Audit skewered FERMCO

Fernald manager repaid $768,000 to government


BY MIKE GALLAGHER
The Cincinnati Enquirer

The company managing Fernald was forced to refund $768,000 to the federal government because it violated government accounting rules, improperly reimbursed employees and performed shoddy bookkeeping.

The findings of financial improprieties and mismanagement were made in a May 11, 1995, audit report prepared by the Energy Department inspector general's Office of Audit Services and only recently were obtained by The Enquirer through a federal Freedom of Information Act request.

Fluor Daniel Fernald Inc. (formerly FERMCO) improperly charged the government the $768,000 during 1992-93, the inspector general's audit found. The improper charges were made in the first year of the company's five-year, $2.5 billion contract to manage the cleanup. The 1,050-acre Fernald site is 18 miles northwest of Cincinnati. Actual cleanup work didn't begin until early 1993.

The $768,000 repayment was part of more than $1.5 million in charges the inspector general's auditors questioned during the 1992-93 period. The Energy Department ruled that the company did not have to pay back the additional $732,000 after company officials produced documents and explanations proving those charges were acceptable.

Additionally, the U.S. Department of Defense's Defense Contract Auditing Agency (DCAA) is conducting an ongoing audit to determine whether Fluor Daniel Fernald properly charged the government more than $54 million in subcontract and general and administrative costs during the same time period.

The DCAA audit is expected to be completed and released shortly, said DCAA spokesman Robert Brauch.

During the inspector general's audit, Fluor Daniel Fernald conceded government rules were violated, according to Energy Department records.

''(Fluor Daniel Fernald's) management acknowledged that costs were incurred during fiscal year 1993 that were outside the provisions of human resource policies approved by the department,'' the audit report stated.

Fluor Daniel Fernald completed its repayment of the $768,000 to the Energy Department in July, according to Energy Department financial records.

Those records reveal that the Energy Department did not order the company to pay any interest or penalties on the $768,000 it improperly charged - and received from - the government in 1992-93.

Gary Stegner, the energy Department's spokesman for Fernald, said, ''We will have no comment about the IG's audit report, or the DCAA audit until it has been completed and we have had a chance to review it.''

Fluor Daniel Fernald spokesman Rick Maslin said, ''The IG report . . . identifies several areas for improvement. (The company) has taken action to improve these areas.''

Mr. Maslin said the inspector general's audit for FY 1993 was the first of its kind conducted ''since (Fluor Daniel Fernald) assumed responsibility for the Fernald cleanup in December 1992.''

While conceding the audit pointed out various problems, Mr. Maslin added, ''Overall, as the IG report says, (Fluor Daniel Fernald) did comply with the provisions related to (the company's) contract, and we will continue to modify our practices and internal procedures, as necessary, to conform with applicable government regulations.''

Mr. Maslin declined to comment about the pending DCAA audit or whether the company expects to be ordered to repay any portion of the more than $54 million in unresolved costs.

Since Fluor Daniel Fernald took over management of Fernald in 1992, the company has charged the government - and been paid - more than $1 billion for cleanup work performed at the site.

For fiscal year 1993, Fluor Daniel Fernald claimed, and the government paid, total costs of $250,873,768, according to Energy Department records.

The government has penalized Fluor Daniel Fernald more than $26.3 million in performance fees (profits for managing the site) since 1992 for such things as failure to meet project deadlines; safety violations; sloppy records management; and other violations of federal rules and its contract.

Accounting broke rules


The inspector general's audit also found Fluor Daniel Fernald's bookkeeping, accounting and monitoring practices were shoddy and violated not only Energy Department rules, but basic accounting standards established by the American Institute of Certified Public Accountants (AICPA).

''We noted certain matters involving (Fluor Daniel Fernald's) internal control structure and its operation that we consider to be reportable conditions under standards established by the (AICPA),'' the audit report stated.

''Reportable conditions are matters coming to our attention relating to significant deficiencies in the internal control structure, design or operation, that, in our judgment, could adversely affect (Fluor Daniel Fernald's) ability to record, process, summarize and report financial data for the (Fernald) contract consistent with management's assertions,'' according to the report.

Among the examples of problems cited by the auditors:

Fluor Daniel Fernald did not properly administer its subcontracts.

Subcontract files often were incomplete.

Invoices were routinely paid without verification of the prices or rates paid.

Fluor Daniel Fernald did not require employees to obtain advance approvals for travel.

Fluor Daniel Fernald did not monitor interorganizational transfers of labor from its parent company, ''which frequently included duplicate labor charges.''

Fluor Daniel Fernald did not establish relocation agreements with new employees to limit temporary living expenses to 60 days as required by federal rules and its Energy Department contract.

Fluor Daniel Fernald's audit troubles come while the company is under investigation by the General Accounting Office (GAO), the investigative arm of Congress, for alleged mismanagement and safety problems at Fernald.

The probe was sparked by a series of Enquirer articles documenting a pattern of mismanagement and overcharges by Fluor Daniel Fernald that may have bilked taxpayers out of millions of dollars.

Published Sept. 14, 1996.