We knew it was bad but did we know it was this bad?

At the very outset of the occupation, when L. Paul Bremer was installed as head of the CPA, one of his first brilliant ideas for managing the country was to have $12 billion in cash flown into Baghdad on huge wooden pallets and stored in palaces and government buildings. To pay contractors, he’d have agents go to the various stashes — a pile of $200 million in one of Saddam’s former palaces was watched by a single soldier, who left the key to the vault in a backpack on his desk when he went out to lunch — withdraw the money, then crisscross the country to pay the bills. When desperate auditors later tried to trace the paths of the money, one agent could account for only $6,306,836 of some $23 million he’d withdrawn. Bremer’s office “acknowledged not having any supporting documentation” for $25 million given to a different agent. A ministry that claimed to have paid 8,206 guards was able to document payouts to only 602. An agent who was told by auditors that he still owed $1,878,870 magically produced exactly that amount, which, as the auditors dryly noted, “suggests that the agent had a reserve of cash.”

In short, some $8.8 billion of the $12 billion proved impossible to find. “Who in their right mind would send 360 tons of cash into a war zone?” asked Rep. Henry Waxman, chairman of the House Oversight Committee. “But that’s exactly what our government did.”

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The system not only had the advantage of eliminating red tape in a war zone, it also encouraged the “entrepreneurship” of patriots like Custer and Battles, who went from bumming cab fare to doing $100 million in government contracts practically overnight. And what business they did! The bid that Custer claimed to have spent “three sleepless nights” putting together was later described by Col. Richard Ballard, then the inspector general of the Army, as looking “like something that you and I would write over a bottle of vodka, complete with all the spelling and syntax errors and annexes to be filled in later.” The two simply “presented it the next day and then got awarded about a $15 million contract.”

The deal charged Custer Battles with the responsibility to perform airport ­security for civilian flights. But there were never any civilian flights into Baghdad’s airport during the life of their contract, so the CPA gave them a job managing an airport checkpoint, which they failed miserably. They were also given scads of money to buy expensive X-ray equipment and set up an advanced canine bomb-sniffing system, but they never bought the equipment. As for the dog, Ballard reported, “I eventually saw one dog. The dog did not appear to be a certified, trained dog.” When the dog was brought to the checkpoint, he added, it would lie down and “refuse to sniff the vehicles” — as outstanding a metaphor for U.S. contractor performance in Iraq as has yet been produced.

Like most contractors, Custer Battles was on a cost-plus arrangement, which means its profits were guaranteed to rise with its spending. But according to testimony by officials and former employees, the partners also charged the government millions by making out phony invoices to shell companies they controlled. In another stroke of genius, they found a bunch of abandoned Iraqi Airways forklifts on airport property, repainted them to disguise the company markings and billed them to U.S. tax­payers as new equipment. Every time they scratched their asses, they earned; there was so much money around for contractors, officials literally used $100,000 wads of cash as toys. “Yes — $100 bills in plastic wrap,” Frank Willis, a former CPA official, acknowledged in Senate testimony about Custer Battles. “We played football with the plastic-wrapped bricks for a little while.”

The Custer Battles show only ended when the pair left a spreadsheet behind after a meeting with CPA officials — a spreadsheet that scrupulously detailed the pair’s phony invoicing. “It was the worst case of fraud I’ve ever seen, hands down,” says Grayson. “But it’s also got to be the first instance in history of a defendant leaving behind a spreadsheet full of evidence of the crime.”

But even being the clumsiest war profit­eers of all time was not enough to bring swift justice upon the heads of Mr. Custer and Mr. Battles — and this is where the story of America’s reconstruction effort gets really interesting. The Bush administration not only refused to prosecute the pair — it actually tried to stop a lawsuit filed against the contractors by whistle-blowers hoping to recover the stolen money.

Full article here.