a

GAO

United States Government Accountability Office

Report to Congressional Requesters

May 2006 DEPARTMENT OF 

ENERGY, OFFICE OF 

WORKER ADVOCACY

Deficient Controls Led 

to Millions of Dollars 

in Improper and 

Questionable 

Payments to 

Contractors

GAO-06-547
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

What GAO Recommends

GAO makes 16 recommendations 

to help Energy and SSC NOLA 

strengthen controls over payments

to contractors and to mitigate the 

risks of paying improper contract 

costs in the future. While Energy

accepted the recommendations, it 

took issue with several of GAO’s 

findings, including GAO’s view of

its responsibility for activities 

carried out through an interagency 

agreement. SSC NOLA concurred

with the recommendations GAO

made to it. GAO reaffirms its 

findings and recommendations. 

Highlights of GAO-06-547, a report to 

congressional requesters

Highlights of GAO-06-547, a report to 

congressional requesters

www.gao.gov/cgi-bin/getrpt?GAO-06-547.

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Linda Calbom

at (202) 512-9508 or calboml@gao.gov.

For more information, contact Linda Calbom

at (202) 512-9508 or calboml@gao.gov.

www.gao.gov/cgi-bin/getrpt?GAO-06-547.

The Energy Employees

Occupational Illness Compensation

Program Act of 2000 (EEOICPA) 

authorized the Department of

Energy (Energy) to help its former

contractor employees file state 

workers’ compensation claims for 

illnesses that could be linked to

exposure to toxic substances 

during their employment. 

Concerned with the relatively small

number of finalized cases and the

overall effectiveness of the 

program, Congress asked GAO to

review costs incurred by Energy to

administer the program. 

Specifically, Congress asked GAO

to determine whether (1) internal 

controls over program payments

were adequately designed to 

provide reasonable assurance that

improper payments to contractors

would not be made or would be

detected in the normal course of

business and (2) program payments 

were properly supported as a valid

use of government funds.

Energy did not establish an effective control environment over payments to

contractors or overall contract costs. Specifically, because Energy lacked an

effective review and approval process for contractor invoices, it had no 

assurance that goods and services billed had actually been received. 

Although responsibility for review and approval of invoices on the largest 

contract rested with the Space and Naval Warfare Systems Center, New 

Orleans (SSC NOLA) through an interagency agreement, Energy did not 

ensure that SSC NOLA carried out proper oversight. Energy also failed to 

maintain accountability for equipment purchased by contractors. Further, 

subcontractor agreements, which represented nearly $15 million in program 

charges, were not adequately assessed, nor were overall contract costs 

sufficiently monitored or properly reported. These fundamental control 

weaknesses made Energy highly vulnerable to improper payments.

GAO identified $26.4 million in improper and questionable payments for

contractor costs, including billings of employees in labor categories for 

which they were not qualified or that did not reflect the duties they actually

performed, the inappropriate use of fully burdened labor rates for 

subcontracted labor, add-on charges to other direct costs and base fees that

were not in accordance with contract terms, and various other direct costs 

that were improperly paid. Further, certain payments toward the end of the 

program for furniture and computer equipment may not have been an

efficient use of government funds.

 Summary of Improper and Questionable Payments 

Type of cost Improper Questionable

Labor

Labor categories

a $2,498,920 $17,6

Fully burdened labor rates 3,661,429 5

Overtime charges 3,019

Subtotal

Other direct costs

Add-on charges and base fees $655,734

Per diem and commuting costs

a 12,418 $4,704 $17,122

First-class travela 5,207 9,119 $14,326

Other miscellaneous payments 91,431 $91,431

Subtotal $778,613

Inefficient use of government funds

Furniture $821,129 $821,129

Equipment 341,790 $341,790

Subtotal $1,162,919

Total $6,928,158 $19,433,432 $26,361,590

Total

86,892 $20,185,812

69,798 $4,231,227

$3,019

$24,420,058

$655,734

Source: GAO.

a

The amounts reported for these categories represent the gross amount paid to Energy to its

contractors and therefore do not reflect any reductions or offsets that may be due the contractors

for the goods and services that were provided. Any potentially recoverable amounts would need to

be determined after consideration of these reductions or offsets.

These improper and questionable payments represent nearly 30 percent of

the $92 million in total program funds spent through September 30, 2005, but 

could be even higher given the poor control environment and the fact that

GAO only reviewed selected program payments.

DEPARTMENT OF ENERGY, OFFICE OF

WORKER ADVOCACY

Deficient Controls Led to Millions of

Dollars in Improper and Questionable 

Payments to Contractors

May 2006
Page i GAO-06-547 Office of Worker Advocacy

Contents

Letter 1

Results in Brief 3

Background 5

Energy Did Not Establish Effective Controls over Payments to 

Contractors or Overall Contract Costs 15

Energy Made Millions of Dollars in Improper and Questionable 

Payments to Contractors 25

Conclusion 39

Recommendations for Executive Action 39

Agency Comments and Our Evaluation 42

Appendixes

Appendix I: Scope and Methodology 48

Appendix II: Comments from the Department of Energy 53

Appendix III: Comments from the Space and Naval Warfare Systems 

Center, New Orleans 68

Appendix IV: GAO Contact and Staff Acknowledgments 70

Tables Table 1: Total Program Costs for October 2000 through

September 30, 2005 8

Table 2: Descriptions of Contract Vehicles Used by Energy for the 

OWA Program 11

Table 3: Summary of Improper and Questionable Payments 26

Figures Figure 1: Significant Program Events 7

Figure 2: Westwood Group, Inc., Invoice for Services Provided to 

OWA in October 2004 20

Figure 3: Unused Modular Furniture in Storage Facility 38
Contents

Page ii GAO-06-547 Office of Worker Advocacy

Abbreviations

BPA blanket purchase agreement

CO contracting officer

COR contracting officer’s representative

DCAA Defense Contract Audit Agency

DOJ Department of Justice

DOL Department of Labor

EEOICPA Energy Employees Occupational Illness Compensation Program 

Act of 2000

ES&H Office of Environment, Safety, and Health

FAR Federal Acquisition Regulation

FSS Federal Supply Schedule

FTR Federal Travel Regulation

FTS Federal Technology Service

GSA General Services Administration

IRS Internal Revenue Service

OWA Office of Worker Advocacy

SEA Science and Engineering Associates, Inc.

SSC NOLA Space and Naval Warfare Systems Center, New Orleans

TDI Technical Design, Inc.

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-06-547 Office of Worker Advocacy

United States Government Accountability Office

Washington, D.C. 20548

A

May 31, 2006 Letr

The Honorable Charles E. Grassley

Chairman

Committee on Finance

United States Senate

The Honorable Jeff Bingaman

Ranking Minority Member

Committee on Energy and Natural Resources

United States Senate

The Honorable Jim Bunning

United States Senate

The Energy Employees Occupational Illness Compensation Program Act of 

2000 (EEOICPA) was passed by Congress, in part, to provide for timely 

compensation of former nuclear weapons workers who sustained illnesses 

that could be linked to exposure to toxic substances while employed at a 

Department of Energy (Energy) facility.1

 Subtitle D of EEOICPA instructed 

Energy to assist its contractors’ employees by developing and submitting 

state workers’ compensation claim applications to an independent 

physician panel for review of each claimant’s potential eligibility for 

workers’ compensation benefits. Subtitle D of EEOICPA did not instruct 

Energy to pay the benefits due an eligible worker, but instead authorized 

Energy to assist the claimant in filing a claim to receive compensation from 

a state workers’ compensation program. 

Concerned with the relatively small number of finalized cases and the 

overall effectiveness of the program, the Senate Energy and Natural 

Resources Committee held three hearings from November 2003 through 

March 2004 that highlighted programmatic challenges to achieving the

1

Pub. L. No. 106-398, §. 1, div. C, title xxxvi, 114 Stat. 1654A-494 (Oct. 30, 2000).
Page 2 GAO-06-547 Office of Worker Advocacy

program’s objectives and Energy’s limited progress in overcoming them.2

Further, in May 2004, we issued a report identifying issues with the claims 

review process. For example, we reported that a shortage of qualified 

physicians serving on the review panels continued to constrain Energy’s 

capacity to decide cases more quickly.3

 In October 2004, EEOICPA was 

amended to repeal Subtitle D and add a new Subtitle E to be administered 

by the Secretary of Labor.4

Prior to the amendment of EEOICPA, in a letter dated August 30, 2004, you 

asked us to review costs incurred by Energy in its administration of 

Subtitle D by considering the design of internal controls over expenditures 

and the propriety of program payments. Specifically, we determined 

whether (1) internal controls over program payments were adequately 

designed to provide reasonable assurance that improper payments to 

contractors would not be made or would be detected in the normal course 

of business and (2) program payments were properly supported as a valid 

use of government funds.

To address these objectives, we considered payments made by the Office of 

Worker Advocacy (OWA), the Energy office tasked with administering 

Subtitle D, from the inception of the program in October 2000 through 

September 30, 2005.5

 We primarily focused on payments to key contractors 

that received approximately 60 percent of the $92 million in program 

expenditures through September 2005. We reviewed the design of controls 

over program payments, including payments made to contractors. We also 

reviewed controls designed to monitor overall contractor costs. We used a 

2

The hearings on Energy’s administration of EEOICPA, Subtitle D, were held by the Senate 

Committee on Energy and Natural Resources on November 21, 2003, December 6, 2003, and 

March 30, 2004. GAO’s testimony statements are GAO, Energy Employees Compensation: 

Case-Processing Bottlenecks Delay Payment of Claims, GAO-04-249T (Washington, D.C.: 

Nov. 21, 2003); Energy Employees Compensation: Case-Processing Bottlenecks Delay 

Payment of Claims, GAO-04-298T (Washington, D.C.: Dec. 6, 2003); and Energy Employees 

Compensation: Obstacles Remain in Processing Cases Efficiently and Ensuring a Source 

of Benefit Payments, GAO-04-571T (Washington, D.C.: Mar. 30, 2004).

3

GAO, Energy Employees Compensation: Even with Needed Improvements in Case 

Processing, Program Structure May Result in Inconsistent Benefit Outcomes, GAO-04-515

(Washington, D.C.: May 28, 2004).

