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Back in 2003 as the invasion of Iraq was getting underway, Paul Wolfowitz famously told Congress that "We are dealing with a country that can really finance its own reconstruction and relatively soon." Ad Policy

Last month, nearly eight years after Wolfowitz’s flawed prediction, as tens of thousands of troops left Iraq, a House subcommittee stamped its approval on President Barack Obama’s controversial request for $2 billion in 2011 to arm and train Iraq’s military. It is unclear if the Senate will follow suit, but they have approved some funding. On top of the $2 billion, the proposed State Department budget allocates an additional $2.5 billion to step up its operations in Iraq.

All that money is being sent to Iraq based on a simple presumption, that Iraq’s government, run by Prime Minister Nouri al-Maliki, is bankrupt and running a massive deficit. The Iraqi government, a caretaker regime now, was created according to a constitution and timetable drawn up under US occupation and is now considered both fragile and corrupt.

But now comes word from independent US government auditors that the presumption may be false: Iraq’s government is not broke at all. Instead, Iraq’s rulers have been sitting on a vast pile of cash while begging for billions of dollars from the United States and the international community. A report by the General Accountability Office has found that the Maliki government, in spite of proclamations of poverty, hasn’t been spending what its budget allotted.

"GAO analysis of Iraqi government data showed that Iraq generated an estimated cumulative budget surplus of $52.1 billion through the end of 2009," the GAO report says. An estimated $40 billion was budgeted for "advances," but "available surplus funds" were measured at $11.5 billion. That is while the electrical grid remains unfixed, the water in the country is largely undrinkable, and the United States is still funding many Iraqi weapons purchases. It is a potentially devastating report, for Iraq and for the US efforts there. Some lawmakers on Capitol Hill have been pushing for Iraq to shoulder more of its own costs.

Exactly why a surplus exists is unclear, but it seems to have happened because Iraqi ministries have not spent the money that was intended to be used to fix the country. The GAO won’t discuss the report in advance of its release, though Stuart Bowen, the US Special Inspector General for Iraq Reconstruction, says the report doesn’t surprise him: "I haven’t seen the report but I do share GAO’s concern about Iraq’s past protestations regarding its projected budget deficits." Bowen, who has been policing US reconstruction effort since 2004, says if there is a surplus, which he believes there is, "that fact would militate against increasing US aid to the country."

The surplus billions, of course, do not translate into money for Iraq’s population. The per capita GDP is $3,800, and while Iraq’s government says unemployment is at 15 percent, unofficial jobless estimates are as high as 30 percent.

The GAO report finding that the Iraqi government is sitting on surplus funds may be a slap in the face for the US military and the Administration. Just this June, testifying before the Armed Services Committee during his nomination hearing, General Raymond Odierno predicted that Iraq would have a $12 billion deficit in 2010. "There’s no surplus," he told the committee.

In comments responding to the report, the State Department wrote that Iraq paid most of its security costs, but that "US government security assistance is necessary to help Iraqi Security Forces meet the minimum essential capability requirements associated with our responsible drawdown of US forces.

Before it was published, some US officials resisted the GAO report. PowerPoint slides obtained by The Nation show that the US Embassy and the US Forces-Iraq argued strongly against some of the findings in the GAP report, which is expected to be released in final form soon. One slide says that rather than a surplus, "Iraq faces a potential $20-25B deficit in 2010." That spells out the official position of Iraq’s Ministry of Finance. The embassy PowerPoint also says that "Congress is the audience," noting that US officials don’t want to change the report, but just "offer a different view." The Embassy PowerPoint argues that the GAO misstates Iraq’s true financial condition and disregarded evidence in its report.

But a significant problem with relying on the Ministry of Finance, according to Stuart Bowen and other officials, is that it doesn’t really know where Iraq’s money has gone. "It is difficult to assess how Iraq spends its own money because its financial practices are so opaque," he said. "When I met with the staff of the Central Bank of Iraq in May, I was told of continuing concerns within the bank about whether Iraqi ministries were actually spending their allocated capital funds on construction projects. There are fears that some of that money may be ferreted away in private accounts."

The GAO report also raised concerns about whether the surplus and the "advances" were vulnerable to theft, citing Iraqi auditors who concluded that "weaknesses in accounting for advances could result in the misappropriation of government funds…" With tens of billions at stake, one can see why the agency is concerned.

An American official who worked on these issues for in Iraq says the GAO findings sound correct. The difficulty, though, is figuring out whether the surplus has been stolen or just misplaced. "It is really impossible to tell whether it is incompetence or thievery," the official said in an interview with The Nation.

The US embassy press office in Baghdad did not respond to an e-mail and a voicemail requesting comment.