Halliburton Co. said it could be formally audited by the U.S. Department of Defense in the "near future" for procurement issues related to its work in Iraq and that a review could "adversely affect" its liquidity, according to a regulatory filing on Monday.
The Houston-based company, which has been accused of overcharging the U.S. government for its work in Iraq, said in a filing with the U.S. Securities and Exchange Commission that the Defense Contract Audit Agency, which is controlled by the Pentagon, recently issued a deficiency report.
The report dealt with deficiencies related to the logistics contracts Halliburton's KBR engineering and construction unit has won for work in Iraq, specifically the timely updating and formalizing of procurement documentation.
The report is "likely" to result in a formal audit, the company said in the filing.
"As a result of an increase in the level of work performed in Iraq or the DCAA's review of additional aspects of our services performed in Iraq, it is possible that we may, or may be required to, withhold additional invoicing or make refunds to our customer, some of which could be substantial, until these matters are resolved. This could materially and adversely affect our liquidity," the company said in its 10-K filing.
It is already the subject of other ongoing DCAA audits.
Halliburton, once led by Vice President Dick Cheney, said the "internal control" issues were identified in the fourth quarter by its auditors. As a result, it sent a task force into Kuwait to help employees keep procurement documentation current. It also provided additional resources to assist with identifying and accounting for goods and services that were received but not invoiced.
The company added in its report that it "could be asked to reimburse payments made to us and that are determined to be in excess of those allowed by the applicable contract, or we could agree to delay billing for an indefinite period of time for work we have performed until any billing and cost issues are resolved. Our ability to secure future government contracts business or renewals of current government contracts business in the Middle East or elsewhere could be materially and adversely affected."
Halliburton — which said its revenue from government services in Iraq totaled $3.6 billion in 2003 — has since "significantly" increased the size of its project procurement staff, it said in the filing. It has also taken a number of other steps.
The company blamed a lack of resources, poor telephone and computer systems and a steep increase in customer demand for the problems.
Late last month, Halliburton said it formed a group to oversee accounting on its contracts in Iraq, responding to a report that KBR had found its cost control systems "antiquated" and inadequate and its procurement "disorganized" and marked by "weak internal controls."
