By David Morgan

WASHINGTON, Oct 23 (Reuters) - The State Department does not know specifically what it received for a billion-dollar contract with security firm DynCorp International to provide training services for Iraqi police, a U.S. watchdog agency said on Tuesday.

The Office of the Special Inspector General for Iraq Reconstruction (SIGIR) said it was forced to suspend its audit of the DynCorp contract after administration officials told investigators they had no confidence in their own accounting records.

The inspector general said the agency had not validated the accuracy of invoices received before October 2006 and described bills and supporting documents as being in disarray.

Among the problems identified before the audit was suspended were duplicate payments, the purchase of a never-used $1.8 million X-ray scanner and payments of $387,000 to house DynCorp officials in hotels rather than other available accommodation.

The inspector general blamed the problems on long-standing contract administration problems at the State Department agency responsible for the contract -- the Bureau of International Narcotics and Law Enforcement Affairs, or INL.

"As a result, INL does not know specifically what it received for most of the $1.2 billion in expenditures under its DynCorp contract for the Iraqi Police Training Program. INL's prior lack of controls created an environment vulnerable to waste and fraud," SIGIR said in an interim review.

The report coincides with a controversy over the use of private security firms in Iraq, particularly Blackwater USA, which is under scrutiny over a Sept. 16 shooting incident in Baghdad in which 17 people were killed.

The Pentagon employs at least 7,300 security contractors in Iraq and the State Department thousands more. U.S. officials say they are needed to free up soldiers for other tasks.

POLICE TRAINING

INL agreed with the inspector general's overall findings and has taken steps to address the problems, the report said. The inspector general hopes to resume its audit before January, once corrective action has been taken.

But officials told the inspector general that it could take three to five years to review and reconcile all invoices and validate all property records.

DynCorp spokesman Gregory Lagana said the contract dealt with a complex program set up quickly in the aftermath of the U.S. invasion of Iraq. But he said both the State Department and DynCorp had made improvements in its administration.

The State Department agency awarded the contract to DynCorp in February 2004. The agreement covers housing, food, security, facilities, training support systems and law enforcement specialists for Iraqi civilian police training.

INL had agreed to pay DynCorp a total of $1.34 billion for police training services in Iraq, as of Aug. 23, 2007. Actual expenditures stood at $1.22 billion.

The report said DynCorp did not provide data to support travel and housing charges, while documents to support other expenses were presented in "an unmanageable format."

DynCorp gave the law enforcement agency a $108,000 check after officials sought a review of invoices and documents related to business travel expenses, the report said.

Lagana said DynCorp proposed housing senior executives in hotels partly for security reasons and that the proposal had been accepted by the government. He described other shortcomings as "human errors" for which the company routinely reimburses the State Department.

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