Pentagon Audit Takes Aim at Halliburton

Halliburton (HAL) has taken another hit over its work in war-torn Iraq.

The company's KBR unit now stands accused of improperly accounting for some 43% of the $4.18 billion it has so far billed the government for projects in the Middle East, The Wall Street Journal reported on Wednesday. The company has until Sunday -- a deadline already twice extended -- to justify its billings or risk losing 15% of its payments, the Journal added.

Government officials outlined their complaints in a new 60-page audit described by the Journal as "the most serious critique to date" of KBR's billing for services provided to U.S. troops in Iraq.

"The audit found that KBR's 'internal control policies' are 'inadequate for providing verifiable, supportable and documented cost estimates that are acceptable for negotiating a fair and reasonable price,'" the Journal reported, citing the nonpublic report. "Pentagon officials said that no defense contractor has had its estimating system ruled 'inadequate' in years."

Halliburton spokeswoman Wendy Hall said the company disagrees with both the report and the conclusions that The Wall Street Journal reached about it. She insisted that Halliburton employs proper billing procedures and maintained that the audit actually has nothing to do with the amounts charged by Halliburton or, in turn, the sums that it can expect to recover. Instead, she described the audit as a normal part of negotiations with the government.

"Normally, these kinds of audit reports are part of a lengthy but routine process that is amicably resolved," she said. "Only in an election year -- when Halliburton is being covered in a political context as opposed to business -- does a [Defense Contract Audit Agency] audit dispute become a news story."

By now, Halliburton has spent more than a year under fire for its past ties to Vice President Dick Cheney. Critics point to Cheney -- Halliburton's former CEO -- as the reason the company won so many big contracts in Iraq in the first place. And they have accused the company of profiting handsomely from the war there.