Hanford Waste Treatment Plant:

Department of Energy Needs to Strengthen Controls over Contractor Payments and Project Assets

GAO-07-888: Published: Jul 20, 2007. Publicly Released: Jul 20, 2007.

Additional Materials:

Contact:

Asif A. Khan
(202) 512-8341
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

In December 2000, the Department of Energy (DOE) awarded Bechtel National, Inc. (Bechtel) a contract to design and construct the Waste Treatment Plant (WTP), one of the largest nuclear waste cleanup projects in the nation. Originally expected to cost $4.3 billion and be completed in 2011, DOE now estimates that WTP will cost over $12.2 billion and be completed in late 2019. Weaknesses in DOE's management and oversight of contractors led GAO to designate DOE contract management as a high-risk area since 1990. GAO was asked to determine whether (1) DOE's internal controls are designed to provide reasonable assurance against improper WTP payments and (2) DOE's controls reasonably ensure proper accountability for WTP assets. GAO reviewed fiscal year 2005 and 2006 internal controls by analyzing data and documents, interviewing DOE and contractor staff, and physically observing property items.

DOE's internal controls over payments to contractors on its WTP project did not provide reasonable assurance against the risk of improper contractor payments, particularly given the project's substantial inherent risks. Several factors combined to pose a risk of improper payments on this project, including the size and complexity of this one-of-a-kind nuclear construction project, escalating cost and schedule estimates, and the thousands of charges Bechtel billed to DOE on each invoice. Despite the risks, in fiscal years 2005 and 2006 DOE performed little or no review of contractor invoices or supporting documents for the $40 million to $60 million in charges that Bechtel billed to DOE each month to help ensure the validity of these charges. Instead, DOE officials relied primarily on the Defense Contract Audit Agency's reviews of Bechtel's corporate-wide financial systems and on Bechtel's reviews of subcontractor charges for assurance that the charges were proper. DOE's heavy reliance on others, with little oversight of its own, exposed the hundreds of millions of dollars it spent annually on the project to an unnecessarily high risk of improper payments. DOE also did not adequately oversee the contractor to ensure accountability for assets purchased with WTP contract funds, relying primarily on the contractor to manage such government property without ensuring the adequacy of the contractor's controls. We found numerous internal control weaknesses with Bechtel's property management program, including poor segregation of duties, property system errors, and inadequate property procedures. For example, Bechtel did not timely prepare and submit required reports of lost or damaged property, taking up to 2 years in some instances to report missing assets, such as computers, to DOE. Bechtel also did not always review subcontractors' property management policies and procedures as required or follow up on subcontractor weaknesses it identified to help ensure that its subcontractors adequately managed and safeguarded WTP property in their possession. These property control weaknesses coupled with the lack of DOE oversight created an environment in which property could be lost or stolen without detection.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve DOE's review and approval process for contractor billings, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to perform an assessment of the risks associated with WTP contract payments, including subcontractor payments, which should include comprehensively identifying the risks, performing a risk analysis of their possible effects, and identifying the actions--both preventive and detective--to be taken to mitigate those risks.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of DOE's Hanford Waste Treatment Plant (WTP), we found that DOE performed little or no review of the WTP contractor's invoices despite a significant inherent risk of improper payments on this project. We found that DOE had not performed or documented any formal risk assessment as a basis for determining the level of surveillance and internal controls it would use to manage the substantial risks associated with this project. In its agency comments, DOE stated it had assessed the risk at contract inception (i.e., 7 years earlier) but agreed with our recommendation to perform an updated risk assessment. DOE subsequently completed an updated risk assessment on August 31, 2007. According to the risk assessment, participants included project management, acquisition management, and project administration (financial management) staff as well as DCAA. The assessment included a risk matrix identifying potential risks, and assigning a risk rating to various factors for each risk that were then used to develop a risk value and assign a risk level. The risk assessment addressed each identified potential risk, possible mitigating actions, and the controls DOE would implement to address each risk. DOE used this risk assessment to develop a new revised invoice review policy issued September 18, 2007.