4

Pub. L. No. 108-375, div C, title xxxi, § 3161(i), 118 Stat. 1811, 2178 (Oct. 28, 2004).

5

After Subtitle D was repealed and the program effectively transferred to the Department of 

Labor (DOL), Energy continued to provide claims research activities at the field offices in 

support of DOL and other agency activities.
Page 3 GAO-06-547 Office of Worker Advocacy

variety of forensic auditing techniques, including data mining, to identify 

payments for detailed review. We requested comments on a draft of this 

report from the Secretary of Energy and on selections of this report from 

the Commanding Officer of the Space and Naval Warfare Systems Center, 

New Orleans (SSC NOLA). We received written comments from Energy’s 

Deputy Assistant Secretary of Planning and Administration, Office of 

Environment, Safety and Health and the Commanding Officer of SSC 

NOLA. We have incorporated the comments as appropriate. The comments 

are reprinted in appendixes II and III. We performed our work in 

accordance with generally accepted government auditing standards in 

Washington, D.C., and three contractor locations from February 2005 

through March 2006. Further details on our scope and methodology can be 

found in appendix I. 

Results in Brief Energy’s control environment over payments to contractors and overall 

contract costs was not effective in reducing the risk of improper payments. 

Energy did not establish fundamental control activities, such as an 

effective review and approval process for contractor invoices that enabled 

it to verify that goods and services billed for had actually been received and 

charged at the agreed-upon amounts. Specifically, contractor services were 

not adequately monitored, labor rates were not verified, and other direct 

costs lacked adequate supporting documentation. Through an interagency 

agreement, SSC NOLA was responsible for the review and approval of 

Science and Engineering Associates, Inc. (SEA), invoices, among other 

administrative duties, but did not adequately perform this function. For 

example, the SSC NOLA official responsible for observing services made 

no site visits to SEA’s main performance location after February 2004, when 

SEA more than tripled its workforce assigned to the program, and made 

only periodic visits before that time. Energy, however, took no steps to 

assure itself that SSC NOLA was properly carrying out its responsibilities. 

Energy also did not have sufficient controls over equipment purchased by 

contractors for the program and, as a result, could not fully account for 

equipment during the program or at the expiration of the contracts. 

Additionally, Energy and its contracting partners, the General Services 

Administration (GSA) and SSC NOLA, did not adequately assess 

subcontracted activity, which represented nearly $15 million in payments 

by the program. Further, Energy made errors in reporting total contract 

costs in its internal and external financial reports, and did not effectively 

monitor cumulative contract costs—an important step in managing overall 

contract costs, particularly for time and materials contracts. 
Page 4 GAO-06-547 Office of Worker Advocacy

These fundamental internal control weaknesses and Energy’s poor overall 

control environment made Energy highly vulnerable to improper payments 

and contributed to $26.4 million in improper and questionable payments to 

contractors that we identified through a variety of forensic auditing 

techniques. Of these improper and questionable payments, $24.4 million 

related to labor charges. These included $2.5 million in improper payments 

to certain contractors under inappropriate labor categories, including 

employees in labor categories for which they were not qualified or that did 

not reflect the duties they actually performed. Payments for labor charges 

further included $17.7 million in questionable payments where, for 

example, the labor category descriptions provided insufficient criteria by 

which to assess whether the person was qualified under that labor 

category. In addition, Energy paid two contractors for subcontracted labor 

costs using fully burdened labor rates—rates that included base wages plus 

fringe benefits, overhead costs, and profit—for which there was no basis 

under the contracts. This resulted in more than $4.2 million in improper 

and questionable payments by Energy. We also identified $778,613 in 

improper and questionable payments for other direct costs, including 

amounts for add-on charges and other fees not provided for in the 

contracts, first-class travel, and unallowable per diem and commuting 

costs. We found, for instance, that Energy paid contractor charges for per 

diem for out-of-town personnel for weeks at a time when time records we 

reviewed showed that they were not working. Finally, we questioned 

whether more than $1 million in payments for furniture and office 

equipment purchased toward the end of the program, much of which was 

not used by OWA, was an efficient use of government funds. These 

improper and questionable payments for contract costs represent nearly

30 percent of the $92 million in total program funds spent through 

September 30, 2005, but could be even higher given the poor control 

environment and the fact that we only reviewed selected program 

payments. 

We are making 16 recommendations to address the issues identified in this 

report. We are making 14 recommendations to Energy to (1) improve 

controls over the review and approval process for contractor invoices; 

(2) strengthen accountability for government-owned equipment purchased 

by contractors; (3) improve reporting and control of overall contract costs, 

including subcontractor costs; and (4) pursue opportunities for recovery of 

improper and questionable payments identified in this report. We are also 

making 2 recommendations to SSC NOLA to reassess its procedures for 

carrying out its responsibilities for delegated contract administration in 

connection with interagency agreements. 
Page 5 GAO-06-547 Office of Worker Advocacy

In written comments on a draft of this report, Energy stated that it agreed 

with the spirit and intent of our recommendations and that it will give 

careful consideration to each of them. However, Energy took issue with our 

core finding that it was responsible for its program activities carried out 

through the cooperation of other agencies and contractors through use of 

an interagency agreement. It also disagreed with some of our other 

findings, including those related to improper payment of certain contractor 

fees. In addition, Energy described some of the corrective actions it is 

implementing to improve its controls, including those over interagency 

contracting. 

We continue to believe that Energy cannot assign or delegate away its 

responsibility for ensuring the success of contracted efforts as well as the 

propriety of payments under interagency agreements. Also, we stand by 

our assessment of the improper and questionable nature of certain fees 

Energy paid to its contractors. Our more detailed responses to these 

comments are provided in the Agency Comments and Our Evaluation 

section of this report and in appendix II.

SSC NOLA concurred with our recommendations and indicated that it has 

plans to complete actions on the recommendations by August 1, 2006. 

Background EEOICPA has two major components. The Department of Labor (DOL) 

administers Subtitle B, which provides eligible workers who were exposed 

to radiation or other toxic substances and who subsequently developed 

illnesses, such as cancer and lung disease, a onetime payment of up to 

$150,000 and covers future medical expenses related to the illness. The 

benefits are payable from a compensation fund established by EEOICPA. 

Subtitle B is not covered in this report. Prior to October 2004, Energy 

administered Subtitle D to help its contractors’ employees file state 

workers’ compensation claims for illnesses determined by a panel of 

physicians to have been caused by exposure to toxic substances in the 

course of employment at an Energy facility. This report covers payments 

made to administer Subtitle D.

To facilitate outreach to potential claimants and to help claimants obtain 

work and medical records to initiate claims under EEOICPA, Energy
Page 6 GAO-06-547 Office of Worker Advocacy

established 11 regional resource centers.6 These resource centers were a 

gateway for claimants applying for assistance under EEOICPA under both 

Subtitle D, administered by Energy, and Subtitle B, administered by DOL. 

Energy and DOL shared the resource centers’ costs of operation, staffing, 

and training. To achieve this, DOL reimbursed Energy for about half of the 

costs of its contract with Eagle Research Group, Inc., the company that 

staffed and operated most of the resource centers. Additionally, DOL 

reimbursed Energy for a portion of other costs Energy paid directly, such 

as those for the leased space for the centers.

After EEOICPA claims were received through the resource centers and 

headquarters, Energy requested its field offices to locate records that 

would support the claims, such as employment, medical treatment, and 

toxic substance exposure records. Energy forwarded the information 

collected to claim developers and various assistants who assembled the 

information into case files. A panel of physicians reviewed the case files to 

determine whether exposure to a toxic substance during employment at an 

Energy facility was at least as likely as not to have caused, contributed to, 

or aggravated the claimed medical condition. In addition to the panel 

physicians, other doctors performed quality assurance checks of the case 

files before the claims were submitted to the physician panels and again 

after the physician panels had made recommendations. All panel 

determinations were finalized by a medical director employed by Energy. 

Energy communicated with applicants through an EEOICPA hotline and 

through letters. 

Energy began accepting applications for Subtitle D in July 2001 when the 

majority of the resource centers opened, and began developing cases in the 

fall of 2002 when its final administrative rule took effect.7

 While Energy got 

off to a slow start in processing cases, completing only 6 percent of 

approximately 23,000 cases by December 31, 2003, Energy later increased 

claim development activities, which resulted in a backlog of claims 

awaiting review by the physician panels. In June 2004, Energy transferred 

6

The resource centers were located in Espanola, New Mexico; Richland, Washington 

(Hanford); Idaho Falls, Idaho; Las Vegas, Nevada; North Augusta, South Carolina (Savannah 

River); Oak Ridge, Tennessee; Paducah, Kentucky; Portsmouth, Ohio; Westminster, 

Colorado (Rocky Flats); Livermore, California; and Anchorage, Alaska. 

7

Energy published its final rule at 67 Fed. Reg. 52841 (Aug. 14, 2002), codified at 10 C.F.R. 

Part 852, “Guidelines for Physician Panel Determinations on Worker Requests for 

Assistance in Filing for State Workers’ Compensation Benefits,” which became effective on 

September 13, 2002.
Page 7 GAO-06-547 Office of Worker Advocacy

$21.2 million in funds to OWA in an effort to clear the backlog of claims. 

During the same time, it increased the number of case developers and 

physicians serving on the review panels. Legislation was also moving 

through Congress as early as June 2004 to transfer the administration of 

Subtitle D from Energy to DOL.8

 Ultimately, in October 2004, Congress 

repealed Subtitle D and created Subtitle E, to be administered by DOL. In 

light of the potential transfer, Energy ceased hiring new case developers in 

August 2004, then gave official instruction to cease claims processing in 

November 2004. Energy received $112.6 million in appropriated funds 

(including transfers) through fiscal year 2005 for its EEOICPA activities 

and spent over $92 million. Energy’s field offices continue to research 

claims that are now processed by DOL under Subtitle E. See figure 1 for a 

time line of significant OWA program events.

Figure 1: Significant Program Events

Under Subtitle D of EEOICPA, Energy’s role was to assist applicants in 

pursuing state workers’ compensation benefits but not to pay any benefits 

to the applicants. Therefore, the costs associated with Energy’s EEOICPA 

activities are administrative costs only. We analyzed Energy’s program 

costs by major program activity, as shown in table 1.

