BAGHDAD  As the measure of success in Iraq shifts from peacekeeping to reconstruction, one showcase for American aptitude is the new United States Embassy, the most expensive in the world. The embassy compound, which cost more than $700 million to build, covers 104 acres along the Tigris River and was built in a rapid 34 months amid often unstable conditions.

But according to a report issued last week by the State Department’s inspector general, the complex is a monument to shoddy work and incompetent oversight. Walls and walkways are cracking, sewage gas flows back into residences, wiring is substandard, fire protection systems are faulty and other safety provisions are not up to contract specifications.

The report says that construction “was significantly deficient in multiple areas” and may not meet safety codes. It called on the State Department to seek $132 million in damages from the main construction company, First Kuwaiti General Trading and Contracting, which received $470 million for work on the embassy.

The department’s Bureau for Overseas Building Operations is considering whether to seek reimbursement, said a spokesman, Jonathan Blyth, who added in an e-mail message that “the deficiencies noted in the report are not adversely affecting embassy operations.”