Audit Report: OAI-M-16-03

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December 18, 2015

The Office of Fossil Energy’s Regional Carbon Sequestration Partnerships Initiative

The Office of Fossil Energy Regional Carbon Sequestration Partnerships Initiative (Initiative) was established in 2003 to develop the technology, infrastructure, and regulations needed to implement large-scale CO2 storage in different regions and geologic formations.  The Initiative involves seven regional partnerships that are comprised of state agencies, universities, and private companies.  Overall, the partnerships represent more than 400 unique organizations in 43 States and 4 Canadian Provinces.  Funding is provided to the regional partnerships through cooperative agreements valued at about $829 million, with the Department of Energy (Department) share totaling approximately $591 million and partner members contributing about $238 million on a cost-share basis.  As of April 2015, about $503 million of the Department’s share had been obligated, of which approximately $378 million had been reimbursed in claimed costs.

The Office of Inspector General has considered contract and financial assistance award management to be a significant management challenge for a number of years.  For example, our audit report on The Department of Energy’s Industrial Carbon Capture and Storage Program Funded by the American Recovery and Reinvestment Act (OAS-RA-13-15, March 2013) found that the Department had not always effectively managed the Industrial Carbon Capture and Storage Program and the use of American Recovery and Reinvestment Act of 2009 funds.  In light of previous concerns and the significant amount of funding for the Initiative, we initiated this audit to determine whether the Initiative was managed in an effective and efficient manner.

The Department had not always effectively managed the Initiative’s financial assistance awards.  In particular, our testing revealed that one of the two partnerships we reviewed, the Midwest Geological Sequestration Consortium, managed through a cooperative agreement with the University of Illinois, had been reimbursed or allowed to claim cost share for approximately $5.1 million in unsupported and questionable project costs incurred by one of its subrecipients, Schlumberger Carbon Services.  We found that Schlumberger had not provided to the University of Illinois sufficient supporting documentation for about $5 million in claimed costs in the sample of invoices we reviewed associated with intradivision transactions within the company.

Topic: Management & Administration