    Recommendation: To improve DOE's review and approval process for contractor billings, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to, based on the results of the risk assessment, establish appropriate policies and procedures for effective review and approval of the prime contractor's invoices. Such policies and procedures should specify the steps to be performed for review and approval, the individuals responsible for carrying out these steps, the level of invoice detail needed to perform an appropriate review, and the appropriate documentation to be maintained of that review process.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of DOE's Hanford Waste Treatment Plant (WTP), we found that DOE performed little or no review of the WTP contractor's semimonthly invoices. Although DOE staff had performed reviews of selected transactions in each WTP invoice in the past, DOE discontinued these reviews in 2005 and instead conducted only an annual review of a few dozen transactions selected from only 2 or 3 invoices. According to DOE officials, there was no requirement specifying how frequently invoices should be reviewed or how such reviews should be performed. DOE had previously issued a local directive in 2002 specific to the WTP project that provided DOE staff with instructions for reviewing the WTP contractor's invoices, but the directive was currently inactive. Thus, we recommended that, based on the results of a risk assessment (see rec. #1), DOE should establish appropriate policies and procedures for effective review and approval of the WTP contractor's invoices. Following our review, DOE prepared an assessment of the risks associated with WTP contractor payments and, based on that, issued a revised invoice review policy on September 18, 2007. The new policy now requires DOE to sample transactions and review supporting documents for both labor and non-labor costs on every invoice. It also contains a checklist for these invoice reviews that is more extensive than the checklist in the old policy, and requires the checklist for each invoice reviewed to be maintained in the files for external review. We also noted that the new policy contains new procedures and controls that were not in the old policy. For example, the old policy did not have any review requirements for the WTP Federal Subproject Directors (FSDs), who are the DOE employees most familiar with each subproject. The new policy specifies several responsibilities for FSDs, including using different methods to check for unreasonable costs, checking a sample of vendors or subcontract costs to ensure work has been performed before payment, and documenting each invoice review and any questioned costs on a standard form. Another key element of the new policy is the emphasis on documenting each review through templates, checklists, and other support for an external reviewer to understand the level of review, specific examination criteria, and the final determination of acceptability for payment processing or rejection. The policy also requires updating the risk assessment annually, and updating the invoice review procedures if necessary.

    Recommendation: To improve DOE's review and approval process for contractor billings, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to establish a policy and procedures to periodically assess the prime contractor's oversight of subcontractor payments to determine if there are any deficiencies and corrective actions needed and assess whether the controls can be sufficiently relied on to ensure that subcontractor payments are allowable, reasonable, and in compliance with all Federal Acquisition Regulation (FAR) and contract requirements.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of DOE's Hanford Waste Treatment Plant (WTP), we found that DOE relied primarily on the prime contractor to review and validate subcontractor charges without DOE having an adequate process in place to assess whether the prime contractor was properly carrying out this responsibility. We recommended that DOE establish a policy and procedures to periodically assess the prime contractor's oversight of subcontractor payments for deficiencies and corrective actions needed, and to assess whether the prime contractor's controls over subcontractor payments can be relied upon. DOE's February 12, 2010 policy assigned DOE's WTP Contracting Officer the responsibility to perform quarterly reviews of its prime contractor's policies and procedures to ensure that they are adequate and to ensure that the prime contractor provided proper review and approval prior to making progress or final payments to subcontractors. Furthermore, quarterly reviews are to be performed to ensure that the prime contractor's subcontracting procedures are operating consistently and effectively. It further tasked the Acquisition Management Division personnel to develop quarterly reports to provide formal documentation of its oversight of the prime contractor's procurement systems for the quarter.

