WASHINGTON - The Bush administration inadvertently exempted foreign contracts in Iraq from fraud oversight, a top administration official said Tuesday, resulting in a loophole that Rep. Peter Welch, D-Vt., said could have protected private firms that steal taxpayer money. The admission follows weeks of controversy surrounding the exemption’s mysterious appearance in a new rule guiding contractors being paid billions for government work in the U.S. and in foreign countries around the globe.

The administration removed the single paragraph exemption on Monday, hours before a House panel convened a hearing to question officials about its origin and to debate legislation introduced by Welch to close the loophole and punish fraudulent contractors.

“We did not knowingly, thinkingly put in the exemption,” said David Drabkin, the top acquisition officer at the General Services Administration. “The exemption language was a drafting error.”