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Halliburton argues that in any project this large, there are bound to be problems. No one expected how quickly the troop levels would grow, and Halliburton was not prepared for the enormous size of the job--and the added accounting burden. "Our control system was not ready for the surge of activity," Lesar admits, saying the company has since beefed up its auditing. The criticism may sting, says Lesar, an accountant by training, but he takes it as a given in the business of war. Brown & Root, which merged with Halliburton in 1962, has provided support services in every American war since World War II.
But lack of oversight and transparency have created the opportunity for corruption. Businesspeople working in Iraq, Kuwait and Jordan (two major sources of supplies for Iraq), allege that Halliburton's unchecked power to choose contractors and send the bill to the military opens the door to kickbacks. Halliburton says it employs 54 auditors to monitor all its transactions.
"We do not tolerate this kind of behavior by anyone at any level in any Halliburton company," insists spokeswoman Cathy Gist. It's hard to find facts among the rumors. No one wants to talk, because there's too much business to be lost. Earlier this year Halliburton acknowledged that it had found $6 million in overbilling on its catering contracts, and it is investigating whether one or two of its former employees took kickbacks.
Robert McVicker, CEO of Morris Corp., a catering company based in Brisbane, Australia, spent nine months in Iraq last year, and he says he knew from other contractors who had been approached in Iraq that catering contracts could be secured by making payments to intermediaries. McVicker notes that Morris never paid kickbacks but says these middlemen typically asked for 3% to 4% of sales. His company was approached, he says, but not by Halliburton employees. "Many people in Iraq had their hand out," he says. "The corruption was in places where you would never expect it to be. What disturbed me is that Westerners began taking that concept beyond the simple paper-bag deal, asking for a percentage of your sales." The Morris contract with KBR was terminated and is under dispute by the two companies. Halliburton declined to comment.
A prominent businessman in Jordan says gatekeepers for Halliburton contracts would demand up to 10% at the point of signing and then offer guaranteed returns. "I had people coming to me and saying 'Just choose the margin you want, and you'll get it,'" he says. A Halliburton spokeswoman said the company had not heard this complaint but would investigate it. "Management has never instructed our employees to do this," she said. "If that happened, it would be against our policy."