Deficient Subcontractor Oversight

The Department of Energy's Inspector General Office issued a report late last week that was highly critical of the Departments financial oversight and management of its contractors and grantees. The Department had reimbursed contractors/grantees for unallowable costs and found that some of its contractors were not performing adequate oversight of their subcontractors.

Specifically, the report noted the following three issues:

1. DOE had reimbursed $5.3 million in unsupported and/or unallowable costs at nine recipients for unsupported subcontractor or partner costs, potentially unallowable and/or unsupported travel and meal costs and other expenses that were not supported by detailed invoices. In other words, the prime contractors were simply passing along subcontractor invoices without having determined the costs were allowable, allocable and reasonable to the Government.

2. DOE was unaware that one recipient included unallowable costs of approximately $700,000 in its indirect cost rate calculation, a practice that resulted in higher than allowable reimbursements estimated at over $64,000. Contractors need to ensure that unallowable costs are identified and excluded from any billings to the Government.

3. DOE had not ensured that recipient procurement practices were adequate to fully protect the Government's interests and that these practices complied with applicable policies, procedures and best practices. For example, one recipient non-competitively awarded approximately $1 million for subcontract work to two companies that shared common ownership interests with the recipient. In addition, recipients had not always utilized competition to obtain the best possible prices for goods and services purchased with Federal funds. At two of the recipients, we found examples of purchases valued at about $210,000 for materials, equipment and services that were not supported by competitive bidding procedures. Accordingly, we questioned approximately $1.2 million of procurement costs that may not have provided the best value to the Government.

We guess that the IG had to blame somebody for these oversights but to us, the emphasis should have been on the contractors, not the Government. Contractors are required to have adequate accounting, purchasing, timekeeping, and billing systems as a condition for contracting. Lacking support for expenditures, claiming unallowable costs, and having poor purchasing policies and procedures are contractor issues, not DOE issues. While Government oversight is built into the system, the corrective action should focus on getting contractors to improve their systems, not blaming a Government agency for lack of oversight.

You can read the full report here.