    Recommendation: To strengthen DOE's accountability for contractor-acquired government property, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to follow DOE's existing requirements to periodically document and assess the contractor's property management program for compliance with the FAR and DOE policy.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of DOE's Hanford Waste Treatment Plant (WTP), we found that DOE did not always perform and document periodic reviews of the WTP contractor's property management program. DOE subsequently completed for two assessments. One assessment was on the preservation and maintenance of permanent equipment, which resulted in 6 findings. For instance, DOE found that Bechtel National, Inc (BNI) still had not resolved preservation and maintenance issues for cooling tower pumps and fans and Steam Plant Facility equipment. The second assessment involved DOE's review of DOE owned vehicles operated and managed by BNI. Specifically, DOE assessed BNI's vehicle utilization, performed a vehicle field inspection, and examined whether BNI implemented prior corrective actions related to vehicle maintenance and repair, vehicle inspections, and vehicle accident/property damage reporting requirements. DOE also provided us with a schedule of planned property related assessments. For example, it shows that DOE plans to assess BNI's equipment receipt inspection, material handing, property receiving process, and WTP property maintenance.

    Recommendation: To strengthen DOE's accountability for contractor-acquired government property, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to follow DOE's existing requirements to document the adequacy of corrective actions planned and implemented by the contractor to address weaknesses identified in DOE's assessments of the contractor's property management program.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of DOE's Hanford Waste Treatment Plant (WTP), the DOE official responsible for approving Bechtel National Inc.'s (BNI) property management program told us he reviewed the contractor's policies and procedures and spot-checked implementation of the procedures but did not formally document his assessment or corrective actions he required of the contractor. Therefore, we recommended that DOE follow its existing requirements to document the adequacy of corrective actions planned and implemented by the contractor to address weaknesses identified in DOE's property management assessments. DOE's documentation of numbered memos between the DOE property administrator and the WTP contractor is evidence of DOE's ongoing monitoring of its contractor's property management program, as recently as 2010, showed the Property Administrator's provided documentation of its detailed review of the contractor's property management system and the corrective actions made by the contractor to address DOE's review findings.

    Recommendation: To strengthen DOE's accountability for contractor-acquired government property, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to direct the contractor to implement control procedures to help ensure the timeliness and accuracy of information entered into the property systems.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of the Department of Energy's (DOE) management of the Waste Treatment Plant (WTP) contract, we found that its contractor did not maintain accurate records of government assets purchased with WTP contract funds. The contractor's property procedures required it to maintain a government property system that was current and accurate. However, during our observation of selected property items, we found numerous errors with the contractor's property database, including government assets which the contractor purchased and received, but did not record in the property system. The contractor attributed these errors, in part, to receiving staff's failure to notify property staff of newly acquired property. To provide better accountability for WTP assets, we recommended that DOE direct the contractor to implement control procedures to help ensure the timeliness and accuracy of information entered into the property system. The contractor's written property policies and procedures, dated April 2011, require property staff to take a more proactive role in monitoring newly acquired property. Specifically, property staff are now required to monitor acquisition reports for purchases of government assets that meet the criteria to be recorded and tracked in its property system. Actively monitoring its procurement system will allow property staff to anticipate the purchase of government property, coordinate with receiving staff, and increase the likelihood that such assets will be recorded and tracked in the property system in a timely manner

    Recommendation: To strengthen DOE's accountability for contractor-acquired government property, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to review the adequacy of Bechtel's proposed inventory plan for construction materials once submitted, and ensure that the approved plan is properly implemented.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of the Department of Energy's (DOE) management of the Waste Treatment Plant (WTP) contract, we found deficiencies in DOE-approved contractor procedures for physical inventories of government property and the contractor's failure to complete periodic inventories of such property. The Federal Acquisition Regulation requires the contractor, with the approval of the government property administrator, to establish the type, frequency, and procedures for periodic inventories. However, we found that the DOE-approved contractor materials inventory procedures did not specify the frequency of its materials inventory and a timeframe for completing such inventory. We also found that the contractor failed to perform a complete inventory of construction materials for the two years covered by our audit. To strengthen DOE's and its contractor's accountability over WTP assets, we recommended that DOE review the adequacy of the contractor's proposed inventory plan for construction materials and ensure that the approved plan is properly implemented. 2010 and 2011 correspondence between DOE and its WTP contractor and the approved 2011 and 2012 materials inventory plans demonstrated that the DOE property administrator actively reviewed the WTP contractor's materials inventory plans for adequacy and monitored the results to ensure that the approved plans are properly implemented. Moreover, the recently approved 2011 and 2012 materials inventory plans specify how frequently the contractor will perform materials inventory and provide specific deadlines for completing the inventory.