8

S. 2400, 108th Cong. (passed by the Senate on June 23, 2004).

Congress

passes

EEOICPA

Oct. 2000

Source: GAO.

2000

Resource 

centers open

Jul. 2001

Final rule takes

effect, claims

processing 

begins

Sept. 2002

$9.7 million 

transfer 

becomes

available

Nov. 2003

$21.2 million 

transfer 

becomes

available; ramp 

up of program 

activities begins

Jun. 2004

Program 

officially 

transferred to 

DOL; claims

research still 

performed by 

Energy field 

offices

Feb. 2005

Legislation to 

transfer program 

to DOL passes

Congress

Oct. 2004

Ramp down of 

program 

activities begins

Nov. 2004

2001 2002 2003 2004 2005
Page 8 GAO-06-547 Office of Worker Advocacy

Table 1: Total Program Costs for October 2000 through September 30, 2005

Source: GAO.

a

Energy's major facility operating contractors, in general, operated national laboratories and performed 

the EEOICPA case research activities. They are subject to audit by Energy's Inspector General and 

were not considered in our review.

b

Includes $28.8 million under Energy's interagency agreement with SSC NOLA and $2.7 million under 

Energy's contract with SEA.

Through multiple contracts in some cases, four major contractors 

performed the majority of OWA’s program activities. 

• Eagle Research Group, Inc. (Eagle), staffed and operated the resource 

centers from September 2001 through February 2005 under time and 

materials task orders issued under a GSA Federal Supply Schedule 

(FSS)9

 contract. 

• Westwood Group, Inc. (Westwood), administered the physician panels, 

provided a quality-assurance check on claims, managed the EEOICPA 

hotline, and coordinated the field office research requests. Additionally, 

Westwood provided certain other administrative services. Energy 

obtained Westwood’s services through two time and materials task 

Activity Amount

Major contractors performing these 

activities

Managed and operated 11 resource centers $11,817,528 Eagle Resource Inc.

($10.4 million)

Researched cases and exposure records at Energy offices 29,081,346 Primarily performed by major

facility operating contractorsa

Prepared/assembled cases, including the associated furniture 

and office space for personnel; developed and maintained the 

Case Management System

34,321,660 Science and Engineering

Associates, Inc.b

($31.5 million)

Established physician panels to review cases, staffed the 

EEOICPA hotline, supported the Advisory Committee, and 

provided program and administrative personnel

13,611,440 Westwood Group, Inc.

($10.3 million)

Technical Design, Inc.

($3.3 million)

Other (such as travel for federal employees and information 

technology management beginning in June 2004)

3,485,097

Total program costs reported by Energy through September 

30, 2005

$92,317,071

Major contracts GAO reviewed $55,500,000

9

GSA established the FSS program in 1949 to facilitate federal agencies’ purchases of 

common products and services from commercial vendors through schedule contracts.
Page 9 GAO-06-547 Office of Worker Advocacy

orders issued under a GSA FSS contract. One task order was in effect 

from August 2001 through February 2005. The other began in September 

2004 and can be extended through September 2009 if Energy exercises 

the four option periods. Under the option periods and current statement 

of work, Westwood would continue its analytical services relating to the 

EEOICPA claims research and other administrative activities for 

Energy’s Office of Environment, Safety, and Health (ES&H). 

• Technical Design, Inc. (TDI), provided administrative personnel as well 

as analysts trained in environment and health issues. TDI provided 

services to OWA under three consecutive contracts issued by Energy. All 

three were cost reimbursement contracts that contained performance 

incentives. The first contract was described by Energy as a cost plus 

incentive fee. The second and third contracts were cost plus award fee. 

Westwood also provided additional services to OWA through TDI under 

these contracts.

In addition to services provided to OWA, both Westwood and TDI also 

provided other services to Energy’s ES&H. On their monthly invoices, 

Westwood and TDI identified OWA services separately from other 

ES&H services.

• SEA, under its first task order, provided information technology services 

to create, develop, and maintain the Case Management System to track 

the progress of individual cases. Under subsequent task orders, services 

broadened over time so that SEA provided case developers and 

assistants who performed case processing activities.10 SEA ultimately 

provided services equal to approximately one-third of OWA’s program 

costs. In January 2004, Sidarus, Inc. (Sidarus), purchased SEA. In June

10GSA’s Inspector General reported that of the three SEA task orders for services provided in 

fiscal years 2002, 2003, and 2004, the task orders for 2003 and 2004 included case processing 

activities in addition to information technology activities and were therefore outside the 

scope of the underlying GSA FSS contract and a misuse of the contract vehicle. Further, the 

GSA Inspector General concluded that the statement of work for the second task order was 

vague and open-ended, which discouraged competition. See General Services 

Administration, Audit of Federal Technology Service’s Client Support Center Greater 

Southwest Region, Report Number A040097/T/7/Z05011 (Washington, D.C.: Dec. 10, 2004), 

and Letter to Senator Charles Grassley, from GSA’s Inspector General, July 2004.
Page 10 GAO-06-547 Office of Worker Advocacy

2004, Sidarus was renamed Apogen Technologies, Inc.11 SEA continues 

to do business as SEA.

SEA’s services were initially obtained by Energy through a memorandum of 

agreement (referred to in this report as an interagency agreement) between 

Energy and SSC NOLA.12 To implement the interagency agreement, SSC 

NOLA used GSA’s Federal Technology Service (FTS) to utilize an existing 

blanket purchase agreement (BPA) between SEA and GSA’s FTS, dated 

August 2000, that was entered into under a GSA FSS contract. Under the 

BPA, GSA’s FTS issued three consecutive time and materials task orders to 

SEA to provide services to Energy. The interagency agreement between 

Energy and SSC NOLA took effect in December 2001 and was scheduled to 

run for 3 years. Under this arrangement, GSA paid SEA for its services and 

was reimbursed by SSC NOLA. SSC NOLA received reimbursement from 

Energy. Energy is the customer and final payer for SEA’s services. SSC 

NOLA elected to end work under the interagency agreement on September 

30, 2004. In this report, we refer to payments to SEA as payments by 

Energy. 

In February 2004, Energy began pursuit of a new contract to replace the 

interagency agreement between Energy and SSC NOLA. However, the new 

procurement action was not completed by the end of the interagency 

agreement on September 30, 2004, and Energy issued a time and materials 

bridge contract directly with SEA beginning October 1, 2004, for a base 

period of 3 months to continue case development activities and, eventually, 

assist in terminating and transferring the program. Energy’s direct contract 

with SEA expired in December 2004.

Table 2 provides a description of two contract types used to administer 

OWA: cost reimbursement and time and materials. OWA utilized two 

different variations of cost reimbursement contracts: cost plus incentive 

fee and cost plus award fee. A description, common applications, benefits 

and risks associated with the contract type, and constraints or 

requirements for the government are listed for each type.

11On March 23, 2006, counsel to SEA told us that since acquiring SEA, Apogen has put a new 

management team in place.

12Energy executed an interagency agreement with SSC NOLA under the Economy Act, 31 

U.S.C. § 1535.
Page 11 GAO-06-547 Office of Worker Advocacy

Table 2: Descriptions of Contract Vehicles Used by Energy for the OWA Program

Source: GAO analysis of Federal Acquisition Regulation.

Note: Based on Federal Acquisition Regulation (FAR) subparts 16.4 and 16.6, as well as Energy’s 

Acquisition Guide. The FAR is promulgated at 48 C.F.R. ch. 1.

Roles and Responsibilities 

under Interagency 

Agreement with SSC NOLA

The services provided by SEA were obtained by Energy through a series of 

agreements. Energy’s interagency agreement with SSC NOLA required SSC 

NOLA to provide certain services to Energy. SSC NOLA carried out the 

agreement using an existing BPA between GSA’s FTS and the contractor, 

Contract vehicle Description Applications

Benefits and 

risks

Constraints/government 

requirements

Cost 

reimbursement:

cost plus incentive 

fee and cost plus 

award fee

Cost plus incentive 

fee

$0.9 million

Contractor:

TDI

Cost plus award fee

$2.4 million

Contractor:

TDI

A contract that provides 

for the payment of the 

contractor’s allowable 

incurred costs to the 

extent prescribed in the 

contract, not to exceed a 

ceiling.

Cost plus incentive fee:

Provides for an initially 

negotiated fee that is later 

adjusted by a formula.

Cost plus award fee:

Provides for a fee 

consisting of a base 

amount and an award 

amount based upon a 

judgmental evaluation by 

the government. 

Appropriate when 

uncertainties involved in 

contract performance do 

not permit costs to be 

estimated with sufficient 

accuracy to use a fixedprice contract.

Cost plus incentive fee:

May be used when a target 

cost and a fee-adjustment 

formula that are likely to 

motivate the contractor to 

manage effectively can be 

negotiated.

Cost plus award fee:

Appropriate when the work 

does not lend itself to 

developing incentive 

targets.

Benefits:

Allows the 

government to 

meet complex or 

unique 

requirements.

May encourage 

economic, 

efficient, and 

effective 

performance 

when a cost 

reimbursement 

contract is 

necessary.

Risk:

Shifts cost risk 

from the 

contractor to the 

government.

May be used only when the 

contractor’s accounting system is 

adequate for determining allowable 

costs under the contract and 

appropriate government 

surveillance or oversight will be 

provided. 

Cost plus incentive fee:

Fee adjustment formula should 

provide an incentive that will be 

effective over the full range of 

reasonably foreseeable variations 

from the contract’s target cost.

Cost plus award fee:

Any additional administrative effort 

and cost required to monitor and 

evaluate the contractor’s 

performance are justified by the 

expected benefits.

Time and materials

$52.2 million

Contractors:

SEA (under both the 

interagency 

agreement and direct 

contract)

Westwood

Eagle

Contract that provides for 

direct labor hours billed at 

fixed hourly rates that 

include wages, overhead, 

general and administrative 

expenses, and profit and 

contractors’ materials at 

cost.

May be used only when it is 

not possible at the time of 

placing the contract to 

estimate accurately the 

extent or duration of the 

work or to anticipate costs 

with any reasonable degree 

of confidence. 

