October 23, 2007

By ERIC SCHMITT and DAVID ROHDE

NYT

WASHINGTON, Oct. 22 — A pair of new reports have delivered sharply critical judgments about the State Department’s performance in overseeing work done by the private companies that the government relies on increasingly in Iraq and Afghanistan to carry out delicate security work and other missions.

A State Department review of its own security practices in Iraq assails the department for poor coordination, communication, oversight and accountability involving armed security companies like Blackwater USA, according to people who have been briefed on the report. In addition to Blackwater, the State Department’s two other security contractors in Iraq are DynCorp International and Triple Canopy.

At the same time, a government audit expected to be released Tuesday says that records documenting the work of DynCorp, the State Department’s largest contractor, are in such disarray that the department cannot say “specifically what it received” for most of the $1.2 billion it has paid the company since 2004 to train the police officers in Iraq.

The review of security practices was ordered last month by Secretary of State Condoleezza Rice, and it did not address the Sept. 16 shooting involving Blackwater guards, which Iraqi investigators said killed 17 Iraqis. The Federal Bureau of Investigation is leading a separate inquiry into that episode.

But in presenting its recommendations to Ms. Rice in a 45-minute briefing on Monday, the four-member panel found serious fault with virtually every aspect of the department’s security practices, especially in and around Baghdad, where Blackwater has responsibility.

The panel’s recommendations include creating a special coordination center to monitor and control the movement of armed convoys through areas under the command of the American military, which has long complained that contractors operate independently in the field.

The report also urged the department to work with the Pentagon to develop a strict set of rules on how to deal with the families of Iraqi civilians who are killed or wounded by armed contractors, and to improve coordination between American contractors and security guards employed by agencies, like various Iraqi ministries.

“They don’t have the right communications, they don’t have the right procedures in place, and you’ve got people operating on their own,” said one official who has been briefed on the report but who spoke on the condition of anonymity because it has not been released yet. “This is not up to the degree it should be.”

Sean McCormack, a State Department spokesman, said Ms. Rice would closely examine the report’s findings and recommendations and consult with Defense Secretary Robert M. Gates on what steps to take.

Mr. Gates, who is traveling overseas this week, is pressing for the nearly 10,000 armed security contractors now working for the United States government in Iraq to fall under a single authority, most likely the American military, in an effort to bring the contractors under tighter control.

State Department officials say they have already tightened controls over Blackwater by sending State Department personnel as monitors on Blackwater convoys in and around Baghdad, and by mounting video cameras on Blackwater vehicles.

The panel was led by Patrick F. Kennedy, the State Department’s director of management policy. The other members were Eric J. Boswell, a former diplomat and intelligence office and a former head of the bureau of diplomatic security; J. Stapleton Roy, a former ambassador to China and Indonesia; and George Joulwan, a retired four-star Army general.

While the panel’s review focused on work overseen by the Bureau of Diplomatic Security at the State Department, the second report, focusing on DynCorp, was an audit carried out by the Special Inspector General for Iraq Reconstruction, and it focused on another department office, the Bureau of International Narcotics and Law Enforcement Affairs.

The audit said that until earlier this year the State Department had only two government employees in Iraq overseeing as many as 700 DynCorp employees. The result was “an environment vulnerable to waste and fraud,” the audit said.

Stuart W. Bowen Jr., the chief of the Office of the Special Inspector General for Iraq Reconstruction, said in an interview that while the department had made “significant strides” in scrutinizing payments to DynCorp in the past year, the police training contract “appears to me to be the weakest-staffed, most poorly overseen large-scale program in Iraq.”

He added that “when you put two people on the ground to manage a billion dollars, that’s pretty weak.”

The contract gave DynCorp the job of building police training facilities and deploying hundreds of police trainers to instruct a new Iraqi police force.

Developing a police force was considered central to stabilizing Iraq, but the effort, led first by the State Department and then by the Defense Department, has been criticized by administration opponents as well as by the bipartisan commission on the war led by James A. Baker III and Lee H. Hamilton.

The State Department said it had improved monitoring of DynCorp, but in a letter to auditors department officials said that it would still take “three to five years” to reconcile fully the payments made to the company during the first two years of the training contract, beginning in February 2004.

As a sign of the confusion, the State Department reported to auditors that as part of its work in Iraq, DynCorp had purchased a $1.8 million X-ray scanner that was never used and spent $387,000 to house company officials in hotels rather than in existing living facilities.

Then, later, the State Department said those costs were actually incurred in Afghanistan, according to the audit. State Department officials say they have always said the spending occurred in Afghanistan.

