British officials are seriously concerned about the level of corruption in the Iraqi defence ministry, after the embezzlement of vast amounts of money earmarked for the country's security forces.
Officials from the British Ministry of Defence had already warned US and Iraqi authorities against the squandering of money - and have been proved right, on a catastrophic scale.
A report compiled by the Iraqi Board of Supreme Audit has concluded that at least half, and probably more, of $1.27bn (£700m) of Iraqi money spent on military procurement has disappeared into a miasma of kickbacks and vanished middlemen - or else has been spent on useless equipment.
The report, leaked to the US news organisation Knight Ridder, comes as a blow to the credibility of the Iraqi army and its ability to contain the increasingly cogent insurgency.
According to the report, led by former human rights minister Abdel Baset al-Turki, the vanished money came solely from Iraqi funds, not from foreign donations to Iraq's military or the US-funded training budget.
The report focuses on an eight-month period after the transfer of sovereignty from the US-led occupation to caretaker Iraqi authorities on June 28 2004.
The report found that contracts were awarded to favoured weapons suppliers, via middlemen, without bidding or approval from the prime minister's office. Contracts included a clause stating that the full value of deals was to be paid up front, in cash.
All deals were done through third-party companies or agencies headed by Iraqi middlemen, who have disappeared, leaving the Iraqi government without recourse when it complained of unfulfilled contracts.
Internal documents, said the report, "incorrectly indicated that the [Iraqi] ministry of defence signed contracts with Poland, Arab countries, the United States and Europe, but we discovered that all contracts were signed and executed with Iraqi suppliers".
Among those missing is a man called Nair Mohamed al-Jumaili, sole beneficiary of 43 out of 89 contracts, into whose bank account several million dollars was paid.
Nine ministry officials, all of them appointed by the US, have been fired by the ministry, and face possible criminal charges. Among them is the ministry's procurement chief, Ziad Cattan.
Mr Cattan, who returned to Iraq two days before the war began, contacted Knight Ridder from hiding, to deny the charges and the claims that he took a 10% finder's fee on every contract. He said the Americans controlled the purse strings of Iraqi defence expenditure.
During the period covered by the report, 20 US officials worked alongside the Iraqi defence ministry, and all the sacked officials had been appointed by the Coalition Provisional Authority - the administration headed by American Paul Bremer.
British defence officials say that "ultimately, Iraqi spending decisions are a matter for the Iraqi government"
© 2005 Guardian Newspapers Ltd