FERMCO altered software

DOE probe confirms Enquirer report


BY MIKE GALLAGHER
The Cincinnati Enquirer

A computer system used by the company managing Fernald is creating monthly cost and performance reports for the U.S. Department of Energy that often are filled with false and inaccurate data, an internal Energy Department investigation discovered.

The investigators also found that Energy Department officials at Fernald and at the department's Ohio Field Office provided little, if any, oversight to assure the computer-generated reports contained accurate data.

The Energy Department investigation confirms a Feb. 11 report in The Enquirer that revealed FERMCO officials had modified computer software in April 1994 that resulted in false data given to the Energy Department in monthly reports.

The investigation of FERMCO's computer software systems was begun as a result of The Enquirer article, according to Gary Stegner, the Energy Department's Fernald spokesman.

The investigators' findings mean that the false data in the reports may have led the Energy Department to pay - or fail to reclaim - hundreds of thousands if not millions of dollars in performance fees paid to Fernald Environmental Restoration Management Co. (FERMCO) since 1993, according to Energy Department financial experts connected to the investigation. The investigation is continuing.

Many of the investigators' findings were contained in a March 6, 12-page report prepared by a financial review team of the Energy Department's Ohio Field Office. The Enquirer also reviewed Energy Department investigative files and memos and FERMCO internal reports detailing the problems.

The Enquirer requested a copy of the investigative report in March, but Energy Department officials refused to release it, forcing the newspaper to obtain it recently through a federal Freedom of Information Act request.

Energy Department officials did not respond to specific Enquirer questions about the financial review team's findings. Those questions included how FERMCO's false data affected various projects' funding; how the false data affected the Energy Department's decisions to award FERMCO performance fees; why the Energy Department performed virtually no analysis of the data supplied by FERMCO in its computer-generated reports; what penalties, if any, FERMCO may face for supplying false data and making computer modifications without Energy Department approval; and what changes, if any, will the Energy Department make in its procedures.

In a written response to questions about the report, FERMCO said it ''welcomes suggested recommendations for improvement in the report . . . and will work with DOE to implement them.''

According to an Enquirer review of the investigators' report, and Energy Department and FERMCO internal financial documents, memos and letters:

The problems began when FERMCO ordered a modification to the computer software system in April 1994. That modification allowed the company to hide cost overruns and underperformance on several nuclear cleanup projects at Fernald, according to an Energy Department financial expert connected with the investigation, who requested anonymity.

The financial expert allowed The Enquirer to review investigative records that verified what FERMCO had done, including the results of computer tests that showed how the modification hid cost overruns and underperformance data.

The Energy Department investigation discovered that the problem of false data appearing in various FERMCO reports is continuing because FERMCO officials still are inputting erroneous numbers into one part of the computer system, resulting in better-than-expected performance results on specific projects.

Another part of the computer process is programmed not to accept cost and performance percentages greater than 100 percent or less than 0 percent.

Investigators discovered that if FERMCO employees try to use numbers outside the 0 percent to 100 percent range the computer ignores the numbers and reverts to using the project's previous month's figure that did fall within the acceptable range.

The problem with that, the investigators found, is that Energy Department officials reviewing these reports do not have the project's most current cost and performance information and have no way of knowing the true cost and performance stage of a project.

Reports generated by the computer system are used by Energy Department officials to help determine whether FERMCO should receive performance fees, and whether FERMCO is over budget or underperforming on a given project.

The reports also are used by the Energy Department to help determine future funding needs of FERMCO.

The Energy Department investigation also revealed that:

Energy Department officials at Fernald had performed only one ''very limited analysis or surveillance effort'' since 1993 on the accuracy of the data provided by FERMCO.

The Energy Department's Ohio Field Office - supervisors of the Energy Department staff at Fernald - did not conduct monthly analyses of FERMCO's ''Cost Performance Reports'' to validate their accuracy.

FERMCO implemented various software programs and modifications without preparing written operating procedures and failed to provide them to the Energy Department for review and approval.

The Enquirer's Feb. 11 story revealed that FERMCO had modified its computer software in April 1994 to prevent the computer from issuing reports that showed FERMCO had exceeded its total budget on various projects. The computers are owned by the government and operated by FERMCO.

The April 1994 modification to the computer software ensured the computer would accept only numbers for the reports that fell within the 0-to-100 percent range. If the real numbers either were lower or higher the computer automatically would change or ''adjust'' the number to 0 if the real number was negative, or it would adjust it to 100 if the real number was greater than that.

For example, if FERMCO in reality had overspent its total budget for a particular project by 20 percent - making the total performed cost 120 percent - the April 1994 computer modification automatically reduced it to 100 percent for the report.

The Energy Department investigative team also discovered that FERMCO made additional computer software modifications in September 1994 and last February, but that Energy Department officials at Fernald were unaware of the changes.

Jack Craig, the Energy Department's Fernald area manager, in earlier interviews with The Enquirer, conceded that the Energy Department uses the FERMCO reports - along with other internal reviews - to determine whether to pay performance fees to FERMCO.

The Enquirer's Feb. 11 article quoted Mr. Craig saying that he knew nothing about any computer software modifications by FERMCO that resulted in false data being provided the Energy Department in monthly reports. ''If we find this is true, this is extremely serious. It could possibly result in this contract being terminated,'' he said.

After learning that investigators from the Energy Department's Ohio Field Office now have verified the problem, Mr. Craig declined Enquirer requests for an interview.

FERMCO's contract with the Energy Department calls for it to receive performance fees for managing the cleanup of the 1,050-acre site. All other cleanup costs are charged to the government. FERMCO is eligible to receive up to $10.8 million in performance fees every six months. The fees are based on a formula that includes whether FERMCO maintains or exceeds certain budget and performance levels on various projects.

If FERMCO falls below those levels, the Energy Department can decline to award a fee. If FERMCO severely goes over budget or falls behind schedule on a particular project, the government can take back fees already awarded, according to Mr. Craig.

If the Energy Department determines that FERMCO provided false information in an attempt to obtain a performance fee, it can rescind the payment and penalize the company, Mr. Craig said in February.

The Energy Department report did not identify the Fernald cleanup projects that may have been involved in the faulty computerized reports. Additionally, it did not cite a total dollar amount that FERMCO may have wrongly received as a result of the false data.

The report did cite the demolition of Fernald's Plant 7 as one example of how the computer modifications had an impact on the awarding of fees.

According to the report, between April-September 1994 and October 1994-March 1995 FERMCO's computer-generated reports failed to show the adverse impact of the company's ''extensive delay'' in revising its Plant 7 subcontractor costs from a projected $5.5 million to the actual cost of $1.8 million.

FERMCO was penalized $135,000 on May 1 because of the erroneous data generated on the Plant 7 project.

The Energy Department investigators have made four recommendations to correct the computer problems:

DOE-Ohio Field Office should perform periodic analyses to validate the accuracy of FERMCO's computer-generated reports.

The Energy Department should direct FERMCO to prepare written operating procedures for processing the computer data.

FERMCO should be required to inform the Energy Department about any future changes to computer software.

The Energy Department's Ohio Field Office should perform a monthly review of FERMCO's ''Cost Performance Reports'' - which show how much work has been completed and how much money has been spent on a specific project - and the review should be shared with its Fernald staff.

Ohio Field Office officials conceded they have not been analyzing FERMCO's monthly Cost Performance Reports, but added that their Fernald staff does review the reports monthly.

Ohio Field Office officials did not answer an Enquirer question asking why their Fernald staff never discovered the false data problem while conducting those monthly reviews.

Published May 6, 1996.