Senator Joseph I. Lieberman of Connecticut said the special inspector general has shown, once again, “how vulnerable the federal government is to waste when it doesn’t invest up front in proper contract oversight.” He said that, “This scenario is far too frequent across the federal government: we spend billions of dollars for goods and services with no oversight plans in place and hope and pray that an audit will identify any mistakes later.”

Thomas A. Schweich, the acting director of the bureau, said it had increased staffing in October 2006 and had thoroughly checked all DynCorp invoices since then. He said a detailed review of all DynCorp spending was under way. “We put more people in place,” Mr. Schweich said, referring to three additional staff members sent to Iraq to oversee DynCorp. “We have put together a team of 11 people to review historical invoices.”

A review of DynCorp’s spending over the past year identified $29 million in overcharges by DynCorp, including $108,000 in business travel, according to a State Department letter in response to Mr. Bowen’s auditors. A separate review by the Defense Contracting Audit Agency found that DynCorp had billed for $162,869 of labor hours “for which it did not pay its workers.”

Gregory Lagana, a DynCorp spokesman, said the amounts involved were small fractions of the $1.2 billion paid to DynCorp since 2004. He said that if DynCorp filed an erroneous charge the company would reimburse it, adding that DynCorp had already reimbursed the State Department for $72,000.

“There was no intentional misbilling,” Mr. Lagana said. “It could be just a documents problem.” He said that the company initially struggled with some record-keeping, but that it had informed the government whenever it found errors. “We fully acknowledge that we have some problems with invoicing,” he said. “It’s something we’re working really hard to clean up.”

In a letter to Ms. Rice on Monday, Representative Henry A. Waxman of California, the Democratic chairman of the House Oversight and Government Reform Committee, accused the department of failing to respond to a request the committee made in March for DynCorp-related documents. Mr. Waxman, whose committee is investigating the department’s oversight of both DynCorp and Blackwater, demanded that the department send him the records by Nov. 2.

“The police training program is a critical component of the administration’s efforts to bring stability to Iraq,” Mr. Waxman wrote. “It is a matter of serious concern that this critical initiative appears to have been so poorly managed.”

Officials and auditors said the law enforcement bureau that handled the DynCorp contracts was overwhelmed when large police training programs were begun in Afghanistan and Iraq.

A senior State Department official said the law enforcement office was not equipped to handle such large contracts. “You have a perfect storm of bad events,” said the official, who requested anonymity because he was not authorized to comment publicly. “You have huge amounts of money passing through an organization that is being retooled as it’s running the race of its life.”

John M. Broder contributed reporting.

Tue Oct 23, 2007 12:01am EDT

By David Morgan

WASHINGTON, Oct 23 (Reuters) - The State Department does not know specifically what it received for a billion-dollar contract with security firm DynCorp International to provide training services for Iraqi police, a U.S. watchdog agency said on Tuesday.

The Office of the Special Inspector General for Iraq Reconstruction (SIGIR) said it was forced to suspend its audit of the DynCorp contract after administration officials told investigators they had no confidence in their own accounting records.

The inspector general said the agency had not validated the accuracy of invoices received before October 2006 and described bills and supporting documents as being in disarray.

Among the problems identified before the audit was suspended were duplicate payments, the purchase of a never-used $1.8 million X-ray scanner and payments of $387,000 to house DynCorp officials in hotels rather than other available accommodation.

The inspector general blamed the problems on long-standing contract administration problems at the State Department agency responsible for the contract -- the Bureau of International Narcotics and Law Enforcement Affairs, or INL.

"As a result, 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. INL's prior lack of controls created an environment vulnerable to waste and fraud," SIGIR said in an interim review.

The report coincides with a controversy over the use of private security firms in Iraq, particularly Blackwater USA, which is under scrutiny over a Sept. 16 shooting incident in Baghdad in which 17 people were killed.

The Pentagon employs at least 7,300 security contractors in Iraq and the State Department thousands more. U.S. officials say they are needed to free up soldiers for other tasks.

POLICE TRAINING

INL agreed with the inspector general's overall findings and has taken steps to address the problems, the report said. The inspector general hopes to resume its audit before January, once corrective action has been taken.

But officials told the inspector general that it could take three to five years to review and reconcile all invoices and validate all property records.

DynCorp spokesman Gregory Lagana said the contract dealt with a complex program set up quickly in the aftermath of the U.S. invasion of Iraq. But he said both the State Department and DynCorp had made improvements in its administration.

