Audit Report: DOE-OIG-16-06

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February 5, 2016

Followup Audit of the Department of Energy’s Management of Contractor Fines, Penalties, and Legal Costs

Our September 2009 report on The Department of Energy’s Management of Contractor Fines, Penalties, and Legal Costs (DOE/IG-0825) revealed the Department had reimbursed contractors for legal costs that were questionable because of their association with an underlying fine or penalty, permitted contractors to incur costs for outside counsel that should not have been paid based on the terms of the engagement letter, and authorized settlement payments without performing required postsettlement reviews.

Although the Department’s management of contractor fines, penalties, and legal costs had improved since our 2009 report, we found that problems with the management of these costs continue to exist.  Specifically, our testing revealed that the Department was still authorizing settlement payments without documented evidence of settlement reviews to determine the allowability of costs.  Furthermore, the Department had not always determined when postsettlement reviews were warranted.  Our detailed review of 46 settlement agreements at 6 site contractors found 36 settlements (78 percent) valued at more than $62 million in which there was no documented evidence a settlement review had been performed.

The issues we identified occurred because the Department had not (1) developed and implemented guidance in a timely manner concerning the application of a 2009 legal decision that established a legal precedent related to the settlement of cases involving discrimination, (2) ensured current policy requiring settlement reviews for discrimination and whistleblower cases was implemented, or (3) developed guidance for conducting settlement reviews for other types of cases.  Furthermore, the Department had not developed guidance indicating when conducting a postsettlement review would be warranted.  Although similar issues were noted in our 2009 report, the Department had not established adequate policy or guidance in these important areas to assist field offices in determining the cost allowability of settlements.

Topic: Management & Administration