"As a result the trainees' poor living conditions have had a significant effect on soldiers' morale."
It said the water and power were off at Taji because of funding issues and trainers had reported that it was affecting the soldiers' morale. An Iraqi commander also said it was the cause for soldiers going absent without leave.
While the US was in the process of providing some funding to improve the Iraqi soldier's quarters to ensure it did not jeopardise the training, the report said the Iraqi Government could not absolve itself of all responsibility.
The report was released just before Mr Key's visit to Taji last week where he met with Iraqi soldiers as well as the New Zealanders training there. He had also met with Iraq's President Fuad Masum and Prime Minister Haider al-Abadi before his visit.
However, he said yesterday he was not aware of the report and it was up to the Minister of Defence to tend to it.
While Mr Key was in Iraq, the commander of the battalion the New Zealanders were training also personally thanked him for New Zealand's efforts and for the equipment issued by the US to the Iraqi soldiers which included M-16s and uniforms as well as heavy duty 'bulldozers' to help break through belts of improvised explosive devices.
The Inspector General's report also identified confusion about a further three-week follow up training course for the trainees - something the report said "could lead to the GoI [Government of Iraq] and its MoD [Ministry of Defence] questioning the US and Coalition commitment to defeating Isil."
In its reponse to that report, the Commander of the Joint Taskforce said it had now reminded the training groups of the need for that follow up course.
The report also said while there was enough equipment being provided, there were issues such as providing only seven cleaning kits along with 300 M-16 rifles and military vehicles lacking the associated equipment needed to operate them effectively.
Despite the problems, the report said progress was being made and "the training and equipment provided to the IA counterattack brigades and divisions could develop their capability to perform combat operations against ISIL".
The trainers the report team spoke to were committed to their work and confident they were improving the soldiers' skills.
However, it said there were still challenges to deal with, especially the shortage of experienced leadership in the Iraqi Army.
There have previously been media reports of the bad conditions faced by the Iraqi soldiers at Taji compared to the coalition troops.
The Iraqi soldiers are housed in a different part of the large complex and the accommodation is provided by the Government of Iraq while the US Government and coalition forces fund services for coalition forces.
Most coalition troops sleep in shared rooms with outside bathrooms.
One New Zealander at the base said there were issues with different coalition countries providing different equipment.
However, Defence staff also pointed to the importance of providing equipment such as military 'bulldozers' as effective ways to break through belts of improvised explosive devices.
The US-led coalition started the training programmes and other more specialist missions with the Iraqi Army in October 2014. The Coalition countries also provide equipment for the Iraqi Army.