The State Department agency awarded the contract to DynCorp in February 2004. The agreement covers housing, food, security, facilities, training support systems and law enforcement specialists for Iraqi civilian police training.

INL had agreed to pay DynCorp a total of $1.34 billion for police training services in Iraq, as of Aug. 23, 2007. Actual expenditures stood at $1.22 billion.

The report said DynCorp did not provide data to support travel and housing charges, while documents to support other expenses were presented in "an unmanageable format."

DynCorp gave the law enforcement agency a $108,000 check after officials sought a review of invoices and documents related to business travel expenses, the report said.

Lagana said DynCorp proposed housing senior executives in hotels partly for security reasons and that the proposal had been accepted by the government. He described other shortcomings as "human errors" for which the company routinely reimburses the State Department.

# Story Highlights
# Sources: Command center in war zones would help coordinate contractors
# The panel was not charged at looking specifically at Blackwater USA
# Rice said the panel's determinations are "a very good step forward"
# Rep. Henry Waxman questions whether Blackwater evaded paying taxes

WASHINGTON (CNN) -- A panel recommended to the State Department that the U.S. create a "central command center" to improve coordination among agencies using private security contractors in war zones, senior State Department officials and others familiar with the review told CNN Monday.

The panel also recommended a thorough examination of the rules of engagement, especially when using deadly force, the sources said.

Led by Assistant Secretary of State Patrick Kennedy, the panel briefed Secretary of State Condoleezza Rice Monday on its recommendations. Other members include retired Gen. George Joulwan, Ambassador Stapleton Roy and Ambassador Eric Boswell.

Rice said the recommendations "point a very good way forward, and I intend to act on them expeditiously."

The panel did not focus on the September 16 incident in which Blackwater USA guards are accused of opening fire in Nusoor Square, an incident Iraqi authorities say killed 17 civilians. The Iraqi government has called Blackwater's actions "premeditated murder" and has called for the company to leave Iraq.

Blackwater officials have insisted the guards fired only after they were shot at following a nearby bombing.

Following the incident, Rice instructed Kennedy to undertake a complete review of the use of contractors in Iraq. Kennedy immediately proposed initial steps to improve contractor accountability, including more electronic surveillance in convoys and more government-employed diplomatic security guards working alongside contractors, which Rice promptly implemented.

The State Department and the FBI are conducting their own investigations into the shootings and a joint U.S.-Iraqi commission is reviewing the results of both probes.

The panel reporting to the State Department was charged with examining the larger issues of management, rules of engagement, oversight and legal authority over private security contractors.

Those familiar with the review said members found a lack of coordination and communication between U.S. diplomats and military officials and little oversight over private security contractors.

"We are looking for a unity of effort," one person familiar with the recommendations told CNN. "You need to create a system where you know in a war zone who is traveling through the battle space, what time you are going through what checkpoints, when they are getting where."

Defense Secretary Robert Gates has called for unified control of the use of contractors. The sources said it was possible that the military could take on that role, but it was unclear what Gates and Rice would decide when they sit down later this week.

"Your mission may be to get someone from point A to point B safely, but you have to judge if your actions have an impact on the larger mission," a source said. "What sort of risk are you willing to take? Look at what risks soldiers take. If you are not in imminent danger, you don't unload your weapon."

The panel also found a gap in accountability of contractors because of a provision put into place in the early days of the U.S.-led occupation of Iraq, which gave security contractors immunity from Iraqi law. Earlier this month, the House overwhelmingly voted to place private contractors overseas firmly under U.S. law, allowing American courts to prosecute crimes committed in a war zone.

The recommendations in the review would apply to management of all private security contractors in Iraq, including the U.S. embassy, U.S. military and others. The panel agreed with the assessment of diplomatic security officials who argued contractors would be needed to provide security for U.S. officials in Iraq for some time to come.

"Blackwater is one of three contractors being used by the U.S. and one of ten to fifteen being used in country by the U.S., the U.N. and others," one person familiar with the recommendations said. "The military can't do it all alone. You are going to be living with this for some time and so you need to have rules, regulations and a methodology."

The panel recommended Rice coordinate the next steps with the Pentagon and act with "a sense of urgency -- within days or weeks," the source said.

Rice said she may implement some of the recommendations specific to the State Department immediately, before sitting down with Gates.

Meanwhile on Monday, a congressional committee investigating Blackwater's performance questioned whether the North Carolina-based firm may have evaded paying millions of dollars in taxes.

By classifying its workers in Iraq as "independent contractors" rather than as "employees," Blackwater appears to have engaged in an "illegal tax scheme" that avoided an estimated $31 million in employment-related taxes in the last year of its contract alone, said Democratic Rep. Henry Waxman of California.