Benefit: 

Can fulfill a 

special need.

Risk:

Does not provide 

a positive profit 

incentive for 

contractor to 

control costs.

May be used only after the 

contracting officer determines that 

no other contract type is suitable, 

and the contract must include a 

ceiling price that the contractor 

exceeds at its own risk.

The government must provide 

appropriate surveillance to ensure 

the contractor is using efficient 

methods and effective cost controls. 
Page 12 GAO-06-547 Office of Worker Advocacy

SEA. The BPA was entered into under a GSA FSS contract, and an official 

at GSA’s FTS was the contracting officer (CO) who had authority to 

contract for goods and services on behalf of the government. Additionally, 

the CO had overall responsibility for negotiating task orders under the BPA 

and certifying the contractor’s invoices for payment based on evidence of 

approval (i.e., receipt and acceptance of goods and services) by the 

ordering agency. The CO designated representatives of the ordering 

agency—in this case, SSC NOLA—to be the contracting officer’s 

representatives (COR). The COR was authorized by the CO to perform 

specific technical and administrative functions. The COR was responsible 

for the review and approval of SEA invoices for payment by GSA. 

Additionally, SSC NOLA was responsible for approval of contractor travel 

and contract deliverables. Although authority for contract oversight and 

administration was delegated among multiple agencies, ultimate 

responsibility for the contract rested with the customer agency (receiving 

agency), Energy.

Although the use of interagency contracting vehicles can be beneficial 

because the ordering agency does not have to go through an extensive 

procurement process, interagency agreements must be effectively 

managed to ensure compliance with the FAR and to protect the 

government’s interests. When a customer agency’s contracting needs are 

being handled by another agency, effective internal controls are 

particularly critical because of the more complex environment. We, along 

with agency inspectors general, have reported risks associated with 

interagency contracting. Management of interagency contracting was 

added to GAO’s high-risk list in January 2005.13 We found that roles and 

responsibilities for managing interagency contracts need clarification and 

agencies need to adopt and implement policies and processes that balance 

customer service with the need to comply with requirements.

Federal requirements for acquiring goods and services through contracts 

are found in laws and implementing regulations. The FAR prescribes 

uniform policies and procedures for acquisition by executive agencies. 

Additionally, agencies may have their own supplemental regulations, 

policies, and procedures for acquisition. For example, Energy has a 

supplemental regulation called the Department of Energy Acquisition 

Regulation, an acquisition guide, an accounting handbook, and other 

13GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).
Page 13 GAO-06-547 Office of Worker Advocacy

guides that describe its policies regarding contracts, subcontracts, and 

interagency agreements. 

Government Settlement 

Agreement and Release with 

SEA

On November 29, 2005, the Department of Justice (DOJ) and SEA executed 

a settlement agreement and release (settlement) after an investigation of 

allegations of improper billings by SEA of labor charges on work for SSC 

NOLA and its customers under a GSA FSS contract and two related BPAs 

covering the period from April 1999 through September 2005.14 SEA billed 

SSC NOLA approximately $346 million for labor charges over this period, 

including approximately $26.6 million under task orders that provided 

services to Energy.15 The “covered conduct” investigated by the 

government related to allegations of improper billing by SEA for labor in 

two areas: billing indirect labor costs as direct labor costs and billing for 

employees in labor categories for which they were not qualified. Under the 

terms of the settlement, SEA paid the government $9.5 million.16 In turn, the 

government release provided that the government will have no further civil 

or administrative monetary claims or cause of action against SEA under the 

False Claims Act17 or any other statute creating causes of action for 

damages or penalties for the submission of false or fraudulent claims, or at 

common law for fraud or under any other statutes or under theories of 

payment by mistake, unjust enrichment, or breach of contract, for the 

covered conduct.

In this report, we did not determine whether or to what extent the terms of 

the settlement may affect any potential additional monetary recoveries by 

14The settlement is applicable to all task orders under the two BPAs. The investigations 

serving as the basis of the settlement consisted of one conducted by DOJ on amounts billed 

from April 1999 through September 2000 and another conducted by the Naval Audit Service 

on amounts billed from August 2000 through September 2004. Neither of these 

investigations, however, included the task orders under which SEA provided services to 

Energy.

15Further, under a separate agreement from September 2004 through December 2004, SEA 

billed Energy directly for an additional $2.6 million of labor charges for a total of 

$29.2 million.

16SEA disputes the allegations at issue in the government’s investigation concerning the 

covered conduct, and contends that SEA’s conduct was proper and in accordance with 

applicable law and regulation. 

1731 U.S.C. §§ 3729-3733.
Page 14 GAO-06-547 Office of Worker Advocacy

the government for the questionable and improper payments made to SEA 

that we identified. 

Internal Control Internal control is the first line of defense in safeguarding assets and 

preventing and detecting fraud and errors. Internal control is not one event 

or activity but a series of actions and activities that occur throughout an 

entity’s operations on an ongoing basis. It comprises the plans, methods, 

and procedures used to effectively and efficiently meet missions, goals, and 

objectives. Internal control is a major part of managing any organization. 

As required by 31 U.S.C. § 3512(c),(d), commonly referred to as the Federal 

Managers’ Financial Integrity Act of 1982, the Comptroller General issues 

standards for internal control in the federal government.18 These standards 

provide the overall framework for establishing and maintaining internal 

control and for identifying and addressing major performance and 

management challenges and areas at greatest risk of fraud, waste, abuse, 

and mismanagement. These standards include establishment of a positive 

control environment that provides discipline and structure as well as the 

climate that influences the quality of internal control. As we reported in our 

Executive Guide, Strategies to Manage Improper Payments, a lack of or 

breakdown in internal control may result in improper payments.19

Improper payments are a widespread and significant problem in 

government and include inadvertent errors, such as duplicate payments 

and miscalculations; payments for unsupported or inadequately supported 

claims or invoices; payments for services not rendered; and payments 

resulting from outright fraud and abuse.

18GAO, Internal Control: Standards for Internal Control in the Federal Government, 

GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). See also, GAO, Policy and 

Procedures Manual for Guidance of Federal Agencies, Title 7, “Fiscal Guidance”, chs. 2, 6, 

and 7 (Washington, D.C.: May 1993).

19GAO, Strategies to Manage Improper Payments: Learning From Public and Private 

Sector Organizations, GAO-02-69G (Washington, D.C.: October 2001).
Page 15 GAO-06-547 Office of Worker Advocacy

Energy Did Not 

Establish Effective 

Controls over 

Payments to 

Contractors or Overall 

Contract Costs

Energy’s control environment and specific internal control activities over 

payments to contractors and overall contract costs were not effective in 

reducing the risk of improper payments. Energy did not establish an 

effective review and approval process for contractor invoices that enabled 

it to verify that goods and services billed had actually been received and 

charged at the agreed-upon amounts. In the case of SEA, much of the 

responsibility rested with SSC NOLA; however, Energy did not assure itself 

that these responsibilities were adequately carried out. Further, 

accountability for equipment purchased and reimbursed by Energy for the 

program by contractors was not maintained. In addition, Energy and its 

contracting partners, GSA and SSC NOLA, did not give adequate 

consideration to subcontractor arrangements, including the extent to 

which subcontracts were used and what amount contractors were to be 

paid for subcontractor work. Payments for subcontractor costs 

represented nearly $15 million. Finally, Energy did not effectively monitor 

overall contract costs and made errors in reporting total contract costs in 

its internal and external financial reports. Cumulatively, these weaknesses 

and the poor control environment made Energy vulnerable to improper 

payments to contractors and precluded it from effectively managing the 

overall cost of the contracts. 

Effective Review and 

Approval Process for 

Contractor Payments Was 

Not Established

Energy did not establish adequate control activities to ensure an effective 

process for the review and approval of contractor invoices. Specifically, 

contractor services were not adequately monitored, labor categories were 

not verified, and other direct costs were not adequately reviewed. In the 

case of the largest contract with SEA, SSC NOLA was responsible for 

review and approval of SEA invoices, but did not adequately perform this 

function, nor did Energy take steps to assure itself that SSC NOLA was 

properly carrying out its responsibilities. Further, the review and approval 

process used by Energy for its contracts did not include the steps 

necessary to validate the invoices before payment. The FAR, Energy’s 

accounting handbook, and federal standards for internal control require 

review and approval of invoices in order to determine if goods and services 

were actually provided in accordance with contract terms and if invoiced 

amounts were allowable under regulation or the terms of the contract. 

Contractor Services Billed Were 

Not Sufficiently Monitored

Proper invoice review procedures for contractor services call for an 

effective process to observe and monitor the services provided by 

contractors and ensure that timely verification of services is provided to 

the officials approving the invoices for payment. However, neither Energy 
Page 16 GAO-06-547 Office of Worker Advocacy

on its contracts nor SSC NOLA on the SEA contract conducted adequate 

observations and monitoring of services provided by contractors or linked 

the observations that were performed to invoices submitted to the 

government. SEA, Westwood, and Eagle provided services under time and 

materials task orders. The FAR states that because time and materials 

contracts provide no positive profit incentive to the contractor for cost 

control or labor efficiency, appropriate government surveillance (or 

monitoring) of “contractor performance is required to give reasonable 

assurance that efficient methods and effective cost controls are being 

used.”20

SSC NOLA, as the COR on the SEA contract, was responsible for 

performing observations of services provided by SEA but did so only 

sporadically. The SSC NOLA Project Manager, who was located in New 

Orleans, stated that he made periodic trips to observe SEA services in the 

Washington, D.C., area.21 However, we determined based on our review of 

travel documentation that as much as 6 months passed between his trips, 

and that no trips were made after February 2004 when SEA more than 

tripled its workforce in support of OWA. Further, even when the SSC NOLA 

Project Manager did observe services, he did not systematically link these 

monitoring activities to the invoice review and approval process. 

We identified a similar lack of systematic linkage of monitoring activities to 

the invoice review process for services provided by Eagle. Eagle operated 

the resource centers supporting EEOICPA activities of both Energy and 

DOL. Energy provided some evidence of programmatic monitoring and the 

receipt of quarterly financial information for Eagle’s services, but did not 

demonstrate how those activities were systematically linked with Energy’s 

review of Eagle’s monthly invoices. Without such linkage, Energy did not 

have adequate assurance that amounts billed reflected services actually 

provided and that they were billed at the correct rates.

