WASHINGTON, Jan. 12 (HalliburtonWatch.org) -- Halliburton charges millions of dollars to U.S. taxpayers for Mercedes trucks that sit idle and unused in the Iraqi desert, an internal Pentagon memo obtained by HalliburtonWatch reveals.

The memo, written on Sept. 16, 2004, by the Baghdad branch manager of the Pentagon's Defense Contract Audit Agency (DCAA), reported that Halliburton's KBR subsidiary "procures and retains excess vehicles" under its troop support contract with the Army Corps of Engineers. The memo concludes that the excess vehicles result in "increased costs to the government."

The total value of the vehicles under review was $300 million and included both purchased and leased vehicles.

The findings comport with a digital photograph obtained by HalliburtonWatch showing a large number of Mercedes trucks parked permanantly at Camp Anaconda, Iraq. The photograph was obtained from a source in the federal government who reported that the trucks are, in the source's words, "idle." At a cost of $85,000 each, the trucks shown in the photograph are worth at least a few million dollars.

It's unclear how many idle or under-utilized KBR trucks are stored in Iraq because Halliburton does not have adequate utilization records that could show how often each vehicle is used. "KBR does not have an adequate system for determining the utilization of vehicles," the DCAA memo states, adding that existing records appear to indicate "low utilization of vehicles."

The DCAA official to whom the memo was addressed, Bill Daneke, told HalliburtonWatch he was not authorized to comment on the issue, so he referred all inquiries to Lt. Col. Rose-Ann L. Lynch in the Office of the Assistant Secretary of Defense for Public Affairs, who referred HalliburtonWatch to Art Forster in the Congressional and Public Affairs Office of the Defense Contract Management Agency, who was not able to answer any questions and suggested a Freedom of Information request would be required to determine how the military concluded the issue. When HalliburtonWatch obtains a final conclusion, it will be posted here.

Halliburton spokesperson, Melissa Norcross, did not specifically deny the allegations in the memo. In an emailed response to HalliburtonWatch, she said, "For more than two years KBR has been involved in numerous government audits relating to our work in Iraq, and we continue to cooperate with our customer and the appropriate government agencies to demonstrate that our work has been performed at a fair and reasonable cost and within the appropriate bounds of government contracting."

Pentagon auditors have repeatedly accused KBR of artificially inflating costs under its troop support and oil infrastructure contracts in Iraq and Kuwait. The military reimburses KBR for all costs and then pays a fee of 1 to 7 percent of those costs. So, as the company's costs go up, its profit from the military goes up, too. Critics say this arrangement provides an incentive for KBR to inadvertently or intentionally inflate costs that are ultimately billed to U.S. taxpayers. For example, the DCAA reported in 2004 that KBR billed the government for 36 percent more meals than was actually served to the troops while an internal KBR investigation found that it had overbilled by 19 percent.

As with overestimating meals, it appears from the DCAA memo that KBR may be overestimating the required number of trucks it needs to perform its duties in Iraq. In order to confirm or deny this possibility, the memo says the DCAA sought company records to verify how often KBR trucks are utilized.

When auditors requested the mission control logs, which reveal how often each truck is used, KBR balked, saying it would be costly to compile such data. Specifically, KBR said it would take 750-labor hours to compile the data for 29 of the trucks under review, the memo reveals.

As an alternative, KBR offered the "vehicle dispatch records." But, again, this proved insufficient since, as the memo states, "KBR only provided dispatch records for 22 of the 29 selected vehicles, and six of the records provided were maintenance logs, not dispatch logs, with no mileage or other utilization information." Other dispatch logs requested by the DCAA "would require a manual search" at several locations and "would take time," KBR is quoted in the memo as saying.

DCAA also requested from KBR the contractually required vehicle situation reports, which do not contain information about individual vehicles, but rather the total number of vehicles at each location and whether they are being used on any given day. When the DCAA told KBR that the situation reports "appeared to indicate low utilization of vehicles," the company responded by downplaying the accuracy of the reports, which it described as "fluid" documents that are "changed frequently" and were "never created for audit purposes."

In the memo, the DCAA official concluded: "The failure to properly analyze the utilization of existing vehicles makes it impossible to accurately estimate the number of vehicles needed for the contract, resulting in increased costs to the government as KBR procures and retains excess vehicles."

Another internal DCAA memo, first publicized by HalliburtonWatch, alerted the Pentagon that Halliburton's proposed purchase of 106 postal vehicles, for a total of $12.6 million, "was supported only by a memorandum" that contained "apparent math errors." It concluded that "the proposed quantities for some of the equipment purchases was not supported by an adequate analysis of the requirement." The memo, written on May 28, 2004, by the branch manager of the Iraq Branch Suboffice at Camp Arifjan, Kuwait, was addressed to Mr. Daneke.

KBR confirmed to the DCAA that 34 of the 106 postal vehicles were needed only for a "temporary surge" in troop numbers, but the memo chided the company for failing to consider leasing, rather than buying, the vehicles. KBR's Logistics Director agreed that temporary surges in troop numbers occur only once or twice per year. "Based on our discussion, he stated he would consider leasing the surge vehicles and revising the proposed quantities accordingly," the memo concludes.

Critics have complained that Halliburton purposely uses an antiquated bookkeeping system in order to encourage inadvertent overcharges. One KBR whistleblower testified before Congress that the company's "manual accounting system" is unnecessary and that, "There's no reason in the world why Halliburton can't do real time data management."

In 2004, Halliburton admitted in an internal company memo that its cost controls for government contracts are "antiquated" and "weak" and its procurement "disorganized" and marked by "weak internal controls." The memo, which was leaked to the Wall Street Journal, contradicts the company's public statements which claim it has a "rigorous system of internal controls" for contracts in Iraq. The memo reportedly reveals the results of a study by 80 Halliburton managers who examined whether the company fairly charges the government for its contracting work. According to the Journal, the study is "a frank admission that [Halliburton's] critics are voicing valid concerns about the possibility of overcharges under the company's massive contract to supply U.S. troops." Halliburton said it initiated the study because of the "unprecedented barrage of inquiries, accusations and political innuendos."

Early last year, the Pentagon ignored heated criticism from its own auditors and reimbursed KBR for most of the costs that were disputed by the DCAA. In what the Washington Post called "a departure from normal policy," the military reimbursed KBR for $1.8 billion in costs which the company still cannot verify or substantiate. In May of last year, the Pentagon paid $72 million in bonuses to reward Halliburton for its work in Iraq and Kuwait.