Taxpayers bilked in Fernald cleanup


BY MIKE GALLAGHER
The Cincinnati Enquirer

The company hired by the Department of Energy to clean up Fernald has cheated the government out of millions of dollars and jeopardized the safety of plant workers and neighbors, an Enquirer investigation has uncovered.

Wrongdoing by the Fernald Environmental Restoration Management Co. (FERMCO) and a lack of oversight by the Energy Department show that secrecy and deceit continue to be the watchwords at the former uranium processing plant 18 miles northwest of Cincinnati.

The Enquirer found during a six-month investigation that FERMCO and its parent company, Fluor Daniel Corp., collected millions of dollars in performance fees for incomplete work and billed the government for unauthorized work.

Hundreds of safety violations and other problems, including many radiation exposures, have been blamed on poor management by FERMCO, according to government records.

The investigation also found that the Energy Department's oversight is lax at the 1,050-acre site.

Falsified work records, improper charge accounts and inflated cost estimates are rampant in the cleanup operation, according to documents obtained by the newspaper.

The documents include internal memos and financial reports of FERMCO, and records of the Department of Energy and the department's Office of Inspector General.

Internal FERMCO documents show the company's senior management officials knew about the financial and reporting problems, but did little or nothing to stop them.

FERMCO is a wholly owned subsidiary of Fluor Daniel, a multinational design and construction corporation based in Irvine, Calif. The $2.2 billion contract, awarded to Fluor Daniel - FERMCO in 1992, is the first and only site-wide nuclear cleanup contract the company has received from the Energy Department. To date the company has been paid $932 million.

Among the financial problems discovered by The Enquirer:

FERMCO gave fake performance reports to the Energy Department to cover up cost and schedule overruns, maintaining the company's eligibility for millions in performance bonuses. The Energy Department has paid FERMCO $33.9 million on claims the company has submitted saying it met performance goals.

Financial accounts and charge numbers used to bill the government were set up in violation of the Energy Department's and FERMCO's rules. So far the government has paid $12.6 million to FERMCO on these unauthorized accounts.

FERMCO employees - including unauthorized personnel - charged millions of dollars to accounts that were set up to pay for other, government-approved projects.

FERMCO officials often have billed the government without identifying what a specific charge was for or to what project it was linked. The government paid the bills anyway.

FERMCO officials submitted phony cost and work estimates to the Energy Department, which resulted in millions of dollars in overbudgeting and overfunding.

FERMCO President Don Ofte said Thursday that he believes all accounts used to bill the government have been properly authorized by the Energy Department. Mr. Ofte said an auditing team was brought in from Flour Daniel headquarters last week because of questions raised in interviews with The Enquirer. The newspaper raised these questions in a series of interviews with company officials that began on Jan. 24.

Repeated requests by The Enquirer to interview Fluor Corporation Chairman and Chief Executive Officer Les McCraw have been denied, even after a reporter traveled to Fluor headquarters near Los Angeles to meet with McCraw on Feb. 2. Lee Tashjian Jr., Fluor's vice president of corporate relations, met with The Enquirer but declined to comment, saying, ''We need time to look into these matters.''

Energy Secretary Hazel O'Leary and her chief deputy, Thomas Grumbly, refused repeated requests for interviews. However, after learning of The Enquirer's findings 10 days ago, Secretary O'Leary dispatched James Owendoff, deputy assistant secretary for environmental management, from Washington to investigate.

Fake performance reports


FERMCO wants the Energy Department to extend its five-year Fernald contract, which expires in 17 months. If the government determines FERMCO is chronically over budget, behind schedule and under-performing, it may not renew the contract.

FERMCO officials also are trying to persuade the government to accept a proposed 10-year, accelerated cleanup plan for Fernald which they hope will lead to a new, extended contract. The company can earn up to $10.8 million in bonuses every six months for meeting budget and performance schedules. To date Fermco has been paid $33.9 million in performance fees, according to the Energy Department.

Company documents spell out FERMCO's desire to maintain a high record of performance, even if that performance is exaggerated.

An April 6, 1994 internal FERMCO memo obtained by The Enquirer reveals that FERMCO officials intentionally are not correcting inaccurate progress reports they have provided to the government.

The memo, written by W.R. Den Herder, who at the time was Principal Project Controls Engineer Specialist for FERMCO, reads in part:

''Occasionally we find during reviews and analysis that we have inadvertently overstated our progress . . . It is important for our credibility and consistency of data that we not change history. Therefore, once performance is claimed, we will not claim ''negative performance'' to make corrections: We will leave the performance calculation as reported (to the government) until the real performance catches up in a future period.''

