WASHINGTON -- Pentagon auditors are warning the Army's primary support contractor in Iraq, responsible for everything from mail and laundry to housing and meals, to cut its workforce there or face nearly $200 million in penalties for keeping thousands too many on the payroll.
According to an internal Defense Department audit, Houston-based KBR Inc. has increased employee levels while U.S. troops steadily leave the country after more than six years of war. As a result, the U.S. government is paying far more in labor costs in Iraq than it should as military resources are shifted to Afghanistan.
"Each day that passes without taking action results in continued overstaffing and inefficiency," the report from the Defense Contract Audit Agency says.
The Oct. 26 audit, obtained by The Associated Press, opens a window into a behind-the-scenes battle over KBR's billing and management practices. The company provides crucial battlefield services under a $33.8 billion, 10-year deal signed in 2001.
There have been serious disagreements between KBR and defense auditors, who have challenged billions of dollars in charges as questionable. And KBR's critics, many of them Democrats on Capitol Hill, have accused the company of gouging the government during a time of war instead of being a responsible steward of public money.
The report from the audit agency, the military's first line against waste and fraud, also reveals a confrontational approach that a congressional oversight committee has said the agency uses too sparingly when dealing with contractors.
Last week, director April Stephenson was forced out of her job following unflattering reviews of the agency's performance. Stephenson, whose last day as director is this coming Friday, is scheduled to appear Monday at a hearing held by the independent Commission on Wartime Contracting on the management of contractors in Iraq and Afghanistan.
KBR officials reviewed the audit before it was finalized and their responses are included in the 26-page report. They disagree with many conclusions, saying the company has planned to cut employee levels in Iraq. But these efforts have been slowed while KBR waited for formal guidance from the military on the drawdown, they said.
KBR spokeswoman Heather Browne said the company is reviewing the final audit and is closely engaged in the military's drawdown planning. She said the company's work in Iraq "is being conducted in the ever-changing environment of a war-zone which brings its own daily challenges and priority tasks."
But KBR's planning consists of a series of "disjointed processes" and weak accounting procedures when a detailed, forward-looking strategy is needed for dealing with a drawdown that was announced nearly a year ago, the report says.
KBR had 17,034 employees in Iraq in January 2008, when there were about 160,000 American forces there to quell a growing insurgency, the audit says. Yet as of this Sept. 1, there were 17,095 KBR employees in Iraq even though troop levels had dropped to about 130,000, bases had closed and the services KBR provides were being scaled back.
The auditors say if KBR does not make the recommended changes or take even more aggressive steps, the agency will challenge future costs for the excess staff as being "unreasonable," which means the company may not be paid by the government.
Michael Thibault, co-chairman of the commission, said contractors have an obligation to reduce costs without being told to do so by the government.
"I would hope that the Army is going to be all over this," he said.
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