Department of Energy, Office of Worker Advocacy: Deficient Controls Led to Millions of Dollars in Improper and Questionable Payments to Contractors
GAO-06-547
Published: May 31, 2006. Publicly Released: Jun 27, 2006.
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Highlights
The Energy Employees Occupational Illness Compensation Program Act of 2000 (EEOICPA) authorized the Department of Energy (Energy) to help its former contractor employees file state workers' compensation claims for illnesses that could be linked to exposure to toxic substances during their employment. Concerned with the relatively small number of finalized cases and the overall effectiveness of the program, Congress asked GAO to review costs incurred by Energy to administer the program. Specifically, Congress asked GAO to determine whether (1) internal controls over program payments were adequately designed to provide reasonable assurance that improper payments to contractors would not be made or would be detected in the normal course of business and (2) program payments were properly supported as a valid use of government funds.
Energy did not establish an effective control environment over payments to contractors or overall contract costs. Specifically, because Energy lacked an effective review and approval process for contractor invoices, it had no assurance that goods and services billed had actually been received. Although responsibility for review and approval of invoices on the largest contract rested with the Space and Naval Warfare Systems Center, New Orleans (SSC NOLA) through an interagency agreement, Energy did not ensure that SSC NOLA carried out proper oversight. Energy also failed to maintain accountability for equipment purchased by contractors. Further, subcontractor agreements, which represented nearly $15 million in program charges, were not adequately assessed, nor were overall contract costs sufficiently monitored or properly reported. These fundamental control weaknesses made Energy highly vulnerable to improper payments. GAO identified $26.4 million in improper and questionable payments for contractor costs, including billings of employees in labor categories for which they were not qualified or that did not reflect the duties they actually performed, the inappropriate use of fully burdened labor rates for subcontracted labor, add-on charges to other direct costs and base fees that were not in accordance with contract terms, and various other direct costs that were improperly paid. Further, certain payments toward the end of the program for furniture and computer equipment may not have been an efficient use of government funds. These improper and questionable payments represent nearly 30 percent of the $92 million in total program funds spent through September 30, 2005, but could be even higher given the poor control environment and the fact that GAO only reviewed selected program payments.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Energy | To improve Energy's controls over its review and approval process for contractor invoices, the Secretary of Energy should instruct the Deputy Secretary to develop an assessment process to use as a basis for determining reliance on and monitoring the performance of other federal agencies that perform key contract management functions on Energy's behalf, such as monitoring contractor services, review and approval of invoices, and approval of subcontractor agreements. |
DOE issued Acquisition Letter 2007-03 which provided revised guidance on Interagency Acquisition, including a requirement for a written Determination and Findings document that identifies which contract administration duties will be performed by the servicing agency and any administrative functions to be performed by DOE. Additionally, this policy allows for the appointment of a contracting officer's representative to monitor the performance of the work performed under the agreement. This revised policy meets the intent of GAO's recommendation and as a result DOE will be able to execute greater oversight over the servicing agency's actions.
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| Department of Energy | To improve Energy's controls over its review and approval process for contractor invoices, the Secretary of Energy should instruct the Deputy Secretary to establish policies and procedures for an effective review and approval process for contractor invoices, including (1) conducting and documenting observations (surveillance) of services provided by contractors, (2) linking those observations to the invoice review and approval process, (3) verifying labor hours are billed at appropriate rates and that employees are qualified to perform the work consistent with the terms of the underlying agreement, and (4) ensuring other direct costs are properly supported and reviewed prior to payment. |
In response to our recommendation, in September 2008, Energy included a chapter on Reviewing and Approving Contract Invoices, in its Acquisition Guide - the tool that Energy uses to identify relevant internal standard operating procedures to be followed by both procurement and program personnel that are involved in the acquisition process. The chapter includes 19 specific items that the responsible invoice approving official must ensure, as applicable, are adequately addressed prior to approving the invoice. Also, in November 2008, Energy issued revised guidance on Voucher/Invoice Processing Procedures in its Headquarters Procurement Services Contract Specialist Guide. The revised guidance provides, among other things, criteria for approving invoices and identifies contracting officer and invoice approving official responsibilities.