    Recommendation: To strengthen DOE's accountability for contractor-acquired government property, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to direct the contractor to establish appropriate controls to ensure that employee exit procedures requiring terminated employees to return tools before they leave are followed.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of the Department of Energy's (DOE) management of the Waste Treatment Plant (WTP) contract, we identified a number of government assets assigned to former employees that could not be located. Furthermore, we found that while its contractor's procedures required employees permanently exiting the project to return tools issued to them before leaving, they were not consistently followed. To strengthen the contractor's employee exit procedures, we recommended that DOE direct the contractor to establish appropriate controls to ensure that employee exit procedures requiring terminated employees to return tools before they leave are followed. In response, the contractor's 2011 property management policies now require superintendents to provide the names of employees exiting the WTP project to the Site Tool Program Management staff. The Site Tool Program Management, in turn, are to provide the superintendent a report of tools and equipment issued to exiting employees. Alerting Site Tool Program Management staff of exiting employees and providing superintendents a list of tools and equipment in these employees' custody should help project managers better account for and prevent the loss of government assets.

    Recommendation: To strengthen DOE's accountability for contractor-acquired government property, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to direct the contractor to establish a formal policy and procedures for property staff to (1) periodically monitor the government property system for assets with property passes that are due to expire soon, (2) notify property custodians with such assets to renew their property passes or return the items if no longer needed, and (3) ensure that such assets are verified as required.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of the Department of Energy's (DOE) management oversight of the Waste Treatment Plant (WTP) project, we found that its contractor employees did not comply with property checkout procedures. While contractor procedures required employees to obtain a property pass for items removed from project-controlled areas and to renew the pass annually if the asset was still needed off-site, we found that about 100 of the 300 items checked out- primarily computers-had expired property passes. We selected ten assets with expired passes and found the DOE contractor could not locate one of them. Failure to follow established control procedures and properly account for WTP assets taken off project-controlled premises increases the risk of loss of such assets and decreases the likelihood of a prompt detection of such losses, if at all. To improve controls over WTP assets taken out of project-controlled areas we recommended that DOE direct the contractor to establish a formal policy and procedures for property staff to (1) periodically monitor the government property system for assets with property passes that are due to expire, (2) notify property custodians with such assets to renew their property passes or return the items if no longer needed, and (3) ensure that such assets are verified as required. Consequently, the contractor updated its property asset management system to help its property staff monitor property passes. Specifically, the contractor's system requirements specification, dated March 2011, specifies procedures to the property asset management system to perform monthly queries of the property database for property passes due to expire within 60 and 90 days, generate a list of property passes due to expire, send e-mail reminders to the property custodians and their supervisors regarding the due dates of their property passes along with renewal forms, and facilitate the review and approval of such forms by the supervisors and property management staff. The enhancements to the contractor's system that facilitates the monitoring of property passes due to expire and the renewal of such passes should help improve accountability over WTP assets and reduce the risk of loss.

