The Pentagon, in a statement received Thursday, has warned Halliburton it might start withholding hundreds of millions of dollars in payments to the Houston-based company unless it reforms the accounting system of its Kellogg Brown and Root subsidiary.

The audit, concluded August 4, highlighted a series of problems in KBR's accounting system related to the costs of providing food, shelter and other support to American troops in Iraq.

KBR gave the military "inadequate cost estimate development, (and) incomplete and inadequate management review of cost estimates" among other problems, the audit found.

The Pentagon has given Halliburton 45 days to come up with a new accounting plan.

The audit was first reported by The Wall Street Journal on Wednesday which pegged the disputed sum at over 1.8 billion.

Halliburton disagrees with the report and says it is the victim of election year politics.

"We disagree with the report, and we will respond to it within the timelines provided by the government's multi-step process," Halliburton said in a statement.

"Normally, these kinds of audit reports are part of a lengthy but routine process that is amicably resolved. Only in an election year, when Halliburton is being covered in a political context as opposed to business, does a DCAA (Defense Contract Audit Agency) audit dispute become a news story," the company said.

It is the latest salvo in a series the Pentagon has fired at Halliburton since January of last year about problems over its cost estimates.

It also comes just over a week after Halliburton said it will pay 7.5 million dollars to settle charges of misleading accounting when Vice President Dick Cheney ran the company.

Cheney, who was not accused of any wrongdoing, gave sworn testimony to the Securities and Exchange Commission (SEC) and "cooperated willingly and fully" in the investigation.

The SEC charges followed Halliburton's failure to disclose a 1998 change to its accounting practices. Cheney was Halliburton chief executive from 1995 to

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