Among the obstacles were sharply higher spending for security, strategy shifts in response to the changing Iraqi environment and increased spending to sustain programs when Iraqis take over, the report said.

It also blamed administrative expenses that had not been considered in initial planning and "plans made without a clear understanding of actual situational conditions."

The US Congress appropriated $18.4 billion for relief and reconstruction in Iraq in November 2003, allocating the funds among specific infrastructure and governance sectors.

The reconstruction programs have made "significant progress" in developing Iraq's infrastructure but large-scale program changes mean that some efforts will fall short, the report said.

Water resources and sanitation took the biggest hit among the sectors, losing $2.185 billion, or 50.4 percent of its original allocation, the audit found. The next hardest-hit was the electric sector, slashed 22.5 percent to $4.31 billion.

Ousted Iraqi President Saddam Hussein's government left large sections of Iraq with polluted water, saline-saturated croplands and faulty water supply and sewage control facilities, the special inspector general said.

Security and law enforcement was originally scheduled to get the third-biggest share of reconstruction funds after the electric sector and water resources and sanitation.