The payments for food, fuel, ammunition and maintenance, averaging 80 million dollars a month, has been a cornerstone of US support for President Pervez Musharraf in his fight against extremist forces in Pakistan. US officials, however, believe Pakistan's expense claims have been vastly inflated. According to two Western military sources, who refused to be named, claimed that at least 30 per cent of the aid was used legitimately.
One official said that the US did not know what had happened to the remaining 70 per cent - about 3.8 billion dollars, but suspected that part of the money had been spent on F16 fighter jets or on new housing for army generals.
Apart from military-related expenses, the official said, at least half the money was thought to have disappeared.
"Who knows, the roads on Constitution Avenue (in Islamabad) may have been paved with part of this money," age.com.au quoted the official, as saying.
However, the Pakistani military denied the claims.
"As far as the military is concerned, I can assure you we have a full account of these things," said Army spokesman Major-General Athar Abbas.
He admitted there had been US complaints, but denied serious irregularities.
The controversy highlights not only Washington's strained relationship with Islamabad, but also the limitations faced by President George Bush's in his war on terror.
The US Government is impatient for "value for money", citing the billions poured into Pakistan since 2001 - a time when militancy has surged and al-Qaeda has regrouped in the tribal areas.