GAO Report Suggests DOE Should Identify More Instances of Contractor Fraud

Luke W. Meier and Robyn N. Burrows

Last week, the Government Accountability Office (“GAO”) issued a report on Department of Energy (“DOE”) contracting, Improvements Needed to Ensure DOE Assesses Its Full Range of Contracting Fraud Risks. The thrust of the report is that DOE should do more to prevent and detect fraud, particularly in less-examined areas such as bid-rigging, misrepresentation of eligibility, kickbacks and gratuities, and conflicts of interest.

DOE relies on contractors to carry out its missions at laboratories and other facilities, spending approximately 80 percent of its $41 billion in total obligations on contracts. In March 2017, GAO reviewed DOE’s approach to managing its risk of fraud and found DOE did not use leading practices, resulting in missed opportunities to mitigate the likelihood and impact of fraud.

In its most recent report, GAO examined DOE’s processes for managing contracting fraud risks and concluded that DOE has not assessed the full range of fraud risks it faces. Despite some improvements toward combating fraud in response to GAO’s March 2017 recommendations, GAO noted that the agency’s methods for gathering information capture only top fraud risks and fail to obtain information on fraud risks for non-management and operating (“M&O”) contractors. GAO reviewed nine categories of contracting fraud schemes that occurred at DOE sites, and found that DOE’s risk profiles for FY 2018 and 2019 captured five of these nine fraud schemes (billing schemes, payroll schemes, product quality, theft, contract progress schemes), but failed to capture four others: bid-rigging, misrepresentation of eligibility, kickbacks and gratuities, and conflicts of interest. The report urges DOE to give these other areas greater focus in its fraud risk planning.

DOE is planning to develop an antifraud strategy in FY 2022 by adapting controls to address emerging fraud risks. However, GAO found that DOE’s draft plan does not demonstrate how the agency will adopt specific leading practices for developing an antifraud strategy, or otherwise describe how DOE will use its fraud risk profile to allocate resources to fraud risks. GAO suggested that DOE develop and document an antifraud strategy per leading practices from GAO’s A Framework for Managing Fraud Risks in Federal Programs(2015), which provides control activities to prevent, detect, and respond to fraud.

GAO recommended that DOE (1) expand its fraud risk assessment methodology to ensure it fully assesses and documents all fraud risks and (2) update internal control guidance to ensure reporting entities understand the information needed to assess fraud risks by non-M&O contractors. For its part, DOE generally concurred with these recommendations, but objected to the characterization that its risk assessment methodology does not capture all fraud risks (despite GAO’s analysis revealing that DOE’s risk profiles omitted several fraud schemes). GAO’s report signals an increasing focus on contracting fraud at DOE and a likely expansion of DOE’s department-wide antifraud strategy. DOE contractors can expect further scrutiny as DOE continues to bolster its processes for preventing and detecting fraud.