WASHINGTON — The Army's primary support contractor in Iraq has been warned by Pentagon auditors to cut its work force there or face nearly $200 million in penalties for keeping thousands too many on the payroll.

The Houston-based KBR Inc., responsible for everything from mail and laundry to housing and meals, has increased employee levels while U.S. troops steadily leave the country after more than six years of war, the audit says. As a result, the government is paying far more in labor costs in Iraq than it should as military resources are shifted to Afghanistan.

The Oct. 26 report from the Defense Contract Audit Agency opens a window into a behind-the-scenes battle over KBR's billing and management practices. The company provides crucial battlefield services under a $33.8 billion, 10-year deal signed in 2001.

There have been serious disagreements between KBR and defense auditors, who have challenged billions of dollars in charges as questionable. And KBR's critics, many of them Democrats on Capitol Hill, have accused the company of gouging the government during a time of war instead of being a responsible steward of public money.

A senior Army official said Monday the audit is being examined and the review should be completed within the next few weeks.

"If the facts substantiate the report, we will take appropriate action," Lee Thompson of the Army Sustainment Command said at a hearing held by the independent Commission on Wartime Contracting.

April Stephenson, director of the audit agency, told the panel that "without significant action," KBR will have one employee for every 3.6 troops in Iraq by August 2010.

KBR officials say the company has planned to cut employee levels in Iraq and is working closely with commanders there. But these efforts have been slowed while KBR waited for formal guidance from the military on troop drawdown. KBR spokeswoman Heather Browne said the company is also reviewing the final audit. She said the company's work in Iraq "is being conducted in the ever-changing environment of a war-zone which brings its own daily challenges and priority tasks."

But the audit says KBR's planning consists of a series of "disjointed processes" and weak accounting procedures when a detailed, forward-looking strategy is needed for dealing with a reduction in forces announced nearly a year ago. A small company might be excused for such a shortcoming, it says, but a large corporation such as KBR should not be.