Energy’s monitoring of services provided under the Westwood contract 

was also insufficient, as follows.

20FAR 16.60(b)(1).

21Initially, SEA provided information technology services in New Orleans. Later, SEA began 

providing case processing activities for OWA and relocated the case processing services to 

Washington, D.C. The case processing services ultimately accounted for 86 percent of total 

SEA services provided under SSC NOLA’s BPA.
Page 17 GAO-06-547 Office of Worker Advocacy

• Physicians serving on physician panels were retained by Westwood as 

independent contractors. These physicians reviewed cases at their 

homes or at Energy headquarters and submitted invoices or time sheets 

to Westwood for the hours worked. Neither Energy nor Westwood had 

an effective mechanism in place to assess the reasonableness of the 

hours billed by these physicians, which totaled over $3 million. Our 

review of selected physician panel invoices found that one physician 

reported working as many as 19 hours in a day, and these hours were not 

questioned by Westwood or Energy. In another example, a physician 

regularly billed significantly more than 173 hours a month—the average 

number of working hours a month based upon working 5 days a week 

and 8 hours a day. This physician billed 265 hours in March 2004, 210 in 

April 2004, 335 in May 2004, and 252 in June 2004. Westwood provided 

some evidence—a variety of metrics—that it considered the 

productivity of the physicians, such as reports that summarized hours 

needed to review each case, and quality metrics, such as decisions 

overturned and cases returned because of clerical errors. However, this 

approach was not effective in assessing the reasonableness of the hours 

billed. In fact, the productivity measures were developed based on the 

hours actually billed on the invoices submitted by the physicians, and 

therefore Energy had no independent baseline with which to measure 

productivity or to assess the reasonableness of hours billed on the 

invoices submitted by the physicians. 

• Four doctors who performed quality checks before the claims were 

submitted to the physician panels and again after the physician panels 

had made recommendations were also not sufficiently monitored. Three 

of the four doctors we interviewed told us that they worked 

independently or with only limited monitoring or supervision by 

Westwood. The doctors told us that they did interact with Energy 

technical personnel; however, these technical personnel were not 

involved in Energy’s invoice review and approval process. The doctors 

submitted their invoices or other records of time worked to Westwood 

for payment, and Westwood then billed the government for these 

charges. These physicians regularly billed for 9 to 12 hours per day and 

as high as 18 hours per day, yet there was no evidence that these charges 

were validated by Westwood or questioned by Energy. Energy told us 

that it was aware that these doctors worked long hours. However, 

Energy did not systematically observe the hours worked and then 

compare any observations to the amounts paid for those hours, nor did 

it determine that Westwood was adequately monitoring these services 

as a basis for its billings. 
Page 18 GAO-06-547 Office of Worker Advocacy

Labor Categories and Certain 

Other Activities Were Not 

Verified against the Contract

For SEA task orders, SSC NOLA did not take appropriate steps to verify 

that labor hours were being billed at the appropriate rates or to determine 

that employees were qualified under the labor category education and 

experience requirements negotiated in its contracts. Further, Energy did 

not take steps to ensure that SSC NOLA implemented appropriate 

verification procedures or effective compensating control strategies. 

Appropriate procedures to verify labor hours may include sampling on a 

test or periodic basis résumés of contractor employees, including 

independent verification of education and work experience to 

requirements under the contract or detailed evaluations of labor categories 

at higher risk because of volume or price per hour.

In certain cases, we found that the labor categories negotiated in the 

contract did not reflect the actual tasks being performed, making it difficult 

to determine whether the labor charges were based on appropriate rates. 

We found that the labor categories in the contract were originally designed 

for information technology activities and did not reflect labor categories 

appropriate for the significant case development activities SEA performed 

in the last 2 of 3 years of SEA’s task orders.22 While Energy provided us with 

a crosswalk of the information technology labor categories that SEA used 

for billing purposes to case processing job titles under the third task order, 

this crosswalk was not used by SSC NOLA in order to review SEA’s billings. 

Further, the underlying BPA was not amended to reflect labor categories 

that matched the case development activities that SEA provided.

We found similar problems with another contractor, Westwood. The 

statement of work underlying the Westwood task orders from August 2001 

through February 2005 provided for nine activities “supporting the 

Advisory Committee.” However, Westwood performed the following 

additional activities that were significant to OWA in terms of nature and 

amount but were never incorporated into Westwood’s statement of work: 

• Implementing physician panels, which included retaining doctors and 

coordinating the flow of cases between panel members.

22As discussed in the Background section, the GSA Inspector General found that two of the 

three task orders included case processing activities in addition to information technology 

activities and were therefore outside the scope of the underlying GSA FSS contract and a 

misuse of the contract vehicle.
Page 19 GAO-06-547 Office of Worker Advocacy

• Providing medical doctors who performed quality checks before the 

claims were submitted to the physician panels and again after the 

physician panels had made recommendations.

• Obtaining consulting services at the request of Energy, including 

advisors on environmental health issues and process improvements.

Since the contract did not fully reflect actual duties that were subsequently 

performed, Energy did not have an adequate basis on which to determine if 

amounts billed for labor were appropriate and consistent with the contract 

terms.

Other Direct Costs Were Not 

Adequately Reviewed

Neither Energy for the Westwood contract nor SSC NOLA for the SEA 

contract performed a sufficient review of other direct costs billed under the 

contracts. Energy did not require Westwood to report a detailed 

breakdown of its other direct costs, such as travel and materials, as 

stipulated by its contract and did not request Westwood to submit 

supporting documentation for these costs except on a sporadic basis 

because, according to Energy, the amount of supporting documentation 

was “too voluminous.” Westwood billed Energy for approximately

$11.6 million of goods and services provided from August 2001 through 

February 2005 in support of OWA, of which approximately $5.2 million was 

for other direct costs. As shown in figure 2, the amount of Westwood’s 

other direct costs was significant to its monthly billings but was not 

adequately described on the invoice.
Page 20 GAO-06-547 Office of Worker Advocacy

Figure 2: Westwood Group, Inc., Invoice for Services Provided to OWA in October 

2004

Note: “DPLH” stands for Direct Productive Labor Hours and represents the number of hours charged in 

each labor category.

Our review of the invoice documentation Energy did request and receive 

for one monthly invoice identified costs that should have been questioned 

and investigated by Energy prior to payment, but were not. In addition, we 

examined the supporting documentation that was available for other 

Westwood invoices (a majority of which Energy did not request or review 

Source: Westwood Group, Inc.

 DPLH THIS $ CLAIMED

 BILLING THIS BILLING CUMULATIVE

LABOR CATEGORY RATE/DPLH PERIOD PERIOD DPLH AMOUNT

 Project Manager $2,767.23 $11,171.41

Senior Scientist $171,250.00 $358,000.00

 Analyst $8,795.52 $34,326.96

 Technical Editor $6,643.90 $16,174.46

 Admin. Specialist $58,107.16 $126,977.96

 OT $0.00 $0.00

 Clerical $0.00 $0.00

 OT $0.00 $0.00

 Subtotal Labor Cost 2410 $247,563.81 5535 $546,650.79

OTHER DIRECT COSTS

 Travel $30,935.76 $51,954.17

 Other Direct Costs $125,763.95 $209,434.88

 Temp. Labor $294,710.94 $687,301.07

 Subtotal ODC’s $451,410.65 $948,690.12

ODC INDIRECT RATE 12.00% $54,169.28 $113,842.75

 TOTAL INVOICE $753,143.74 $1,609,183.66

TASK 1

For the Period 10/01/2004 through 10/31/2004

The Westwood Group, Inc. Contract No: DE-AT01-01EH01014

Voucher No: 2004-3-2

Date: 9 November 2004 
Page 21 GAO-06-547 Office of Worker Advocacy

prior to payment) and identified numerous charges improperly paid by 

Energy. These findings are discussed later in the report. 

SSC NOLA, in its role as COR and project manager on the SEA task orders, 

did not sufficiently review travel costs incurred by SEA. SSC NOLA 

preapproved travel when it determined the travel met a need of the 

program and then subsequently reviewed and approved the travel voucher, 

including all receipts submitted, after the travel had occurred. The COR 

also verified that travel had been preapproved, travel corresponded with 

the preapproved dates and location, and the amounts did not exceed the 

preapproved estimates. However, SSC NOLA did not question whether the 

costs actually incurred for airfare were reasonable and appropriate. In 

particular, we found instances of first-class travel and other excessive 

airfare costs that were not identified or questioned by SSC NOLA. For 

example, our analysis of the historical data supporting SEA’s travel for 

OWA activities on its most frequently flown route (New Orleans to Ronald 

Reagan Washington National Airport) showed airfares as high as $1,482 for 

first-class travel and as low as $362 for coach class. SSC NOLA officials 

indicated that in the future they would review contractor travel costs more 

closely, including adding new procedures to verify that contractor travel 

complied with the applicable travel regulations regarding first-class travel.

Accountability for 

Equipment Purchased by 

Contractors Was Not 

Maintained

Energy did not have sufficient controls over the equipment, such as 

computers, laptops, and copying machines, purchased by its contractors 

for the program. The equipment, totaling nearly $1 million, ranged from a 

$160 printer to a $17,742 copying machine. Any equipment purchased by a 

contractor and for which the government holds the title is considered 

government-owned property.23 Maintaining accountability over assets calls 

for procedures to approve equipment purchases prior to purchase, steps to 

ensure the contractors received and safeguarded the assets during the 

operation of the program, and conducting timely inventories of equipment 

it received from each contractor at the conclusion of the program. 

However, Energy did not have adequate procedures in place to properly 

account for equipment purchased by its contractors nor did it work with 

SSC NOLA to ensure adequate monitoring of SEA-purchased equipment. 

Specifically, Energy did not have a formal process to approve Westwood 

equipment purchases prior to purchase. Additionally, Energy did not take 

23FAR subpart 45.5.
Page 22 GAO-06-547 Office of Worker Advocacy

steps to ensure the contractor maintained accountability over equipment 

while it was in its possession. Further, physical inventories of Westwood 

and SEA purchased equipment were not completed until at least 8 months 

following the expiration of the respective contracts. 

