By Kristin Roberts

WASHINGTON, Aug 29 (Reuters) - The Pentagon's independent watchdog has launched a probe into the military's inability to account for weapons in Iraq after reports that Kurdish militants were using U.S. arms to attack Turkey, the Defense Department said on Wednesday.

Pentagon spokesman Geoff Morrell said the department's inspector general will go to Iraq next week with an 18-member assessment team to investigate the problem.

"Since January, the inspector general's office has been thoroughly investigating reports of unaccounted-for weapons as well as allegations of arms ending up in the wrong hands," Morrell said.

"Secretary Gates, who since May has twice received lengthy briefings on the progress of the probe, is deeply troubled by the reports and the allegations."

Turkey, an important ally for Washington in the Muslim world, has repeatedly said the U.S. government has not done enough to clamp down on Kurdish militants based in northern Iraq. In July, Turkey's ambassador said Kurdish leaders were diverting weapons meant for local Iraqi security forces to the outlawed Kurdistan Workers Party (PKK) militants.

Morrell said he did not know if evidence existed to show U.S. weapons were being used by insurgents in Iraq.

"It is unclear, and that's why there's an investigation taking place."

CONTRACTING PROBES

Separately, the Army has launched two investigations into possible fraud involving thousands of contracts for services in Iraq and Kuwait after 20 civilian and military Army employees were indicted on charges that included bribery.

The scope of the fraud remains unknown, but Army Secretary Pete Geren called the problem significant.

More than 18,000 contracts valued at about $3 billion have been awarded by the Army to support the Iraq war since 2003. As of Aug. 28, there were 76 ongoing criminal investigations involving possible contract fraud, the Army said.

A U.S. Army major, his wife and sister were indicted this month in a suspected scheme to accept $9.6 million in exchange for contracts for bottled water and other goods and services for troops in Kuwait and Iraq.

An Army captain also has been charged with accepting a $50,000 bribe to steer military contracts in Iraq, according to prosecutors.

"The reports suggest that we've got serious issues in this area, particularly coming out of the Kuwait contracting community," Geren told reporters. "I don't know how to describe the scale, but it's significant."

The first Army investigation will examine the overall contracting organization, which Army officials say lacks the resources needed to handle the sharp rise in contracts following the start of the Iraq war. A commission appointed to investigate the operation will deliver a report in 45 days.

The Army also charged a new task force with examining all 18,000 contracts awarded by its contracting office in Kuwait. Most of those covered support services at Army facilities in Kuwait, like laundry and dining services.

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