Halliburton: Government audits could squeeze cash flow

HOUSTON (AP) _ Halliburton Co. said it expects the Pentagon to launch a formal audit of possible deficiencies in its procurement procedures in Iraq and Kuwait, which could ``adversely affect''

Tuesday, March 9th 2004, 12:00 am

By: News On 6

HOUSTON (AP) _ Halliburton Co. said it expects the Pentagon to launch a formal audit of possible deficiencies in its procurement procedures in Iraq and Kuwait, which could ``adversely affect'' the company if it must pay back some of the money.

The energy and construction company said in a filing Monday with the Securities and Exchange Commission that the Defense Contract Audit Agency recently issued a deficiency report related to logistics contracts, and is expected to initiate a formal probe in the near future.

Auditors from the Pentagon already have questioned possible overcharges connected to Halliburton's task to serve food to U.S. troops. The company, formerly headed by Vice President Dick Cheney, has credited the Defense Department $36 million and has delayed billing on $141 million until an investigation is complete.

In the SEC filing, the company said it believes the $141 million is the ``order of magnitude'' for the remaining amounts at issue but noted that government agencies are still reviewing matters. ``Additional review and allegations are possible, and the dollar amounts at issue could change significantly.''

The company said if it was required to make more refunds or withhold other invoices, ``this could materially and adversely affect our liquidity.''

Contracts with the U.S. government to provide logistical support and to repair Iraq's oil infrastructure are a major component of Halliburton's business, accounting for $4.2 billion, or 26 percent, of its revenues in 2003.

A Halliburton subsidiary, KBR _ formerly known as Kellogg Brown & Root _ provides services for the military from building bases to delivering mail.

Halliburton officials realized during the fourth quarter of last year that the company's infrastructure for administering these logistics contracts ``was being strained,'' the filing said.

Houston-based Halliburton said it had people spread out among 60 different sites in Iraq and Kuwait.

``Once deployed in forward areas, our people often have had difficulty communicating due to very poor telephone or computer infrastructure,'' the company said.

The military reportedly demanded fast service on a variety of fronts. Revenues from this logistics work, for example, jumped from $320 million during the second quarter to more than $2 billion in the third. Company officials said the volume and complexity of the work presented significant administrative challenges.

Halliburton, in response, dispatched a team of 80 managers and auditors to improve its procurement procedures. The company has since increased its procurement staff and has promised to add even more resources.

All government contracts are subject to Defense Contract Audit Agency review and audit, said Halliburton spokeswoman Wendy Hall.

``At times KBR and DCAA have disagreed on issues that were subject to audit, but we have always been able to work through these issues,'' Hall told the Houston Chronicle in Tuesday's editions.