DynCorp has been responsible for training Iraq's police force
A watchdog has accused the US state department of grossly mismanaging the oversight of a $2.5bn (£1.5bn) contract for training Iraq's police force.
An audit by the Special Inspector General for Iraq Reconstruction (Sigir) said the state department repeatedly failed to monitor the contract.
In one case, it assigned heavy security costing $4.5m to a group of contractors who already had their own bodyguards.
The state department has disputed the report's conclusions.
Awarded in 2004 to private firm DynCorp International, the police contract is the largest awarded by the state department.
Kim Ghattas, BBC News, Washington
The report's conclusions are alarming - not only have vast sums already been wasted but there is clearly potential for further waste. The state department apparently does not have the people or the resources needed to oversee work done by private companies through large contracts such as the one with DynCorp International.
It's not the first time that the US government has got a rap on its knuckles for wasting money in Iraq.
A previous report by the special inspector general for Iraq reconstruction concluded that the Coalition Provisional Authority, set up in the aftermath of the 2003 Iraq war, had lost track of $9bn of funds destined for reconstruction projects.
Members of the US Congress have been quick to react, saying the findings are outrageous and illustrate the need to reform how the government manages federal contracts in the field.
But Sigir's Stuart Bowen says in his report that weak oversight made the contract vulnerable to waste and fraud.
According to Mr Bowen's report, for years the state department had only one person in Iraq monitoring invoices during the early stages of the DynCorp contract, despite the complexity of the paperwork.
This meant many invoices were not questioned and as a result there is "no confidence in the accuracy of payments of more than $1bn to DynCorp", the report says.
The three people now employed in Iraq to oversee the work done by DynCorp are still too few, the audit concludes.
The report also suggests the state department is ill-equipped to oversee the large sums of money flowing into Afghanistan because of its lack of people and resources to handle big private sector contracts.
"I think they need to act quickly to remedy this long-standing concern," Mr Bowen said.
The inspector general's report did not look at the quality of the work done by DynCorp in Iraq.
DynCorp spokesman Douglas Ebner told the Associated Press news agency that the company had done well in a "difficult environment" and that it welcomed additional oversight.