The company declined to make Mr. Den Herder available for interviews. Mr. Ofte said the memo referred only to ''small corrections,'' in the performance reports. ''What Den Herder was trying to do at the time was to tell people to do it right.''

Jack Craig, who oversees the Fernald cleanup for the Energy Department, said he had not seen the Den Herder memo until The Enquirer told him about it.

''I can tell you I was extremely bothered by it and I turned it over to (higher Energy Department officials) and discussed it with the Inspector General here at Fernald,'' Mr. Craig said in a December 28 interview. ''I certainly never authorized them to do that, and I can tell you no one in the Department of Energy ever did either.''

In a February 6 report to his superiors, Mr. Craig said his office had interviewed Mr. Den Herder and still was evaluating Mr. Ofte's explanation of the memo. Mr. Craig also said an Energy Department audit team was investigating other allegations of improper performance reports. ''At this time . . . the DOE audit team has concluded that FERMCO has not attempted to mislead the government concerning the reporting of progress.''

Another document shows the company took steps to make sure that corrected figures about actual work progress never made it to the government. James Dyar, a computer programmer for the company was ordered to modify a program to ensure the inaccuracies were not corrected, according to an April 1994 memo.

The program modification prevented employees from lowering the amount of completed work the company had claimed and prevented reports from showing that any job had exceeded its budget, according to FERMCO sources.

Mr. Dyar has since retired from the company. Repeated telephone calls to Mr. Dyar's home were not returned.

Mr. Ofte said Thursday company officials have not yet talked to Mr. Dyar and had not been able to confirm the modification.

Mr. Craig said that he knew nothing about FERMCO's computer modification until informed by The Enquirer and that a government investigation has begun.

''If we find this is true, this is extremely serious. It could possibly result in this contract being terminated,'' Mr. Craig said.

Many of the internal FERMCO reports, memos and documents that reveal past and continuing problems have not been seen before now by Energy Department officials, according to Mr. Craig and J. Phil Hamric, director of the Energy Department's Ohio field office.

Government rules broken


Line-by-line reports of the control accounts and charge numbers were given to The Enquirer by Fluor Daniel - FERMCO management sources who said they think the company is involved in ''fraudulent behavior'' and ''hiding mischarge abuse from the government.'' They requested anonymity for fear of losing their jobs.

The reports reveal that FERMCO has set up 236 control accounts and charge numbers with no budgets or authorization from the Energy Department.

The accounts and charge numbers are used to bill the government on a revolving basis for ongoing work. The Energy Department's Budget Execution Manual, and other Energy Department records, reviewed by The Enquirer, details precisely how government authorization must be obtained before a control account and charge number can be opened and used, and how a company must use an account once it is authorized. The rules prohibit several of the types of financial practices being used by FERMCO officials.

Numerous control accounts and charge numbers were opened with only a few cents or a few dollars in their budgets. FERMCO charged - and the government paid - tens of thousands of dollars for work allegedly performed by the company under these accounts.

For example, one charge number with a budget of only $39.35 was used to charge the government $75,052.41. In another case an account for ''boiler relocation construction,'' was budgeted at 59 cents, yet company records show the government paid $23,315.64.

The reports also show that, in some cases, FERMCO has charged the government - and was paid - hundreds of thousands of dollars through a control account and charge number with no authorized budget, and that the company plans to charge hundreds of thousands more.

For example, FERMCO set up a control account and charge number with no budget and as of December 1995 had used it to charge the government $355,360.28 for ''non-technical engineering support.'' According to FERMCO reports, the company expects to charge the government $2,341,662.28 on that account before the project is completed.

The Energy Department's Mr. Craig, after reviewing FERMCO financial records provided by The Enquirer, said he had no idea why charge numbers and control accounts would be set up without budgets or why they would be without signed government authorization. He said he had started an investigation to find out.

''I've never seen these (FERMCO financial) reports before,'' Mr. Craig said, after reviewing records obtained by The Enquirer ''I don't know what is going on here, but I will find out.'' He said he needed to talk to on-site Energy Department auditors and investigators before he could comment further.

FERMCO officials also failed to follow their company rules in setting up the accounts by not first having the required internal approvals, according to FERMCO sources and company records.

The government has paid bills on the unauthorized accounts ranging from a few cents to more than $1.7 million. The unauthorized charges were made from December 1992 to the present. Mr. Ofte said Thursday all of the work was authorized.

Longstanding problem


A Dec. 9, 1993 internal memo from a meeting of FERMCO supervisors reveals that the company was aware of serious problems with its charge numbers in its first year on the job. Problems highlighted in that memo included:

Concern that ''numerous'' Fluor Daniel employees were improperly using the control accounts to charge the government for unverifiable costs.