Our analysis of documentation supporting Westwood’s invoices from 

January 2002 through February 2005 found that Westwood purchased over 

70 pieces of computer and computer-related items costing approximately 

$62,000 and was subsequently reimbursed by Energy. Energy, however, did 

not conduct an inventory of that equipment until December 2005, nearly 9 

months after Westwood’s contract expired. Further, since Energy had not 

previously obtained supporting documentation for Westwood’s equipment 

purchases, Energy relied on Westwood to provide it with a listing of all 

items purchased. During its inventory, Energy identified 13 missing items. 

Our comparison of the inventory to Westwood’s billings for the equipment, 

however, identified an additional 31 items that Westwood had not included 

on its listing that also needed to be accounted for. Finally, we identified 

over $31,000 in computer purchases that did not contain sufficient 

supporting detail, such as a description of the items, serial numbers, or 

model numbers, to be used to determine if the items were accountable 

assets and, if so, if they were included on the inventory list. In response to 

our inquiries, Energy made an effort to locate these additional items and 

has indicated that several items have been found. Energy’s and its 

contractor’s lack of accountability for the equipment over an extended 

period put this equipment at risk of loss or misappropriation without 

detection.

Inadequate Consideration of 

Subcontract Arrangements

Energy did not consistently obtain and review subcontract arrangements or 

adequately consider the billing implications of the extensive use of 

subcontracts by its prime contractors. Nearly $15 million of $92 million in 

OWA program costs were incurred by subcontractors. However, neither 

Energy nor SSC NOLA for SEA exercised sufficient management oversight 

to be fully informed of the nature, extent, scope of services, and terms of 

billings to the government for these services as well as the oversight the 

prime contractor was to exercise over its subcontractors.24 Our review of 

the subcontracting arrangements used by SEA and TDI identified 

24For example, FAR 44.201-1 and 44.201-2 provide mechanisms for agencies to consent to or 

be notified of subcontracting agreements prior to award of the subcontracts.
Page 23 GAO-06-547 Office of Worker Advocacy

numerous subcontracting issues that were not addressed by Energy or, in 

the case of SEA, by SSC NOLA or GSA. 

Of the $29 million in labor billings by SEA, $10.1 million was provided by 

subcontractors, including temporary staffing agencies. While Energy, SSC 

NOLA, and GSA were aware that SEA utilized subcontracted labor, GSA’s 

initial consideration of the use of subcontractors was given in 2000 as part 

of SEA’s proposal under the BPA more than a year before the Energy task 

orders and was not updated to reflect changes in SEA’s business partners or 

the scope of work provided to Energy over time. To illustrate, SEA utilized 

16 subcontractors to provide services to Energy, but only 5 of those 

subcontractors, representing approximately 6 percent of total billings for 

subcontractor services, were included in SEA’s proposal. Further, there 

was no evidence that either SSC NOLA or GSA had been informed of the 

extent to which SEA used subcontractors to provide OWA services or the 

amount SEA paid for those services. SSC NOLA told us that it was 

concerned that SEA did not separately identify the amount of charges 

associated with subcontracted labor from other labor charges, but said that 

GSA officials told it such a breakout was not necessary. SSC NOLA did not 

pursue the issue again with either GSA or SEA. 

Additionally, TDI billed Energy for services provided by Westwood from 

February 2002 through September 2004 under an arrangement that TDI and 

Westwood viewed as a prime contractor and subcontractor relationship. 

However, we found that an agreement between TDI and Westwood 

containing basic information, such as hourly billing rates by labor category, 

allowable costs, and other basic terms and conditions for the period 

Westwood provided services did not exist. Further, while Energy’s CO told 

us he obtained and reviewed a price proposal submitted by Westwood for 

this period, Energy did not take the appropriate steps to ensure the prices 

were formalized into TDI’s prime contract with Energy or any other binding 

agreement. Without an effective contractual agreement, including 

negotiated rates, it was not possible for Energy to adequately review the 

amounts TDI billed for costs attributed to Westwood. 

Overall Contract Costs Were 

Not Effectively Monitored 

or Accurately Reported

Energy did not establish internal control monitoring practices to effectively 

manage overall contract costs, including using contract ceilings to manage 

and encourage cost-effectiveness. Further, Energy did not accurately 

report contract costs in internal and external financial reports. We 

identified instances of improper cost assignments between Energy 

programs and a payment error that understated the program’s costs by 
Page 24 GAO-06-547 Office of Worker Advocacy

$2.5 million. This amount includes a processing error of $1.7 million we 

identified during our review that had not been previously identified by 

Energy.

Contract Ceilings Were Not 

Effectively Monitored

Energy failed to monitor cumulative contract costs adequately. Ceilings, or 

caps, on total contract values and on certain contract components, such as 

other direct costs, impose limits that help the government manage contract 

costs. Contract ceilings are particularly valuable tools for monitoring time 

and materials contracts, which have few other mechanisms for managing 

cost-effectiveness. Our review of contract and interagency agreement 

ceilings for the four major OWA contractors showed that the ceiling 

amounts of certain contracts were increased numerous times. For 

example, the amount for Westwood’s total contract ceiling was modified 

six times, including four times during the last 9 months of the contract. 

However, Westwood still exceeded the cost ceiling for other direct costs by 

nearly $2 million by the end of the contract. Energy paid these amounts, 

thereby reducing the value of the contract ceiling and further 

demonstrating Energy’s lack of a proper control structure to manage 

contract costs.

Contract Cost Reporting Was 

Flawed

Energy also did not properly track and report contract costs in internal and 

external financial reports. Energy improperly assigned some costs of OWA 

activities to other program reporting units and, in some cases, assigned the 

costs of other program reporting units to OWA. For example, Energy 

improperly assigned the costs of OWA services provided by Westwood to 

other program reporting units, in effect using other programs’ funds to pay 

for OWA activities. This occurred because Energy did not assign the costs 

of the invoice according to services provided to each program, but instead 

either divided the total cost of the invoice equally across all programs 

receiving services or assigned costs based upon the amount of funds 

available in the different program reporting units. At the end of Westwood’s 

first contract, $1.6 million of costs associated with OWA activities were 

assigned to other program reporting units, understating the OWA program 

costs. Conversely, Energy, using similar methods, improperly used 

$2.1 million of OWA funds to pay TDI costs through its second contract that 

were unrelated to OWA activities, overstating the OWA program costs. 

Assigning costs on a basis other than the actual cost of services not only 

misstates program costs but also hinders the agency’s ability to adhere to 

federal cost accounting standards.

In addition, Energy used $1.3 million of funds from two other Energy 

program reporting units to pay for SEA services in fiscal years 2003 and 
Page 25 GAO-06-547 Office of Worker Advocacy

2004. Although the amount transferred was authorized by senior Energy 

management, it was not reported externally in Energy’s September 30, 

2004, report to Congress on EEOICPA expenditures. As a result, the cost 

report was understated by $1.3 million. 

We identified a total of $5.0 million (gross) in cost assignment errors and 

reporting omissions. These errors, which were partially offsetting and 

resulted in a net understatement of OWA program costs of $800,000, 

prevented the agency and other interested stakeholders from knowing the 

true cost of program activities at any given time.

We further identified a $1.7 million payment error related to SEA billings 

that occurred in December 2004. GSA paid SEA for its services and was 

reimbursed by SSC NOLA. SSC NOLA then received a reimbursement from 

Energy through the intragovernmental payment process, but was not 

reimbursed for the full amount owed it because of a processing error. 

Neither SSC NOLA nor Energy identified the mistake. The error went 

undetected by Energy because it did not reconcile reimbursements made to 

SSC NOLA to appropriate supporting documentation in accordance with 

Energy accounting policy. The error understated the OWA’s program costs 

until it was corrected in September 2005 after we brought it to the attention 

of the Defense Finance and Accounting Service, the Department of Defense 

unit that handled SSC NOLA’s intragovernmental payment transactions. 

Energy Made Millions 

of Dollars in Improper 

and Questionable 

Payments to 

Contractors

The fundamental internal control weaknesses associated with Energy’s 

contract payment process contributed to $26.4 million in improper and 

questionable payments to contractors that we identified as part of our 

review. We employed a variety of forensic auditing techniques to assess the 

validity of Energy payments for OWA activities and identified $24.4 million 

in improper and questionable payments to contractors for direct labor 

billed under improper labor categories and the inappropriate use of fully 

burdened labor rates. We also identified $778,613 in improper and 

questionable payments for other direct costs, including amounts for addons and base fees, and certain travel and related costs. Further, we 

questioned whether certain other payments toward the end of the program 

for furniture and computer equipment, totaling nearly $1.2 million, were an 

efficient use of government funds. Given Energy’s poor control 

environment and the fact that we only reviewed selected Energy payments, 

other improper and questionable payments may have been made that have 

not been identified.
Page 26 GAO-06-547 Office of Worker Advocacy

Table 3 includes the net amount of improper and questionable payments 

when we could determine a net amount. We use the gross amounts paid by 

Energy when it was not practical for us to determine offsets or reductions 

that might be due to the contractors in lieu of the amounts that Energy 

paid. Any potentially recoverable amounts would need to be determined 

after consideration of any reductions or offsets.

Table 3: Summary of Improper and Questionable Payments

Source: GAO.

a

The amounts reported for these categories represent the gross amount paid by Energy to its 

contractors and therefore do not reflect any reductions or offsets that may be due the contractors for 

the goods and services that were provided. Any potentially recoverable amounts would need to be 

determined after consideration of these reductions or offsets. 

The following sections provide additional information on the improper and 

questionable payments we identified.

