£20m 'hole' in Iraqi funds held by US-led authority

The US-controlled administration in Baghdad has failed to account for more than £20m of the country's money as it hands over power to an Iraqi government, a report says. The money - oil revenues and international funds frozen during Saddam Hussein's regime - had passed into the coffers of the Coalition Provisional Authority (CPA) before disappearing, according to the report.

Although a belated audit is being done, its results, expected to be critical of the CPA, are not due until the middle of July, two weeks after the organisation ceases to exist. The $18.5bn in aid authorised by the US Congress is the subject of no less than four separate audits.

The report, by the charity Christian Aid, accused Washington of breaching the United Nations resolution which handed the Iraqi funds to the CPA. Resolution 1483 of May 2003 stated that the spending of the money, by the CPA-controlled Development Fund for Iraq (DFI), should be independently audited. But an auditor was not appointed until April this year, so the result cannot come out until after the handover.

Diplomatic sources said the audit showed that vast sums have been lost due to incompetence, theft and corruption. Huge contracts were given out to Western - overwhelmingly American - companies, some charging almost 10 times the price of local ones. Iraqi companies began to receive contracts only two months ago, and then only for projects of less than $500,000.

There also appears to be confusion over earnings from Iraqi oil sales. CPA documents give different figures for the year to the end of May. One says $10bn, the other $11.5bn. A previous Christian Aid study into Iraqi funds, in October 2003, claimed $4bn has gone missing.

Nearly $2bn in contracts were given out in the run-up to the handover on 30 June, tying the new Iraqi government to the spending. The terms of most of the contracts make it economically unviable to cancel them.

Helen Collinson, the head of policy at Christian Aid, said: "'For the year the CPA has been in power in Iraq, it has been impossible to tell with accuracy what the CPA has been doing with Iraq's money.

"What has the coalition got to hide by not making such information available? Is it putting the cash to the best use for the people of Iraq? Or is it rewarding US companies with lucrative contracts? All this sets a bad precedent for the incoming Iraqi government."