Stuart Bowen Jr., director of the Office of the Special Inspector General for Iraq Reconstruction said the $8.8 billion was reported to have been spent on salaries, operating and capital expenditures, and reconstruction projects between October 2003 and last June.
The money came from revenues from the United Nations' former oil-for-food program, oil sales and seized assets -- all Iraqi money. The audit did not examine the use of U.S. funds appropriated for reconstruction.
The report cited "severe inefficiencies and poor management" by the Coalition Provisional Authority, and questioned security payrolls.
"CPA staff identified at one ministry that although 8,206 guards were on the payroll, only 602 guards could be validated," the audit report states. "Consequently, there was no assurance funds were not provided for ghost employees."
The Defense Department, which was in charge of the reconstruction effort, and former Iraq civil administrator Paul Bremer dispute the findings.