundred

troops rom relatively stable areas in and around Kabul. At the same time, the

ANSF assumed primary responsibility or security in seven areas, including theprovinces o Panjshir and Bamyan, and most o the province o Kabul. The ANSF

is taking the lead in providing security or our cities: Herat, Mazar-e Shari,

Mehtar Lam, and Lashkar Gah. U.S. ofcials estimate that about 25% o the

Aghan population lives in the seven areas.1

The President described the drawdown as just the beginning o the transition

process and stressed the importance o maintaining the gains that had been made

through the surge. The President noted that because a political settlement is

necessary to achieve peace in Aghanistan, the United States would support peace


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and reconciliation initiatives that included members o the Taliban who agree to

break with al-Qaeda, abandon violence, and abide by the Aghan constitution.

The NATO-led International Security Assistance Force (ISAF) and the Aghan

Transition Coordination Commission have established a two-stage planning

process to guide the transition. During the frst stage, ofcials assess the condi-

tions on the ground in areas identifed or transition; in the second stage, they

develop the steps required to complete the transition. The evaluati

Documents

SIGAR Quarterly Report to Congress July 2011