Energy Made Improper and 

Questionable Payments for 

Labor Charges

A significant portion of OWA program expenditures was for labor provided 

by contractors and their subcontractors. For the four major contractors 

discussed in this report, Energy paid $45.3 million for contracted and 

Type of Cost Improper Questionable Total

Labor

Labor categoriesa $2,498,920 $17,686,892 $20,185,812

Fully burdened labor rates 3,661,429 569,798 $4,231,227

Overtime charges 3,019 $3,019

Subtotal $24,420,058

Other direct costs

Add-on charges and base fees $655,734 $655,734

Per diem and commuting costsa 12,418 $4,704 $17,122

First-class travela 5,207 9,119 $14,326

Other miscellaneous payments 91,431 $91,431

Subtotal $778,613

Inefficient use of government funds

Furniture $821,129 $821,129

Equipment 341,790 $341,790

Subtotal $1,162,919

Total $6,928,158 $19,433,432 $26,361,590
Page 27 GAO-06-547 Office of Worker Advocacy

subcontracted labor, representing approximately 49 percent of total OWA 

program costs reported by Energy. In light of Energy’s weak controls over 

labor category requirements and insufficient observation and monitoring of 

contracted services, we performed a variety of tests on the amounts billed 

for labor. Our tests disclosed that certain contractors used inappropriate 

labor categories for billing purposes, and as a result the government made 

improper payments for those charges. We also found that some labor 

billings could not be validated because of insufficient criteria for labor 

category qualifications but were paid nonetheless. Additionally, Energy and 

SSC NOLA paid prime contractors for subcontractor labor at fully 

burdened labor rates instead of paying only the costs incurred by the prime 

contractor and also paid time and a half for certain hours worked beyond a 

standard 40-hour week, which was not in accordance with the contract.

Labor Categories Westwood billed over half a million dollars of labor charges under labor 

categories for which the employees were not qualified to be billed. We 

reviewed résumés for 25 Westwood employees whose time was billed to 

OWA. Our comparison of employee résumés to the qualifications that were 

required under Westwood’s contract revealed that Westwood billed for 7 

employees under labor categories and at billing rates for which the 

employees were not qualified, resulting in $602,000 of improper payments 

by Energy. For example, the analyst labor category required a college 

degree and at least 5 years of experience in a specific field, such as health 

or physical sciences or environmental studies. However, the employees we 

reviewed who were billed as analysts did not have college degrees or did 

not have the necessary years of experience. Westwood’s Project Manager 

told us that he was unfamiliar with the minimum qualifications negotiated 

under the contract. Further, Westwood management officials had not 

previously compared the employees’ qualifications to the requirements 

listed in the contract, but they told us they have since taken steps to screen 

applicant qualifications.

We also identified $1.9 million of improper payments to SEA that resulted 

from the use of inappropriate labor categories by SEA. Using data mining 

and other forensic auditing techniques, we selected 94 individuals directly 

billed by SEA and requested their personnel files in order to compare 

education and experience qualifications to what the contract required. 

Because personnel are often billed under more than one labor category 

under the contract, the personnel files we requested represented 187 

comparisons. However, as discussed later, we were only able to make 87 

comparisons. For these 87, we identified the following instances of labor 
Page 28 GAO-06-547 Office of Worker Advocacy

costs billed under inappropriate labor categories, which resulted in 

improper payments by Energy.

• SEA billed approximately $970,930 under labor categories that did not 

reflect actual duties performed. SEA had three consecutive program 

managers who functioned as the project lead and were the main liaisons 

between Energy and SEA officials. Yet these three managers were not 

billed to the government under the program manager (average billing 

rate of $106/hour) or project manager (average billing rate of $117/hour) 

labor rates but rather as subject matter experts, which were billed at an 

average rate of $205/hour. Project and program managers, according to 

the labor descriptions under the contract, generally required the ability 

to manage contract support operations, including organizing and 

planning activities. On the other hand, a subject matter expert provides 

assistance in “enhancing the alignment of Information Technology 

strategy with business strategy” and “evaluates expectations for and 

capabilities for the information management organization.” 

In November 2005, we asked SEA officials why these project leads were 

not billed under the less costly project or program manager labor 

categories, but they offered no viable explanation. On March 23, 2006, 

counsel to SEA told us that they disagreed with our view that these 

were improper payments because the three individuals’ “ability to 

manage was informed and enhanced by their expertise in engineering 

and information technology.” Further, counsel to SEA said that “given 

their extensive expertise in their fields, it seems appropriate for SEA to 

have billed these senior personnel as subject matter experts.” We 

disagree and find no basis for the government to have paid more for 

program manager labor than the agreed rate for that labor category. 

• SEA also billed and Energy paid $649,182 for services provided by four 

employees who were not qualified for the labor category under which 

they were billed. Two employees were billed as systems engineers 

(average billing rate of $85/hour) who did not meet the minimum 5 years 

programming experience. They had 3 years or less of general computer 

experience. A third employee did not have the years of experience 

necessary to be billed as a case management technician, which required 

a minimum number of years of medical records experience. The fourth 

employee was billed as a senior computer scientist at an average billing 

rate of $117/hour, but the documentation maintained in the employee’s 

file did not provide adequate evidence that the employee met the 

minimum 5 years of programming experience.
Page 29 GAO-06-547 Office of Worker Advocacy

• Charges for two other SEA employees, totaling $276,808, were billed as 

graphics illustrators, although the job descriptions for these employees 

indicate that they performed administrative support services, for 

example, project scheduling, support activities, and making travel 

arrangements and preparing travel-related paperwork. We found no 

basis for these employees to be billed as graphics illustrators at an 

average billing rate of $52/hour. Further, because general and 

administrative costs, such as those associated with the administrative 

duties performed by these two employees, are recoverable through a 

component of the fully burdened labor rates used under the time and 

materials task orders, the costs associated with these two 

administrative employees may be duplicative.

Of the 187 total comparisons we initially planned to make, 72 comparisons 

were not possible because certain labor category descriptions negotiated 

for use under the BPA lacked sufficient criteria for assessing whether a 

person was qualified to be billed at that labor category. In total, we 

identified about one-third of the labor categories used by SEA, representing 

$15.6 million in questionable payments by Energy, that did not include 

sufficiently explicit descriptions of the requirements and duties of the 

position for us to assess the appropriateness of the labor amounts billed for 

these labor categories. For example, the description for senior 

management analyst listed desirable skills and knowledge in the areas of 

business and mathematics, for instance, but did not list education or years 

of experience requirements. SEA billed $7.2 million, at an average hourly 

billing rate of $90/hour, under that labor category. We found that billings in 

this labor category included amounts for case processors (who generally 

were registered nurses or had medical backgrounds) and records 

management personnel (who generally had degrees in business or records 

management). 

Based upon discussions with both SEA and SSC NOLA officials and our 

review of the BPA and underlying GSA schedule contract, we found that 

labor categories reflecting the necessary duties, education, and skills 

Energy required for the work performed did not exist under the GSA 

contract, which was originally let solely for information technology 

activities. Instead, SEA used labor categories that “best fit” the work 

performed and that had what SEA considered to be an appropriate billing 

rate for the services provided. GSA as the contracting officer did not amend 

the contract to align labor category descriptions with the needs of the 

government. While Energy developed a crosswalk of labor categories to 

case processing job titles, this crosswalk did not specify skills or education 
Page 30 GAO-06-547 Office of Worker Advocacy

qualifications that would supplement those originally provided for under 

SEA’s contract.

Further, an additional 28 labor category comparisons could not be made 

because SEA either did not obtain or had not retained résumés and other 

documents that evidenced independent validation by SEA (or confirmation 

of validations performed by others) of employee skills, work experience, 

and education requirements for personnel it obtained through temporary 

hiring agencies or other subcontractors. The 28 comparisons we made in 

our review represented a portion of the $10.1 million in subcontracted 

labor charged the government. After removing other improper and 

questionable amounts noted elsewhere in this report to prevent doublecounting, we consider $2.1 million of subcontracted labor billings to be 

unsupported and therefore questionable payments by Energy. Without this 

information, it would not be possible for us or others to determine if these 

temporary personnel were billed under appropriate labor categories and at 

appropriate billing rates. 

Fully Burdened Labor Rates SEA and Westwood used fully burdened labor rates that included base 

wages plus fringe benefits, overhead costs, and profit to bill for 

subcontracted labor but had no basis to do so under their contracts. This 

practice resulted in over $4 million in “markups” on subcontracted labor 

charges that were paid by Energy. Based on our analysis, Energy should 

have paid only incurred costs for the subcontracted labor, which 

represented amounts paid by the prime contractors for labor obtained from 

temporary staffing agencies, other subcontractors, or independent 

contractors. The following is a discussion of SEA and Westwood billing 

practices and the resulting improper and questionable payments by SSC 

NOLA and ultimately Energy.

SEA 

Over 40 percent of SEA’s direct labor hours were provided by labor 

obtained under arrangements with temporary staffing agencies. In total, 

from December 2001 through December 2004, SEA paid subcontractors, 

including temporary staffing agencies, $6.86 million for the services. 

Instead of billing the government for this amount, SEA billed the 

government $10.08 million for these services under fully burdened labor 

rates, resulting in a markup of $3.22 million and improper and questionable 

payments by SSC NOLA and ultimately Energy.
Page 31 GAO-06-547 Office of Worker Advocacy

Energy inappropriately paid $7.12 million for work costing SEA 

$4.47 million that was not contemplated at the time the labor rate 

negotiations occurred. As previously noted in the background section, the 

GSA Inspector General reviewed the three Energy task orders for SEA 

services and reported that the case development activities performed by 

temporary staffing agencies under the second and third task orders were 

outside the scope of the underlying GSA FSS contract and a misuse of the 

contract vehicle that was designed for information technology services. 

These two task orders represented approximately 83 percent of total SEA 

services provided to Energy. Because the services were outside the scope 

of the underlying FSS contract, there was no basis for SEA to bill for the 

subcontracted services at other than cost. 

The contracting officer may add items not on the FSS only if all applicable 

FAR requirements are followed. These requirements include publicizing the 

government’s proposed contract action (FAR part 5), complying with the 

full and open competition requirements (FAR part 6), and meeting the 

source selection requirements (FAR part 15). In addition, the contracting 

officer should determine that the price of the items or services not on the 

underlying GSA schedule contract—here, case processing activities 

performed by labor obtained through temporary staffing agencies—is fair 

and reasonable. None of these requirements were satisfied for the 

$7.12 million of payments to SEA. Given that the FAR requirements were 

not met for this out-of-scope work, the schedule rates were inapplicable. 

Accordingly, the $2.65 million markup of subcontractor rates over cost was 

not properly supported and was improper. 

