DOE currently estimates that the WTP project will cost          $12.2 billion, with a completion date of late 2019. Inadequate DOE Controls Heightened Risk of Improper WTP Contractor Payments

DOE’s controls over payments to contractors were not effectively  designed to adequately reduce the risk of improper payments, particularly  given the inherent financial risks of the WTP project. Specifically, several  factors combine to pose a significant inherent risk of improper payments  to the government on this project, including the size and complexity of the  project, escalating cost and schedule estimates, and the significant volume  of transactions Bechtel bills to DOE each invoice. Instead, DOE relied  primarily on DCAA’s review and approval of Bechtel’s financial systems  and on Bechtel’s review and approval of subcontractor charges. 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 Performed Little or No Review of Contractor Invoices

Despite the project’s risks, in fiscal years 2005 and 2006 DOE performed  little review of contractor invoices or supporting documents for the  millions of dollars in charges that Bechtel billed to DOE twice a month. DOE’s Oversight Controls for Project Assets Were Inadequate

DOE did not perform adequate oversight to reasonably ensure that Bechtel  had established proper accountability for assets purchased with WTP  project funds. However, we found that DOE relied primarily on the contractor  to manage WTP property without adequate oversight to help ensure that  the contractor complied with these requirements. As a result, until  recently DOE management was largely unaware of numerous internal  control weaknesses in the contractor’s property management system,  which exposed WTP assets to loss or misuse. Inaccurate property system data. Lost, damaged, or destroyed property items not promptly  reported. For example, Bechtel did not report to DOE the loss of 3 laptop  computers and 2 projectors until 2 years after it first identified them as  missing. However, Bechtel did not adequately  perform such reviews or follow up on subcontractors’ property  management issues. 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. Appendix I: Scope and Methodology

For this review, we considered internal controls in place during fiscal  years 2005 and 2006 at the Department of Energy (DOE) and at Bechtel  National, Inc. (Bechtel) related to the Hanford Waste Treatment and  Immobilization Plant (WTP) project. Property Controls

To determine whether DOE’s oversight controls reasonably ensured  proper accountability over WTP property, we used our Standards for  Internal Control in the Federal Government as a basis to assess the  internal control structure—control environment, risk assessment  procedures, control activities, information and communications, and  monitoring efforts of DOE over contractor payments. Physical observations.
Why GAO Did This Study

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.

What GAO Found

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.