Fossil Fuels:

Ways to Strengthen Controls Over Clean Coal Technology Project Costs

RCED-93-104: Published: Mar 31, 1993. Publicly Released: Apr 30, 1993.

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Pursuant to a congressional request, GAO reviewed the Department of Energy's (DOE) controls over its clean coal technology program's project costs, focusing on: (1) DOE assurance that proposed project costs are reasonable; (2) whether DOE timely audits incurred project costs; and (3) how third-party contributions affect federal cost-sharing and sponsor financing.

GAO found that: (1) DOE effectively assesses project cost estimates during preaward reviews; (2) DOE does not timely perform audits of incurred project costs because the Defense Contract Audit Agency (DCAA) has extensive audit backlogs and it is reluctant to use independent public accountants (IPA); (3) DOE does not obtain timely cost data needed for some audits; (4) DOE permits project sponsors to include third-party cash and in-kind contributions in their share of project financing, which significantly reduces their direct investment in projects; (5) DOE permitted one sponsor to claim an in-kind contribution for donated equipment used in a cost-sharing arrangement on another federally assisted project; and (6) DOE could reduce the government's expenditures and increase the sponsors' incentive to meet project costs and performance goals by sharing third-party contributions with project sponsors.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: There has been no indication to date of any congressional intent to implement this recommendation. GAO is therefore closing the recommendation.

    Matter: To reduce the government's cost and risk in funding clean coal technology projects, Congress may wish to consider directing DOE to not fund more than 50 percent of the total costs actually incurred by DOE and project sponsors.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In addressing this recommendation, DOE indicated that cost-sharing a project that involved previous federal cost-sharing was an isolated incident. DOE also indicated that consistent with government-wide policy, it does not permit cost-sharing in such circumstances. GAO is therefore closing this recommendation.

    Recommendation: In negotiating future cooperative agreements, DOE should not cost-share the value of equipment that has been used in a cost-shared arrangement on another federally assisted project.

    Agency Affected: Department of Energy

  2. Status: Closed - Not Implemented

    Comments: DOE stated that it was concerned about the question the recommendation raised regarding the respective responsibilities of DOE and the industrial participants. DOE believes that audits required by the government to fulfill its own fiscal management responsibilities are clearly a DOE project management oversight function and should not be a cost to the participants. GAO is therefore closing the recommendation.

    Recommendation: In negotiating future cooperative agreements, DOE should consider including the costs of incurred cost audits in the total project costs to be shared by DOE and the project sponsors.

    Agency Affected: Department of Energy

  3. Status: Closed - Not Implemented

    Comments: DOE said that its past experience with using independent public accountants in incurred cost audits had shown that they did not provide the quality that DOE required. DOE contended that the audits provided by the Defense Contract Audit Agency were more suitable, complete, and accurate for the program purposes. GAO is therefore closing this recommendation.

    Recommendation: To obtain more timely incurred cost audits and reduce the risk of not recovering any unallowable project costs, the Secretary of Energy should direct the Assistant Secretary for Fossil Energy to consider using IPA to conduct incurred cost audits for projects when DCAA cannot meet a priority request for audits.

    Agency Affected: Department of Energy

  4. Status: Closed - Not Implemented

    Comments: In August 1994, DOE said that it had undertaken a review of how its project managers were handling cost-share payments and keeping track of project costs. DOE wants more consistency and indicated that it would consider GAO's report and this recommendation in its study. However, in April 1995, DOE said that it had decided to continue to allow flexibility in deciding whether to withhold a portion of federal funds to offset any unallowable project costs that may have been reimbursed. GAO is therefore closing this recommendation.

    Recommendation: To obtain more timely incurred cost audits and reduce the risk of not recovering any unallowable project costs, the Secretary of Energy should direct the Assistant Secretary for Fossil Energy to establish procedures to uniformly withhold a portion of federal funds to offset any unallowable project costs that may have been reimbursed and make greater efforts to obtain timely and adequate incurred cost information for audit purposes.

    Agency Affected: Department of Energy

  5. Status: Closed - Implemented

    Comments: DOE said that it will, as recommended, request priority audits, when appropriate, but believes that the timeliness of audits by the Defense Contract Audit Agency will continue to be a government-wide problem because of the audit backlog. Therefore, this recommendation is being closed.

    Recommendation: To obtain more timely incurred cost audits and reduce the risk of not recovering any unallowable project costs, the Secretary of Energy should direct the Assistant Secretary for Fossil Energy to request that DCAA give priority to incurred cost audits of withdrawn and completed projects and any other projects where an expedited review of incurred costs is warranted.

    Agency Affected: Department of Energy

  6. Status: Closed - Implemented

    Comments: DOE agrees with this recommendation and indicates current procedures implement its intent. DOE said it will continue to make every attempt to ensure that all questioned costs are resolved before completing agreements, but acknowledged that in the case discussed in the GAO report, DOE did not document that the matter was resolved. GAO is therefore closing the recommendation.

    Recommendation: To obtain more timely incurred cost audits and reduce the risk of not recovering any unallowable project costs, the Secretary of Energy should direct the Assistant Secretary for Fossil Energy to resolve all proposed costs that are questioned during preaward reviews and document the basis for the resolution before completing cooperative agreements with project sponsors.

    Agency Affected: Department of Energy

 

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