Some $1.6 billion of the $2.6 billionHalliburton contract was funded from Iraqi oil revenues overseen by the UN.
"The evidence suggests that the US used Iraqi oil proceeds to overpay Halliburton and then sought to hide the evidence of these overcharges from the international auditors," the letter says.
The Pentagon audit offers the most revealing look at Halliburton's Iraqi War frauds.
Halliburton was formerly headed by Vice President Dick Cheney. It is currently unknown how much of a kickback Cheney receives from the fraudulent Pentagon contracts.
Most recently Halliburton charged the Pentagon $27.5 million to ship $82,100 worth of cooking and heating fuel to Iraq from Kuwait - 335 times the actual cost of the LPG, a charge the Pentagon auditors called "illogical".
The firm and its subsidiary, Kellogg, Brown and Root (KBR), face several investigations, including a fraud inquiry from the US Department of Justice.
A preliminary Pentagon audit found that KBR overcharged the Pentagon by $61 million for kerosene and other fuels.
Meanwhile the Halliburton scapegoat for another fraud has been chosen. A former employee of KBR and a Kuwaiti citizen have been indicted for defrauding the U.S. government of more than $3.5 million by inflating the cost of fuel tankers for military operations in Kuwait, U.S. prosecutors said on Thursday.
Jeff Alex Mazon, the ex-KBR employee, and Ali Hijazi, managing partner of LaNouvelle General Trading and Contracting Co. of Kuwait, were indicted on 10 counts of fraud by a federal grand jury in Illinois, the Justice Department said in a statement.
The indictment says Mazon inflated a bid for fuel tankers he received from Hijazi, to make sure LaNouvelle would be overpaid, while inflating a Kuwaiti company's competing bid without the rival's knowledge, to make sure LaNouvelle's inflated bid would be the lower of the two.
It is unclear whose orders Mazon was following when the Halliburton fraud was committed.
US Vice President Dick Cheney, who still receives compensation from the company he once headed, has not commented on the no-bid no-compete Halliburton contracts with the Pentagon.