By Sue Pleming
WASHINGTON (Reuters) - A new Pentagon audit has lambasted Halliburton's accounting for billions of dollars of work in Iraq, as a Sunday deadline neared to withhold a major slice of payments to the Texas-based firm.
Halliburton's accounting system has been disputed by Pentagon auditors for the past 18 months but the company has so far avoided any withheld payments for work done in Iraq by its unit Kellogg Brown and Root (KBR).
Halliburton said it could weather any such action by in turn withholding payments due to subcontractors, and it disputed the latest audit.
Dan Carlson, a spokesman for U.S. Army Field Support Command in Rock Island Illinois, said work orders with a future value of $8.2 billion could be affected by a 15 percent withholding set to go into effect on Sunday if the billing dispute is not resolved with their client, KBR.
"We continue to work with all parties to resolve issues and continue our essential service to our troops in the field," said Carlson.
He said the potential withhold could amount to about $60 million a month, according to current payment schedules, adding that $4.3 billion had already been paid to Halliburton so far under its logistics contract with the U.S. military.
Halliburton, which was run by Vice President Dick Cheney until 2000, is the U.S. military's biggest contractor in Iraq and its business there has the potential to earn up to $18 billion for the company, according to government estimates.
The Aug. 4 audit by the Pentagon's Defense Contract Audit Agency (DCAA), which has not been publicly released, found flaws in KBR's system for estimating costs on its major logistics contract, a Pentagon spokeswoman said.
"The (auditors') opinion ... is that KBR's estimating system is inadequate," the spokeswoman said.
The auditors said Halliburton should submit within 45 days a plan to fix its system or its cost estimates would be disapproved, meaning they would be subject to more in-depth audits, payments could be suspended or there could be a recommendation to stop the contract.
The auditors have also recommended the company provide detailed cost or pricing data for any bills over $100,000.
News of the latest audit first emerged in a Wall Street Journal report on Wednesday that said Halliburton had inadequately accounted for more than $1.8 billion of work in Iraq, representing 43 percent of the money that its subsidiary has billed so far for feeding and housing troops.
Halliburton spokeswoman Wendy Hall said the company strongly disagreed with the audit and believed the issue would ultimately be resolved in the company's favor.
Halliburton's liquidity would not be affected by any withheld payments even if the billing dispute was not resolved, she said, because Halliburton would in turn withhold payments to subcontractors.
She said the Pentagon auditors had no authority to determine the adequacy of its estimating systems and she also disputed audit findings that Halliburton did not have a system to properly negotiate final prices.
The company has argued that it has become a political target during this election season. Cheney was Halliburton's chief executive from 1995 to 2000.
"Only in an election year, when Halliburton is being covered in a political context as opposed to business, does a DCAA audit dispute become a news story," said Hall.
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