Baghdad, Iraq ? The U.S. official overseeing Iraq reconstruction funding – whose recent audits have detailed a wide gap between the promise and result of rebuilding efforts and disclose rampant corruption and mismanagement – says in a report published today that officials have made significant strides toward providing essential services to Iraqis.

“Despite certain setbacks, chiefly caused by security problems, the overall picture conveys a sense of substantial progress in the relief, recovery and reconstruction of Iraq,” Stuart W. Bowen Jr., the special inspector general for Iraq reconstruction, said in his latest quarterly report.

The lack of basic services has been a source of intense frustration among Iraqis, many of whom have said they expected a substantial upgrade following the U.S. invasion in 2003. Across Iraq, key areas of infrastructure – such as water and sewage, the oil industry and electricity – currently operate at or below prewar levels, according to U.S. officials in Baghdad and previous audits by Bowen’s office.

Bowen acknowledged in an interview that three years of reconstruction projects – paid for largely by more than $18 billion in U.S. funding, most of which has been spent – had “been punctuated by shortfalls and deficiencies.”

But citing Defense Department statistics that showed a 60 percent decline in attacks on Iraqi infrastructure and other facilities in the period since January, he added that “the United States in Iraq is beginning to see the payoff in its investment in security.”

An Iraqi works on an oil and gas facility near Basra, Iraq's second largest city, in the south of the country. According to a reconstruction progress report being released today, dozens of firehouses and hundreds of police stations have been rebuilt in Iraq, thousands of schools are fixed and millions more Iraqis have access to cellular telephones. But oil and gas production, which fuels Iraq's fragile economy, has yet to return to levels before the U.S.-led invasion in March 2003.

The report coincided with the release of an audit that said efforts to protect oil and electrical infrastructure “ultimately proved to be unsuccessful,” despite $147 million spent to train more than 20,000 Iraqis to guard pipelines and power plants.

U.S. officials once projected that Iraq’s oil industry – which has access to the world’s second-largest oil and gas deposits – would be lucrative enough to fund the country’s reconstruction. But aging facilities and relentless insurgent attacks have kept production from surpassing 2 million barrels per day, below pre-invasion levels. Electricity generation and transmission have also hovered below the country’s prewar standard in most regions.

The program to protect oil and electricity infrastructure, dubbed “Project Shield,” was terminated in April of 2005, when Iraq’s defense ministry was assigned responsibility for the initiative. It awarded large contracts to two private companies, ASARS, of Greenbelt, Md. and British security firm Erinys International.

Erynis was tasked with training more than 14,400 guards to protect more than 300 oil facilities and 4,500 miles of pipeline, but the audit found documentation for only 11,400 trainees. It also said it could not account for the whereabouts of thousands of AK-47 rifles distributed to the security force.

The program to protect electrical infrastructure, a contract awarded to ASARS, “barely got under way,” the audit concluded, and as a result “only trained a limited number” of the 6,000 guards it had pledged to produce.

“The lack of records and equipment accountability raises significant concerns about possible fraud, waste and abuse of Task Force Shield program by U.S. and Iraqi officials,” Bowen’s audit concluded. It also found indications of fraud that it said are under investigation.