"The bottom line is that State can't account for where it went," said Glenn D. Furbish, who was involved in putting together the 20-page report for the special inspector general for Iraq reconstruction (SIGIR).
The Department of State's Bureau for International Narcotics and Law Enforcement Affairs (INL) "did not have the information needed to identify what DynCorp provided under the contract or how funds were spent," the report said.
As a result, the audit agency announced it has suspended its oversight of the agency's project until INL gathers the information.
"Their records are just not detailed," Furbish said Monday in a telephone interview. "From an audit perspective, we've identified the problem; they're working to rectify the problem."
Though Iraqi police have indeed been trained and equipment has been provided under the contract, invoices and supporting paperwork submitted by DynCorp "were in disarray," the report said.
In addition, INL "had not validated the accuracy" of invoices received prior to last October, and "INL does not know specifically what it received for most of the $1.2 billion in expenditures under its DynCorp contract for the Iraqi Police Training Program."
The lack of controls "created an environment vulnerable to waste and fraud," the report said.
Furbish, an accountant by training who spent two years in Iraq, added, "It's like so much else that happened in Baghdad ... there was just a massive quantity of work and too few people in place to do it. They just essentially did not have the staff to monitor what was going on.
"Bills came in; they paid the bills, but they don't know what they paid for and they don't know what they've gotten."
Furbish, who has carried out audits for the Government Accountability Office for three decades, said the projected time line of three to five years to rectify the problem "is not atypical" for U.S. projects carried out in Iraq since the ouster of President Saddam Hussein.
"Baghdad is its own arena," he said. "Contract control has been a major shortcoming across the board."
In addition to having too few properly trained people, problems arose from the difficulties inherent in traveling within Iraq and from "the rush to get reconstruction activities under way before we actually had a full structure in place to manage them," he said.
Asked whether the full structure is currently in place more than four years after the U.S.-led invasion, he said. "It continues to be a problem."
In a letter to SIGIR, INL Acting Assistant Secretary Elizabeth Verville said her agency has made "significant progress in correcting past contract management problems" and "is dedicated to addressing our past contracting problems and systematically strengthening contract management and oversight."
She said invoice processing delays will be reduced as staffing is beefed up in Baghdad.
State Department spokeswoman Susan Pittman said a number of reforms have been made since January. "We are committed to continuous improvement," she said.
The Washington-based staff of four will soon be increased to 11, and the Baghdad-based staff of five will be augmented to seven "as soon as they all have their clearances," she said.
Still, she acknowledged, it will take years to get the paperwork current. "It isn't an easy process," she said.
"There is a huge need, a huge, urgent need and there were not enough people to be able to fill that void," she said. "That is something that we are in the process of doing."
Gregory Lagana, a spokesman for DynCorp, said the company's work in Iraq is a "really complex program. ... We buy weapons, body armor, vehicles, communications equipment -- that all belongs to the State Department."
Sometimes, he said, "it's coded wrong or double-billed. We actually find a lot of that ourselves in the normal auditing process."
Tuesday's report is the second in a series of financial reviews ordered by Congress and carried out by SIGIR looking into large Iraqi Relief and Reconstruction Fund projects.
The first report, issued three months ago, criticized officials with the U.S. Agency for International Development for lack of oversight of their contract with Bechtel. Bechtel is a privately held, U.S. conglomerate of engineering, construction, and project management companies.
The series of at least 10 reports will be finalized by spring, he said.