Auditors criticize Halliburton system

By T. Christian Miller
Los Angeles Times

WASHINGTON — Pentagon auditors have found that Halliburton Co. cannot properly document more than $1.8 billion worth of work done under its contracts in Iraq and Kuwait, Army officials said yesterday.

The latest setback for the Houston-based oil services company came in an audit by the Defense Contract Auditing Agency, which also found that the company's system for generating cost estimates used in negotiations with the government was "inadequate."

The agency recommended that government contracting officials demand fixes within 45 days and seek more detailed information during negotiations with Halliburton, which has contracts worth as much as $18.2 billion in Iraq to feed and house troops and restore the country's oil infrastructure.

Army contracting officials said they were studying the auditors' recommendations but had not decided how to proceed, leaving open the question of how the audit would affect the bottom line of Halliburton, which was run by Vice President Dick Cheney between 1995 and 2000.

"What the final outcome will be, I can't speculate. It's under review now," said Dan Carlson, a spokesman for the Army Field Support Command in Rock Island, Ill., which oversees Halliburton's largest contract in Iraq and Kuwait.

The cost-estimate system is used to come up with a price that the government agrees to pay Halliburton as it performs work in Iraq. Later, auditors try to reconcile the estimates with actual costs and determine whether the government has paid too much or too little.

It is important because the government does not want to pay too much to a contractor and have to seek reimbursement later. The audit found that Halliburton's estimating system suffered from "a lack of current, accurate and complete cost and pricing data."

Halliburton defended its system and said it disagreed with the results of the audit, which were first reported yesterday in the Wall Street Journal.

Company officials said they were working with the government to address issues raised in the report, including the inadequate accounting for work done under the so-called Logcap contract, which supplies logistics aid for U.S. troops.

The $1.8 billion amounts to about 42 percent of the $4.3 billion the company has billed to the U.S. government under the contract. In the past, the company has acknowledged that its work in a war zone has made paperwork difficult.

Halliburton said it did not expect its financial liquidity to be affected by concerns about the estimating system, or by the possibility that the government could withhold as much as 15 percent of payments because of problems with arriving at fixed prices within the contract.