Leaving Department of Energy contractors in charge of auditing costs ultimately paid by the government has created something of a “fox-guarding-the-henhouse problem,” the DOE’s Office of Inspector General said recently.
As a result, the Office of Inspector General (OIG) wants DOE to hire dozens of independent federal auditors to overcome shortcomings in the “cooperative audit” system in place since the 1990s, according to the report published last month.
The cooperative audit strategy, started in 1994, gives management and operations contractors the authority to audit their own books. But such audits, “do not have the same rigor” as Generally Accepted Government Auditing Standards because the internal auditors are basically “embedded within a company,” according to the OIG.
“The Department’s M&O contractors’ internal auditors are hired by, supervised by, paid by and responsible to the contractors,” the OIG said in the report. This “design flaw” makes it difficult to ensure against contractor overpayment and potential waste, fraud and abuse.
While the OIG does “limited assessments” of work done by the contractors’ auditors, this practice is not sufficient to fix the defect in the cooperative audit system, according to the report. Last fall OIG’s Office of General Counsel started a legal analysis of the current setup. Likewise, a couple of Congressional committees last year called upon DOE to look at the cooperative audit strategy and suggest possible changes.
The DOE’s prime contractors employ more than 100,000 full-time employees and have a payroll that amounts to roughly $16 billion annually. Currently, OIG has multiple ongoing fraud investigations into alleged labor overcharges at several DOE sites, according to the report.
The OIG says setting up annual independent audits will require about 87 more full-time employees and roughly $18.7 million in additional yearly funding. The federal auditing staff could, OIG said, pay for itself by recovering as much as $48.7-million in federal overcharges to DOE.
In a brief reply included in the April OIG document, DOE’s then acting secretary David Huizenga said his agency considers the cooperative audit program an effective and efficient method of calculating allowable costs for prime contractors. “Nonetheless, the Department recognizes OIG’s authority as the cognizant auditor to develop and alternate strategy.”
