Fraud and waste are hampering the reconstruction efforts in Iraq, the latest US audit report has found.

"Our audits and inspections and investigations have found numerous instances of waste and some egregious examples of fraud and we continue to move forward on 57 fraud cases," Special Inspector General for Iraq Reconstruction Stuart Bowen said in a report to the US congress which was obtained by US media on Wednesday.

The report said theft, fraud and corruption continue to harm efforts to rebuild the country and the Iraqi government has failed to take responsibility for more than 2,000 reconstruction projects financed by the United States.

The incompetence of the Iraqi government has forced US agencies to hand over projects to local individuals or entities which, in many cases, do not have the expertise to keep the ventures running, it said.

"The asset transfer process that had been worked out with the Iraqi government has been off the rails for about a year and other means have had to be used to transfer projects such as local transfer or unilateral transfer," said the report.

"That raises grave questions about the sustainability of what the United States has constructed in Iraq," it said.

The report pointed to a project to overhaul a power plant in Baghdad that broke down because employees at the facility did not know how to operate it properly.

Other projects, it said, are being hurt by continued terrorist activity and political instability.

Still, the report said there are "signs of progress," citing a modest increase in Iraq's oil production.

However, the 2.1 million barrels of oil being produced each day is still below the production levels before the US-led invasion in 2003.

(Xinhua News Agency August 2, 2007)