June 14, 2007 / 11:55 PM / in 12 years

U.N. watchdog urges proper monitoring of Iraq oil

WASHINGTON (Reuters) - An audit of Iraq’s oil revenues has found that a system to track extraction, production and sale of the oil lacks proper controls that has led to the mismanagement of funds, according to a U.N. watchdog agency.

A draft audit report prepared by Ernst & Young for the International Advisory and Monitoring Board, or IAMB, covering oil exports sales and revenues for 2006, said previously expressed concerns over the lack of monitoring and financial management of Iraqi oil had not been addressed.

“The audits also noted large unreconciled differences regarding oil extraction, production and reported export sales because there is no overall comprehensive system of controls over oil revenues,” the IAMB said in a release posted on its Web site www.iamb.info.

“A system of metering, as recommended earlier by the IAMB, would go a long way in improving overall control,” it added.

Oil is the country’s main source of hard currency needed to rebuild after years of war. The energy sector is struggling to recover from years of mismanagement and U.N. sanctions that were lifted after the U.S.-led 2003 invasion.

“While the current situation in Iraq is challenging, it is worrisome that insufficient progress has been made in addressing the weaknesses revealed in earlier audit reports,” the IAMB said.

It also said the audit raised lingering concerns about the management of contracts of U.S. agencies in Iraq.

The IAMB was created by the U.N. Security Council in 2003 to watch over the stewardship of Iraq’s natural resources while Baghdad was under U.S. administration. The Iraqi government has allowed it to continue its work to reassure the international community it is managing its vast oil reserves wisely and for the benefit of Iraqis.

The IAMB includes representatives from the United Nations, the Arab Fund for Economic and Social Development, the World Bank and International Monetary Fund.

Under a system established for Iraq in 2003, the proceeds of all Iraqi oil sales pass through the Development Fund for Iraq.

The IAMB said other audit reports, including those of the U.S. Government Accountability Office and U.S. Special Inspector General for Iraq Reconstruction had also pointed to the lack of control over Iraq’s oil.

“It is imperative that progress be made to continue the path toward sound financial governance to mitigate the current vulnerabilities to mismanagement and diversion of funds,” it said.

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