Financial Times, June 14, 2004

Washington DC - A Pentagon audit has found wide-spread deficiencies in the way Halliburton tracks billions of dollars of government contracts in Iraq and Kuwait, leading to "significant" overcharges. The findings have been bolstered by graphic accounts from former employees who have told a US congressman that the company's subcontractors charged 0 (?83, £55) to launder a 15-pound bag of clothing and abandoned ,000 trucks when they suffered flat tyres.

Critics say Halliburton, an oilfield services company formerly headed by Dick Cheney, the vice-president, has mismanaged more than bn of Iraq contracts. They will also raise further questions about the Pentagon's increased reliance on private contractors to handle services, from providing meals to fuel delivery.

Henry Waxman, a Democratic congressman, published the findings before a hearing on Tuesday in the House committee on government reform. Mr Waxman wrote on Monday to Tom Davis, the Republican committee chairman, that the whistleblower testimony and the findings of the Pentagon and congressional auditors "portray a company and a contracting environment that has run amok".

Mr Waxman also said the committee was neglecting its duty by not allowing the whistleblowers to testify, with the majority undecided whether they are credible. A spokesman for the committee said they were checking the whistleblowers' credibility. "We have never said 'no', just 'not yet'," he said, in reference to the possibility that they might testify before the committee.

Halliburton has been a lightning rod for critics of the Bush administration since it emerged in March 2003 that the politically connected company was awarded a contract worth up to bn to fight oil fires in Iraq without competition. The company's Kellogg Brown & Root division has billed the Pentagon .5bn under a separate logistics contract for work in Iraq and Kuwait.

The latest Pentagon audit, prepared in May, follows a January report that found "systemic deficiencies" in the way the company accounted for costs in Iraq that were passed on to the US government. The new report says the company failed to monitor subcontractors adequately. "The cost impact to the government is indeterminable; however, we consider the potential impact to be significant based on the size of KBR's operations," it concludes.

KBR said in written responses to the Pentagon audit that it was in the process of upgrading accounting procedures in Iraq. The company did not immediately respond to the whistleblowers.

Marie de Young, a Halliburton logistics specialist, told Mr Waxman's office she was discouraged by managers when she raised questions about the exorbitant prices for laundry and five-star hotels. Ms de Young was told, she said, that she was providing too much information to Pentagon auditors, and concluded that the corporate culture was one of "intimidation and fear".

James Warren, a former KBR truck driver, claims he was fired a few weeks after he called Randy Harl, the division's chief executive, to complain about widespread theft and the abandoning of trucks because of simple maintenance problems.

. . . According to a congressional investigation, Mr Cheney's top aide, Lewis Libby, was involved in high-level talks in October 2002 which led to the firm securing the contract. Although there is no evidence that Mr Cheney wielded any influence, the inquiry's findings appear to undermine claims that he had no prior knowledge of the contract. . .

. . . In another blow to its reputation, Halliburton confirmed at the weekend that the US securities and exchange commission is investigating claims that a consortium it was part of bribed Nigerian officials to win a contract to build a natural gas plant. . .

. . . Statements by the whistleblowers - FIVE of whom were identified - and the government's audit report "portray a company and a contracting environment that has run amok," Waxman wrote in a letter to Government Reform Committee Chairman Tom Davis, R-Va., on Monday. . .

. . . The 36-page report by the Defense Contract Audit Agency said that Halliburton subsidiary Kellogg, Brown and Root had a billing system that was "inadequate," had numerous deficiencies and billing misstatements and that KBR didn't follow laws and regulations relating to spending and recordkeeping. Its contracting practices are SO BAD, the auditors said, that KBR shouldn't be allowed to bill the Pentagon directly without the government poring over every detail in advance. . .