Oil revenue is estimated at 95 percent of Iraq's total annual income. The United States and Iraq have been criticized for lax oversight and transparency of the funds. Iraq's new government is improving but is slow in spending its entire capital budget.

The International Advisory and Monitoring Board, or IAMB, said the Iraqi Committee of Financial Experts, or COFE, had its work cut out for it. The notion was seconded by a newly released mid-year audit of Iraq's oil revenue transparency.

The United Nations established the IAMB to watchdog the Development Fund for Iraq, where all oil proceeds are deposited, as well as the leftovers of the Oil-for-Food program and other assets. Ninety-five percent of Iraq's oil revenue is deposited in the DFI, with 5 percent dedicated to compensation of victims of the 1991 Gulf War.

Two DFI accounts are kept at the Federal Reserve Bank of New York. One, of about $30 billion, is untouched in order to buoy the Iraqi dinar's value. The other is where all of Iraq's government expenditures are drawn from.

"COFE is already meeting regularly, considers the audit reports and has embarked on a comprehensive follow-up of earlier recommendations together with the (Iraqi Board of Supreme Audit)," the IAMB said in the statement. "The IAMB's mandate is due to expire at the end of 2008. The IAMB believes that COFE is ready to assume the oversight responsibilities for the DFI."

The statement added it will request that any extension of the U.N. mandate, set to expire Dec. 31, include a shift of responsibility from the IAMB to COFE. The mandate has been extended for two years in a row, but is part of a larger debate over a Status of Forces Agreement with the United States, a bilateral security pact that has hit a rocky patch with Iraqi politicians.

The IAMB has worked with the BSA and other Iraqi government officials to implement recommendations issued by IAMB and COFE. In its statement, IAMB said it "remained concerned at the relatively slow implementation rate and the length of time taken to address earlier audit findings."

This includes questions over oil funds and a lack of communication from the ministries of oil and finance, as well as lax inventory of oil revenue earned and collected by the Kurdistan Regional Government.

"The IAMB urges the BSA, in conjunction with the COFE, to continue the strong focus on strengthening the system of internal controls and coordinate and actively monitor and follow up progress by the government of Iraq to timely monitor and resolve the control weaknesses and build up the necessary capacity," the IAMB said.

The British-based auditors KPMG issued a scathing interim review of Iraq's oil revenue transparency from January through June 2008. A final draft will encompass the entire year and will be released next year.

The audit said Iraqi and U.S. officials tasked with ensuring accounting and transparency of the oil revenues have:

- only partially implemented a master plan for oil metering throughout the value chain of the national oil industry, despite more than a year of planning.

- incomplete records in the DFI of Iraqi assets frozen in other countries.

- incomplete records of "contractual commitments entered into by the U.S. agencies" under the guise of the Coalition Provisional Authority.

- not kept records of oil and fuel bartered instead of sold for cash, worth an estimated $426 million.

- not accounted for the $779 million of oil revenue kept in a bank controlled by the State Oil Marketing Co. instead of the DFI.

The audit said these factors and others are hindering its ability to assure complete accounting of Iraqi revenue.

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