Waxman, the chairman of the House Oversight and Government Reform Committee, also accused the company of preventing a guard who discovered the practice "from contacting members of Congress or law enforcement officials."

"It is deplorable that a company that depends on federal tax dollars for over 90 percent of its business would even contemplate forbidding an employee to report corporate wrongdoing to Congress and federal law enforcement officials," Waxman wrote in a letter to Blackwater founder and CEO Erik Prince.

Blackwater denied the allegations in a statement issued Monday, telling reporters, "The chairman's contention is incorrect. The United States Government has always been aware of Blackwater's relationship with its deployed personnel."

Waxman's committee has been looking into the use of private security contractors in Iraq and has held Blackwater -- which has won more than $1 billion worth of government contracts since 2001 -- up to particular scrutiny.

Waxman asked Blackwater to provide his Committee with documents related to Monday's inquiry by November 19.

The latest allegations stem from a March 2007 letter from the Internal Revenue Service to Blackwater obtained by Waxman's committee. The letter informs Blackwater that the IRS reviewed the case of one single Blackwater worker in Afghanistan and determined that the individual should rightfully and legally be classified as an employee -- not an independent contractor -- for tax purposes.

That would require the company to pay Social Security and Medicare taxes and unemployment insurance premiums for its employees. The letter finds the ruling "may be applicable to any other individuals engaged by the firm under similar circumstances."

But Blackwater said the company has appealed the ruling, and "no final determination by the IRS has been made." An IRS official assigned to the case told CNN he was not authorized to talk to the media, and his manager did not immediately respond to CNN's request for information on the status of Blackwater's case.

In addition, Blackwater spokeswoman Anne Tyrrell said the security contractor who protested his employment status to the IRS was "a problem employee" who had similarly sought money from a previous employer. Tyrrell said the situation is "very easily explained, but I'm not at liberty to discuss it."

Blackwater and the former guard signed a settlement and confidentiality agreement in June, a copy of which was released by the Congressional committee. According to the document, both parties agreed not to contact any politician, public official, or Blackwater client about the issue.

And Blackwater said the Small Business Administration does not consider Blackwater's guards to be employees under its definitions. That finding stems from a small business contract awarded to Blackwater by the Navy, which was contested by other companies bidding for the contract.

But SBA spokeswoman Christine Mangi told CNN the agency's findings, "To the best of our knowledge ... carry no legal weight outside of our programs."
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Waxman said, "The SBA doesn't determine the tax status for Blackwater or any other taxpayer.

"It's a question for the IRS and, in this case, common sense," he said. "The IRS and common sense both tell us Blackwater shouldn't evade its responsibilities by wrongly designating their employees as independent contractors."

Hired gunmen protect VIPs in Afghanistan

PAUL KORING, Globe and Mail

Canada's diplomats in Kabul and visiting high-value targets like Prime Minister Stephen Harper are protected by a group of heavily armed gunmen hired by Saladin Security, a British firm with a long history of secretive and clandestine operations.

Department of Foreign Affairs officials in Ottawa are tight-lipped about the deal struck with Saladin, whose gun-toting employees provide perimeter security, operate checkpoints, serve as bodyguards and form a heavily armed rapid-reaction force designed to move quickly to thwart an attempted kidnapping and rescue survivors of suicide attacks or car-bombings in Kabul.

The department won't even confirm that Saladin's most recent contract - which ended in June of 2007 - has been renewed, but observers of the Canadian embassy in Kabul say Saladin employees remain on guard. Some Saladin guards, in baseball caps and paramilitary uniforms, openly patrol the road outside the Canadian diplomatic compound in Kabul.

But details of the extent of Canada's reliance on a private firm for diplomatic protection are even more scant than the now-controversial U.S. deal with Blackwater Security, the American firm whose hired gunmen killed 17 Iraqi civilians last month while protecting a diplomatic convoy.

In Kabul, as in Baghdad, senior government officials have voiced outrage over the cavalier, trigger-happy swagger of some outside security firms.

Iraq's government wants Blackwater kicked out of the country. In Kabul, the government of Prime Minister Hamid Karzai has accused gunmen hired by several private security firms of robbery and murder.

Two firms - Watan and Caps - were shut down after raids by Kabul police uncovered illegal weapons. Some Western firms are apparently on a list of 10 other security companies that may be closed or forced to cease operations in Afghanistan. Saladin, which operates worldwide, has not been publicly implicated in any of the alleged excesses or crimes attributed to private security firms in Afghanistan.
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