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| Department of Energy | To improve Energy's controls over its review and approval process for contractor invoices, the Secretary of Energy should instruct the Deputy Secretary to develop guidance for the contractor officer's representatives or other payment/review officials that detail appropriate steps for review and approval of invoices and appropriate documentation of that review process. |
In response to our recommendation, Energy took two actions. First, in September 2008, Energy included a chapter on Reviewing and Approving Contract Invoices, in its Acquisition Guide--the tool that is used to identify relevant internal standard operating procedures to be followed by both procurement and program personnel involved in the acquisition process. Energy stated that the purpose of the chapter is to provide guidance for ensuring that invoices/vouchers are properly reviewed analyzed prior to making any payments to contractors. The chapter details specific items that the responsible invoice approving official must ensure, as applicable, are adequately addressed prior to approving the invoice. The detailed items in the chapter are consistent with the intent of our recommendation and include determining that (1) the required items been delivered and/or the required services have been performed in accordance with contractual terms and conditions, (2) all other direct costs are properly substantiated and that the costs are consistent with the contract, (3) all costs are allowable and allocable to the contract, and (4)labor hours are billed at appropriate rates. Second, in January 2009, Energy issued the 2nd addition of its Acquisition Career Management Program (ACMP) handbook to provide a formal, structured approach to career development by its acquisition workforce. Energy stated that the ACMP is designed to increase the proficiency of the acquisition workforce through competency-based training. Further, before assuming the responsibilities of a Contracting Officer Representative (COR), prospective CORs must be certified as a COR in accordance with the core curriculum for COR certification provided in the ACMP.
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| Department of Energy | To improve Energy's controls over its review and approval process for contractor invoices, the Secretary of Energy should instruct the Deputy Secretary to require timely and periodic reviews of contractual agreements, especially time and materials contracts or task orders, including the statements of work, to ensure that agreements continue to reflect both the work that is being performed and the needs of the agency. |
DOE issued Acquisition Letter 2007-03 that requires DOE to determine if the activities acquired under an interagency agreement are within the scope of the servicing agencies contract and document this determination. Also, the contracting officer's representative (COR) delegation memo requires that with each new task added to the contract, the COR must ensure the tasks are within the scope of the original agreement.
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| Department of Energy | To strengthen Energy's accountability for contractor-acquired government property, the Secretary of Energy should instruct the Deputy Secretary to establish or reinforce existing policies and procedures to approve contractor equipment purchases prior to purchase. |
As a result of our on-going work, DOE implemented new policy for contractors in the Environment, Safety and Health Division requiring all other direct costs greater than $50 be pre-approved prior to purchase.
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| Department of Energy | To strengthen Energy's accountability for contractor-acquired government property, the Secretary of Energy should instruct the Deputy Secretary to establish or reinforce existing policies and procedures to verify that contractors receive and safeguard the assets during the operation of the program, including physical inventories or some other process to validate that all assets paid for are accounted for. |
DOE reinforced its property management policy through Acquisition Letter 2007-06 which required the use of the Contractor Requirements Document (CRD) and FAR clause 52.245. Both the CRD and FAR clause requires contractors to establish periodic (annual) inventories during the operation of the program for equipment and sensitive items. Additionally, the CRD requires contractors to implement and maintain property control records that provide life cycle management (from acquisition to disposition).
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| Department of Energy | To strengthen Energy's accountability for contractor-acquired government property, the Secretary of Energy should instruct the Deputy Secretary to establish or reinforce existing policies and procedures to timely conduct physical inventories of contractor-acquired government property upon taking possession of the equipment at the close of contract, including resolving with the contractor any missing or defective items. |
DOE reinforced its property management policy through Acquisition Letter 2007-06. Specifically, DOE reinforced the use of the FAR clause 52.245 which requires contractors, at the close of the contract, to report to the agency's property manager the results of a physical inventory of government-owned property.
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| Department of Energy | To improve Energy's reporting and control of time and materials and cost reimbursement contract costs, including subcontractor costs, the Secretary of Energy should instruct the Deputy Secretary to establish or reinforce existing policies and procedures to review subcontracts, including those for labor obtained through temporary staffing agencies. |
As of April 2010, DOE procurement officials reiterated their position that existing policies and procedures were adequate. Consequently, DOE does not intend to take any action to address the findings detailed in our report.
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| Department of Energy | To improve Energy's reporting and control of time and materials and cost reimbursement contract costs, including subcontractor costs, the Secretary of Energy should instruct the Deputy Secretary to establish or reinforce existing policies and procedures to require contractors to obtain formal approval in advance for significant new subcontract agreements or changes to existing subcontract agreements, such as significant changes in the nature, scope, or amount of subcontracted activities, including labor obtained through temporary staffing agencies. |
As of April 2010, DOE procurement officials reiterated their position that existing policies and procedures were adequate. Consequently, DOE does not intend to take any action to address the findings detailed in our report.
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| Department of Energy | To improve Energy's reporting and control of time and materials and cost reimbursement contract costs, including subcontractor costs, the Secretary of Energy should instruct the Deputy Secretary to establish or reinforce existing policies and procedures to systematically monitor overall contract costs and require documented justifications from contractors for increased ceiling amounts, as well as specific documentation to support Energy's approval of the increases before incurrence of any costs beyond the ceiling. |
As of April 2010, DOE procurement officials reiterated their position that existing policies and procedures were adequate. Consequently, DOE does not intend to take any action to address the findings detailed in our report.
