Audit shows Defense Dept. cannot account for $2 billion

(CNN) -- The U.S. Defense Department cannot account for about $2 billion it was given to cover Iraq-related expenses, a government audit reports.

The Iraqi government in 2004 gave the Department of Defense access to about $3 billion to pay bills for certain contracts, and the department can only show what happened to about a third of that, the office of the Special Inspector General for Iraq Reconstruction says in the report.

Although the Department of Defense (DoD) had "internal processes and controls" to track payments, the "bulk of the records are missing," the report says, adding that the department is searching for them.

Other documents are missing as well, including monthly reports documenting expenses, the audit says.

"From July 2004 through December 2007, DoD should have provided 42 monthly reports. However, it can locate only the first four reports."

A letter accompanying the report is signed by Stuart Bowen, the inspector general. The audit was overseen by Glenn Furbish, assistant inspector general for audits.

In a response letter also contained in the report, Defense Under Secretary Mark Easton acknowledges "a records management issue."

The audit says it believes records management is to blame, and "has been an ongoing problem for DoD in Iraq. By all accounts, DoD established good internal processes and controls to account for and report on" the funds it was given after the Coalition Provisional Authority dissolved.

Where the records did exist, they matched other records and contained "good financial documentation supporting individual payments." Also, there is "sufficient evidence" that required monthly reports were sent to the government of Iraq, even though they can't be found, the audit said.

The audit deals with a time when Iraq's government was undergoing a transition. The Coalition Provisional Authority ran the country for 14 months from 2003 to 2004. During that time, the authority awarded numerous contracts. When it dissolved in 2004, the Iraqi government gave the U.S. Defense Department access to the $3 billion to pay bills for contracts the provisional authority had awarded.

The Defense Department letter from Easton -- the department's deputy chief financial officer -- thanks the inspector general's office for "the collaborative effort and professional courtesy" in a series of audits.

The Office of the Special Inspector General for Iraq Reconstruction was created in 2004 to continue oversight of Iraq reconstruction programs.