    Recommendation: To strengthen DOE's accountability for contractor-acquired government property, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to direct the contractor to establish control procedures to help ensure that Bechtel staff and subcontractors report lost or damaged government assets to property management in a timely manner so that they can be forwarded to DOE within recently established time frames.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: During our review of the Department of Energy's (DOE) management of the Waste Treatment Plant (WTP) contract, we found that while subcontractors sometimes maintained custody of WTP government assets, the subcontractors' property management policies did not include formal procedures for reporting lost, damaged, or destroyed government property and thus did not have any requirements for reporting such incidents promptly. The absence of such requirements could lead to delays or failure to report such incidents to the prime contractor and DOE, and decrease opportunities for the timely investigation of these incidents and implementation of controls to help avert future losses. To strengthen accountability for government property in the subcontractor's custody, we recommended that DOE direct the prime contractor to establish control procedures to help ensure its subcontractors report lost or damaged government assets to its property management in a timely manner so that they can be forwarded to DOE within reasonably established timeframes. The prime contractor developed standardized property management policies and procedures for its subcontractors in July 2009. The new procedures set forth specific deadlines for subcontractors to report lost, damaged, or destroyed government property to the prime contractor, who is responsible for reporting such incidents to DOE. The development and implementation of these policies and procedures will help ensure that the prime contractor and DOE become aware of losses related to government assets in a timely manner, which in turn should lead to the implementation of additional controls to better account for and safeguard such assets in the future.

    Recommendation: To strengthen DOE's accountability for contractor-acquired government property, the Secretary of Energy should direct the Assistant Secretary for Environmental Management or designee to establish procedures to periodically assess the prime contractor's oversight of its subcontractors in possession of government property to ensure that the prime contractor (1) audits applicable subcontractors' property management programs as required, (2) reviews applicable subcontractors' property management policies and procedures for completeness and consistency, and (3) follows up on and documents resolution of corrective actions in a timely manner.

    Agency Affected: Department of Energy

    Status: Open

    Comments: During our review of the Department of Energy's (DOE) management of the Waste Treatment Plant (WTP) contract, we found that the WTP prime contractor did not provide adequate oversight of government assets in its subcontractors' custody. The Federal Acquisition Regulation requires the prime contractor to ensure that its subcontractors adequately care for and maintain government property. Consequently, the prime contractor procedures require its property management staff to review and approve its subcontractor's government property programs. However, we found that the contractor did not adequately perform reviews or follow-up on subcontractor property management issues. Specifically, we found that the prime contractor had never audited one of its subcontractors; the subcontractors' property management policies were incomplete or inconsistent with the prime contractor's property management policies; and the prime contractor did not timely follow up on subcontractor property management issues it identified through its reviews. Inadequate oversight of government property in subcontractor's custody increases the susceptibility of such assets to loss and misuse. To help ensure that the prime contractor provides better accountability of WTP government assets in subcontractors' custody, we recommended that DOE establish procedures to periodically assess the prime contractor's oversight of its subcontractors in possession of government property. These assessments should help ensure that the prime contractor (1) audits applicable subcontractors' property management programs, (2) reviews applicable subcontractors' property management policies and procedures, and (3) follows up on and documents resolution of corrective actions in a timely manner. DOE has not established procedures for periodically assessing the contractor's possession of government property. However, the prime contractor's April 2011 property management policies and procedures, reviewed and approved by DOE, includes specific requirements for the prime contractor to perform property management assessments of its subcontractors, perform follow-up assessments to ensure subcontractors implement corrective actions for deficiencies noted, and review and approve subcontractors' government property management plans for specific property accountability requirements. The prime contractor also provided reports on the results of its 2010 and 2011 assessments of its subcontractors' property management programs, including its follow-up on prior assessment findings, and made such reports available to DOE for review. DOE's closer monitoring of the contractor's oversight of its subcontractors' property management programs should help ensure that the prime contractor carries out its responsibilities to ensure that all WTP government assets, including those in the custody of subcontractors, are appropriately accounted for and safeguarded from loss or misuse.

    Jul 16, 2014

    Jul 15, 2014

    Jul 9, 2014

    Jun 30, 2014

    Jun 16, 2014

    May 22, 2014

    May 21, 2014

    May 19, 2014

    May 12, 2014

    May 5, 2014

    Looking for more? Browse all our products here