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| Department of Energy | To improve Energy's reporting and control of time and materials and cost reimbursement contract costs, including subcontractor costs, the Secretary of Energy should instruct the Deputy Secretary to establish or reinforce existing policies and procedures to properly assign costs incurred to the correct program at the time of payment and accurately report such costs in internal and external financial reports. |
As of April 2010, DOE procurement officials reiterated their position that existing policies and procedures were adequate. Consequently, DOE does not intend to take any action to address the findings detailed in our report.
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| Department of Energy | To improve Energy's reporting and control of time and materials and cost reimbursement contract costs, including subcontractor costs, the Secretary of Energy should instruct the Deputy Secretary to establish or reinforce existing policies and procedures to reinforce requirements for reconciliation of intragovernmental payments for amounts due under interagency agreements to appropriate supporting documentation. |
As of April 2010, DOE procurement officials reiterated their position that existing policies and procedures were adequate. Consequently, DOE does not intend to take any action to address the findings detailed in our report.
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| Department of Energy | To pursue opportunities for recovery of improper or questionable costs identified in this report, the Secretary of Energy in coordination with the Administrator of General Services and, in relation to Science and Engineering Associates, Inc. (SEA) costs, the Commanding Officer, Space and Naval Warfare Systems Center, New Orleans, should determine, in consultation with the Department of Justice, the amount, if any, of potentially recoverable costs associated with the improper and questionable payments for labor associated with SEA that we identified in this report in light of the settlement agreement dated November 2005. |
DOE recovered its portion of the DOJ settlement between the contractor and the government.
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| Department of Energy | To pursue opportunities for recovery of improper or questionable costs identified in this report, the Secretary of Energy in coordination with the Administrator of General Services and, in relation to SEA costs, the Commanding Officer, Space and Naval Warfare Systems Center, New Orleans, should determine whether the other improper and questionable payments of contractor costs, including payments to SEA that are identified in this report, should be reimbursed to Energy by any contractor. |
In response to our recommendation, among other actions, Energy engaged the Defense Contract Audit Agency (DCAA) to audit the Westwood contracts. After reviewing the relevant documentation and the DCAA audit findings, on August 10, 2010, Energy informed Westwood that it owed Energy $2,149,707 for improper payments made by Energy to Westwood under the contracts, including applicable penalties of $374,269.
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| Other | In light of the findings in this report, the Commanding Officer, Space and Naval Warfare Systems Center, New Orleans, should reassess the organization's procedures for carrying out its delegated responsibilities in connection with interagency agreements for delegated contract administration responsibilities, including assessing the adequacy of the review and approval process for contractor invoices, including (1) oversight and monitoring of contractor services and linkage of these activities to the invoice review and approval process, (2) verification that labor hours are billed in the appropriate categories at the appropriate rates, and (3) determining that contractor travel and other direct costs are in accordance with the contract and applicable federal regulations. |
Space and Naval Warfare Systems Center, New Orleans (SSC NOLA) (1) provided training to all SSC NOLA personnel involved in the invoice review and approval process, including project and program managers, and contract specialists on procedures to be followed in documenting any substantive guidance received from GSA on contract administration procedures; (2) updated and revised its Contracting Officer Representatives manual including adding an "air travel" checklist and distributed the manual to all personnel involved in reviewing contractor invoices and in contract management; (3) requested prime contractors to provide SSC NOLA with a description of their travel booking policies; (4) advised prime contractors on allowable air travel costs during program reviews attended by contract managers, COR and government project and program managers; and (5) discontinued using GSA time and material contracts that utilize labor cost categories and now uses only cost reimbursable contracts that require a review and approval of the labor mix.
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| Other | In light of the findings in this report, the Commanding Officer, Space and Naval Warfare Systems Center, New Orleans, should reassess the organization's procedures for carrying out its delegated responsibilities in connection with interagency agreements for delegated contract administration responsibilities, including establishing policies to document guidance sought from the General Services Administration (GSA) and the direction received on all matters of substance, including the use and billing implications of subcontracted labor, and to communicate the direction provided by GSA to the customer agency (e.g., Energy) for consideration by the customer. |
Space and Naval Warfare Systems Center, New Orleans (SSC NOLA) provided training to all SSC NOLA personnel involved in the invoice review and approval process, including project and program managers, and contract specialists on procedures to be followed in documenting any substantive guidance received from GSA on contract administration procedures.
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AccountabilityClaims processingCompensation claimsContract costsContract oversightContractor paymentsContractorsCost analysisErroneous paymentsFederal fundsInteragency relationsInternal controlsQuestionable paymentsProgram costsWorkers compensation