James Kunder, Assistant Administrator for Asia and the Near East, US Agency for International Development, right, testifies on Capitol Hill (File photo - June 28,2006)

A federal audit has found that the U.S. agency that administers reconstruction money for Iraq has hidden cost overruns on projects linked to its $1.4 billion fund.

A special investigator says the U.S. Agency for International Development used questionable accounting measures to conceal the expenses, and failed to report problems to Congress.

The report says officials were granted $50 million for a children's hospital in the southern Iraqi city of Basra, but the budget has now expanded to about $150 million.

It says USAID officials tried to hide the extra spending by classifying it as "administrative costs."

The report noted similar problems on a electrical project in Baghdad.

Last month, a top USAID official, James Kunder, assistant administrator for Asia and the Near East, told Congress that 22 percent of reconstruction funds have gone to security needs in Iraq.