''Costs are allocated to a manager's account without his knowledge . . . ''

Control Account Managers ''are unable to properly explain or defend variances that occur due to unexpected and - or improper charges to their accounts.''

''Any credibility concerning the accounting, forecasting and performance measurement systems on site is universally absent.''

''The system is not auditable; even those involved in implementing the system cannot explain which numbers are real.''

''The performance measurement supposedly in place is not viable.''

''Effective cost management by the responsible managers is almost impossible.''

The problems were noted again in an internal FERMCO memo dated March 28, 1994.

Written by Mark Albertin, then FERMCO's vice president of construction, to other FERMCO executives, the memo said that control account managers had no control over what was being spent on the accounts and that the company was continuing to charge the government for work on projects that supposedly were finished. Albertin is now FERMCO's Project Manager of Facility Demolition.

Specifically, Albertin's memo said the system:

Failed to provide account managers ''with information on what the charge was for; and what task was worked on.''

Allowed the government to be charged before an account was opened and after a project was completed.

Permitted workers not on a project to make charges to that project.

The company declined to make Mr. Albertin available for interviews. Despite the warnings in his memo, the company's internal financial reports reveal the problems continued to occur 18 months later.

In a monthly report to the Energy Department last Nov. 2, FERMCO conceded it was charging for some work under a newly opened account, even though the work and budget for that project were authorized by the government under two other control accounts.

In that report, the company promised to correct the problem by September 30, 1997. So far, the records reveal, the problem has not been corrected.

Mr. Craig said he had not seen the November 1995 report. ''But I can say that there should be very tight controls on the use of these accounts and charge numbers to prevent any abuse. I will be investigating what has gone on here.'' Mr. Craig also called the Albertin memo ''disturbing.''

Inflated estimates


FERMCO officials repeatedly have given Energy Department officials at Fernald phony cost estimates for proposed projects and often have been deceptive in monthly reports about whether projects were on schedule.

Examples of FERMCO's deceptions abound in internal company reports, statements from Energy Department officials and sworn testimony from a FERMCO manager:

From August 1994 through August 1995, FERMCO officials purposely deceived the Energy Department by issuing reports that did not include numerous problems the company was experiencing in building a pilot plant. The pilot plant is for testing a waste-disposal process called vitrification, that would encapsulate certain nuclear wastes into glass-like pellets.

Mr. Grumbly of the Energy Department told The Enquirer last year that FERMCO management and engineers submitted false reports saying they were on schedule with the pilot project, while hiding from the government numerous design and construction problems that ultimately delayed the work.

In various reports to the Energy Department throughout 1994, FERMCO misled the Energy Department by saying it had completed required studies and tests leading up to the removal of radioactive liquid from 18 storage tanks.

But a few weeks before the removal was to begin, the U.S. EPA and Energy Department postponed the project, saying FERMCO had not completed an ''Operational Readiness Review'' and had failed to complete tests FERMCO claimed had been performed.

Mr. Craig confirmed that FERMCO's reports misled the government and resulted in the project's delay.

''They had not completed all the things they claimed they had,'' he said.

FERMCO records obtained by The Enquirer show company officials in 1993 submitted overblown cost estimates to the Energy Department for the demolition and dismantling of Plant 7, a contaminated building at Fernald.

FERMCO and government records reveal the company supplied the Energy Department with written estimates in 1993 that showed the subcontracting costs for dismantling and demolishing Plant 7 would be about $5.5 million. When FERMCO received a signed contract from a subcontractor on Aug. 23, 1993, showing the work would be done for $1.8 million, company officials purposely did not notify the Energy Department about the lower cost.

Additionally, The Enquirer has obtained a copy of an Oct. 17, 1995, deposition of Thomas Vunak III, a FERMCO official involved in preparing the Plant 7 estimates. Mr. Vunak was providing testimony in an ongoing civil suit filed in 1994 by former FERMCO employee William Watts, who is suing Fluor Daniel - FERMCO in U.S. District Court in Cincinnati, for alleged financial wrongdoing.

In his deposition, Mr. Vunak testified that his bosses at FERMCO ordered him not to tell the government about the lower, signed contract and to keep with their original estimate for the Plant 7 work so the government would not rescind the money.

Mr. Craig said FERMCO also tried to get the Energy Department to pay the company a performance bonus for obtaining a contract with the subcontractor to complete the demolition and dismantling of Plant 7 for less than FERMCO originally estimated.

''They did the original estimate ($5.5 million) and then when a bid came in for $1.8 million, they submitted it as a 'cost savings for performance,' which would make them eligible to receive a bonus from us,'' Mr. Craig said.

Published Feb. 11, 1996.