The special inspector general for Iraqi reconstruction chose the south-central region headquarters at Hilla, 62 miles south of Baghdad, as a test case to study how reconstruction funds were being spent.
Staff discovered a situation of chaos, with millions of dollars in cash changing hands every day with little or no paperwork, leaving $96.6m unaccounted for between June 2003 and October 2004.
The special inspector general's office reported that the coalition provisional authority, which held power until last June, had lost track of $9bn in reconstruction funds as a result of poor book-keeping.
The Hilla case marks the first time American officials have been investigated for large-scale corruption in Iraq.
"The auditors turned over information to our investigators who have opened a handful of cases because there were indications of potential fraud. We haven't proven anything," Jim Mitchell, a spokesman for the special inspector general's office, said. "We can't say whether there is conspiracy."
He said the money was handled by a mix of military officers, defence department civilian staff and civilian contractors. The names of those under scrutiny have not been released.
Part of the problem appears to have been the rush to spend the reconstruction money, funded by the seized assets of Saddam Hussein's regime and Iraqi oil money.
"One division-level agent [disbursement official] was provided approximately $6.75m on June 21 2004, with the expectation of disbursing the entire amount before the transfer of sovereignty June 28 the audit report said.
"Several division-level agents were under the impression that it was more important to quickly distribute the money to the region than to obtain all necessary documentation."
In another case, two agents, responsible for handing out cash to workers and contractors on reconstruction projects, left the country with more than $700,000 each unaccounted for.
