Audit warns KBR to cut payroll in Iraq

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 work force 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 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 Oct. 26 report from the Defense Contract Audit Agency says.

The company provides crucial battlefield services under a $33.8 billion, 10-year deal signed in 2001.

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, is sure to reinvigorate KBR's detractors.

Last week, audit-agency director April Stephenson was forced out of her job after unflattering reviews of the agency's performance. Stephenson, whose last day as director is this Friday, is to appear today 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 and said the company has planned to cut employee levels in Iraq, but has been waiting for formal guidance from the military on the drawdown.

KBR spokeswoman Heather Browne 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."

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 U.S. 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.

Plans now call for the number of U.S. troops in Iraq to fall to 50,000 by August 2010. All U.S. forces are to be out of the country by December 2011.

Although KBR already should have made significant reductions, the report proposes giving KBR until Jan. 1 to put in place a plan that would trim 2,857 employees identified in the audit as excess.

Each full-time KBR employee earns about $8,425 a month in pay and benefits, the audit says, so the employee cuts will produce nearly $193 million in labor costs between the first of January and the end of August, the audit says.

The auditors say if KBR does not make the recommended changes or take even more aggressive steps, the agency will challenge future costs.