Audit of Blackwater Iraq Contract Finds Improper Charges, Weak Enforcement

The State Department failed to punish Blackwater (now known as Xe) for significant violations of its Iraq security contract. This and other shortcomings were detailed in a joint audit report released Monday by the State Department Inspector General and the Special Inspector General for Iraq Reconstruction (SIGIR).

The audit found that, between May 2006 and December 2007, Blackwater's staffing levels fell below those specified in its contract to provide security to State Department employees in Iraq, otherwise known as the Worldwide Personal Protective Services II (WPPS II) contract. Pursuant to the contract, which has cost the government over $1 billion, such violations should have resulted in nearly $55 million in penalties to Blackwater.

According to the report, Blackwater's understaffing was evident on muster sheets, yet the State Department “did not invoke...the contract measure providing for deductions in the award price when proper manning levels are not maintained.” An unidentified contracting officer told the auditors that Blackwater wasn't penalized because the company was “meeting the service requirements, meaning that the convoys were showing up when required.” In other words, no harm, no foul. (When it comes to rationalizing Blackwater's missteps in Iraq, POGO has heard variations of this excuse before. One particular favorite is that Blackwater has a perfect record guarding State Department personnel in Iraq--not a single client has been lost. This ignores the company's less-than-perfect record of injuring or killing bystanders in public shootouts and that its reckless behavior may put the lives of U.S. troops at risk.)

In addition, the audit found that the State Department did not adequately verify charges made by the company under the contract, increasing the risk of fraud, waste and abuse. For example, Blackwater billed the government more than $127,000 for premium airfare costs, which were not allowed under the contract. The State Department paid these costs, however, because it “did not have adequate voucher review staff to identify and prevent overbillings.” (The report notes that, during the audit period, the government was able to recover over $56,000 of these ineligible costs.) Also, the report concluded that the State Department and Blackwater did a poor job of keeping an inventory of government-furnished equipment, with items such as handheld radios and body armor either lost or mislabeled. “While no significant losses were identified during the audit,” the report states, “the potential exists for significant losses.”

The report recommends that the State Department should attempt to retroactively assess penalties on Blackwater (whether this is legally possible, however, is another story), recover the remaining $70,000 of the unallowed travel costs, make sure its contract oversight files contain all the required paperwork and are more accessible, and deploy a full-time contracting officer's representative to Iraq to properly verify invoices and property inventories.

In a sense, these recommendations come too late. With the expiration of the WPPS II contract in May and the Iraqi government refusing to renew its license to operate in the country, Blackwater is winding down its Iraq operations. (A lawsuit filed recently, however, claims the company is illegally remaining in Iraq through corporate name games.) But the overall lessons of the report still matter. Blackwater remains one of the government's main providers of security services, and it is steadily building up its presence in Afghanistan where it continues to make headlines.