The Iraqi government gave the U.S. Defense Department $3 billion in 2004 to pay bills but the report says only about $1 billion can be tracked, CNN reported.
"From July 2004 through December 2007, DoD should have provided 42 monthly reports. However, it can locate only the first four reports," the audit found.
Defense Undersecretary Mark Easton said in a letter filed with the report the missing funds are "a records management issue."
The Defense Department handled the payments for Iraq during the transition from the Coalition Provisional Authority to the succeeding government. The audit found reports were sent to the Iraqi government even though the documentation now appears to be missing, CNN reported.
The inspector general also complained the U.S. Embassy in Baghdad has failed to provide the Iraqi government a complete list of U.S. reconstruction projects, hampering efforts to decide where money can be best spent.
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