SEA also billed for subcontracted services that were within the scope of 

work of the underlying contracts and task orders but may have been 

inappropriately paid by Energy using fully burdened labor rates. The time 

and material payment clause included in the SEA contracts, FAR 52.232-7,25

states that “the Government will limit reimbursable costs in connection 

with subcontracts to the amounts paid for supplies and services purchased 

directly for the contract.” SEA paid $2.39 million for the subcontracted 

labor under these agreements but billed the government $2.96 million for a 

markup over cost of $569,798. There are currently differing views in the 

contracting community (including government agencies) regarding how 

the payment clause is to be applied by contracting agencies when paying 

contractors for services provided by their subcontractors when the 

2548 C.F.R. § 52.232-7.
Page 32 GAO-06-547 Office of Worker Advocacy

contract is otherwise silent on this matter. The clause provides that based 

on invoices or vouchers approved by the CO, the contractor will be paid an 

hourly rate amount “computed by multiplying the appropriate hourly rates 

prescribed in the Schedule by the number of direct labor hours performed. 

The rates shall include wages, indirect costs, general and administrative 

expenses, and profit.” The clause also provides that reimbursements to 

contractors for subcontractor services shall be limited “to the amounts 

paid.” 

The view of some in the federal contracting community is that prime 

contractors are to be paid for subcontractor labor based on the approved 

fully burdened labor hour rates as if the prime contractor provided the 

services directly through its employees, since these are the rates the 

government agreed to pay for each labor category. Another view is that 

contractors are to be reimbursed only for what they pay their 

subcontractor for services. An amendment to the FAR has been proposed 

that attempts to clarify the application of the clause.26 For the purpose of 

this report, we have identified payments in the amount of $569,798 as 

questionable based on the literal application of this clause with regard to 

reimbursement to contractors for subcontractor services.

Westwood

Westwood paid four independent contractors $2.23 million for services 

provided, yet billed Energy $3.24 million using fully burdened labor rates 

for a markup of $1.01 million. On October 21, 2002, Energy modified its 

contract with Westwood to provide for a new labor category, senior 

scientist, to be billed at a fully burdened labor rate of $250/hour. The senior 

scientists were doctors who performed quality assurance review checks 

over the case files before and after the files entered physician panel review. 

Energy officials advised us that they negotiated this labor category and the 

high hourly rate in order to ensure that they had full access to the medical 

specialists necessary to meet the increased case-processing demands of the 

program. Despite this fact, and that Westwood, in its cost justification to 

add the senior scientist labor category, indicated that the senior scientists 

would be added as employees, Westwood engaged them to work as 

independent contractors. 

26See, FAR cases 2004-015 and 2003-027 at 70 Fed. Reg. 56314 and 56318, respectively, 

September 26, 2005.
Page 33 GAO-06-547 Office of Worker Advocacy

When we inquired about the employment status of the senior scientists, 

Westwood’s President told us they were full-time employees. However, the 

documents we reviewed, including written agreements between the senior 

scientists and Westwood, showed that Westwood engaged the senior 

scientists as independent contractors at hourly rates ranging from 

$110/hour to $200/hour and they were ineligible to participate in benefit 

packages. In response to our request for Internal Revenue Service (IRS) 

Form W-2, Wage and Tax Statements, for the senior scientists, Westwood 

provided us instead with IRS Form 1099—MISC. Form 1099 is used to 

report amounts paid to independent contractors, not employees. Because 

Westwood engaged these personnel contrary to the negotiations with 

Energy and the terms of the contract, Westwood inappropriately billed the 

government, and Energy improperly paid a $1.01 million markup for these 

services. 

Overtime Charges Westwood billed and Energy improperly paid for hours beyond a standard 

workweek at one and a half times the billing rate for the labor category 

under the contract. Under its time and materials task orders, hours worked 

were to be billed under the labor rates negotiated in the contract, and no 

provision was made for overtime rates. Over the 4 years Westwood 

provided services to OWA, it billed Energy for 168 hours at time and a half 

for an incremental difference over the regular labor rate of $3,019. 

Westwood’s President told us that the overtime payments were verbally 

approved and allowed by Energy, which was evidenced by Energy’s 

approval of Westwood invoices that clearly showed the number of hours 

billed at time and a half. However, Westwood’s contractual agreement was 

not modified to reflect this approval.

Energy Improperly Paid 

Contractor Fees and Other 

Direct Costs 

Other direct costs, such as travel, purchases of equipment, and add-on 

rates and base fees, for the four major contractors in this report totaled 

approximately $10 million, or 11 percent, of total OWA program costs 

reported by Energy. These costs are subject to a variety of terms and 

conditions contained in the contracts and in the FAR. For example, 

allowable fees are negotiated specifically for each contract. Also, the 

contracts may have incorporated either the Federal Travel Regulation

(FTR) or the Joint Travel Regulations used by the Department of Defense, 

which define allowable travel costs. For time and materials contracts, FAR 

16.601(a)(2) and (b)(2) limit other direct costs to those separately 

identifiable from costs included in its fully burdened labor rate. Because of 

the weaknesses in Energy’s invoice review process identified in this report, 

specifically the weaknesses related to Westwood’s invoices, and the 
Page 34 GAO-06-547 Office of Worker Advocacy

significant amounts of other direct costs billed to the government by both 

SEA and Westwood, we obtained and reviewed the supporting 

documentation for selected other direct costs these two contractors billed 

the government. We also analyzed the fees TDI billed the government on its 

invoices. We identified the following questionable and improper payments.

Add-on Rates and Base Fees Energy made $557,429 in improper payments to Westwood for amounts the 

contractor added to billings for other direct costs in the form of a 12 

percent add-on rate. However, there is no provision in the contract to 

justify such a charge. The contract provides that other direct costs were 

not to exceed $120,000 in the base year, and did not provide for additional 

amounts, such as fees, profits, or add-on rates. Additionally, when 

determining the “best value” among the proposals provided in response to 

Energy’s solicitation for the work, Energy deemed Westwood’s proposal of 

a flat amount for other direct costs (with no add-on rates) to be in 

conformance with the solicitation while a competitor’s addition of an addon rate for general and administrative expenses was deemed contrary to 

the solicitation. 

Energy also improperly paid $98,305 in base fees to TDI. The base fee is 

negotiated up front by Energy and TDI. It was calculated based on the level 

of effort provided under the contract and was limited to 3 percent of the 

estimated cost ($2,761,581) for a total of $82,847. The contract did not 

distinguish between the level of effort provided by TDI and any other 

contractor that TDI viewed as its subcontractor, including Westwood. 

Westwood, in addition to its previously discussed prime contract with 

Energy, provided services through TDI in what TDI and Westwood viewed 

as a prime–subcontractor relationship.27 From March 2002 through 

September 2004, TDI billed Energy for $181,152 in base fees that according 

to TDI, represented base fees for both TDI and Westwood. Because the 

base fee under the prime contract was limited to $82,847, TDI overbilled 

and Energy improperly paid $98,305.28

27Westwood’s services were significant to TDI’s billings from March 2002 through September 

2004, accounting for 30 percent of its billings for OWA activities and over 40 percent of total 

TDI billings.

28The excessive base fee also resulted in another violation of TDI’s contract terms, which 

limited the total amount of base fee and award fees to 10 percent of the estimated cost of the 

contract. The base fee and award fees TDI billed Energy equaled 12.49 percent of the 

estimated cost of the contract. Further, TDI received $89,296 out of the total amount of 

$181,152 as its own base fee, exceeding the contract amount by $6,449.
Page 35 GAO-06-547 Office of Worker Advocacy

Per Diem, Commuting, and 

Travel Costs

Energy paid $12,418 for per diem and commuting costs billed by Westwood 

related to the physician panels that were not allowed under Westwood’s 

task orders, which incorporated the FTR.29 For example, Energy 

improperly paid Westwood for per diem and commuting expenses of 

physicians who lived in the local area and per diem to out-of-town 

physicians for days that their own time records showed they did not work 

(sometimes weeks at a time). We considered an additional $4,704 in 

payments to be questionable because they were not properly supported in 

order to determine whether the amounts billed were in accordance with 

the FTR.30

Energy also made $14,326 in improper and questionable payments for firstclass airfare purchased by SEA. First-class airfare is prohibited by SEA’s 

task orders that incorporate the Joint Travel Regulations except under 

certain circumstances, and those circumstances must be clearly 

documented in the travel voucher. Energy improperly paid $5,207 in airfare 

when at least one leg of the trip was first class and was not justified in the 

travel documentation supporting the trip. We also questioned payments of 

an additional $9,119 in first-class airfare. The travel documentation 

supporting these airfare costs contained some explanation for the use of 

first class generally related to availability. For example, one traveler noted 

“only first class available.” However, the travel regulations state that 

travelers should determine travel requirements in sufficient time to reserve 

and use coach accommodations.31 Therefore, we question whether the 

travelers’ justifications were sufficient under the terms of the contract.

Other Miscellaneous Payments We identified $91,431 in other miscellaneous payments that Energy 

improperly made to Westwood and TDI. Of this amount, $45,631 was made 

for duplicate and erroneous billings from Westwood. In one case, we found 

that Westwood billed the government multiple times for the same cost for a 

physician serving on review panels. The duplicate amounts for this one 

physician equaled $28,783. Westwood also billed Energy for a plane ticket 

29We reviewed the supporting documentation for the costs of 6 of 167 panel physicians. We 

chose these 6 physicians for detailed review because of either the high volume of their 

charges or unusual charges that we noted in our preliminary reviews of supporting 

documentation. We only considered their billings for fiscal year 2004, the year of the highest 

physician panel activity.

3041 C.F.R. § 301-11.1(c).

31Joint Travel Regulations, CC2204(B)(1)(b).
Page 36 GAO-06-547 Office of Worker Advocacy

that was never used and subsequently credited back to Westwood ($643) by 

the airline and therefore should not have billed to Energy. These duplicate 

and erroneous billings were likely not identified prior to payment because 

Energy did not regularly obtain documentation supporting Westwood’s 

invoices or sufficiently review the documentation it had received. 

Additionally, TDI billed the government twice for work provided by its 

subcontractor, Westwood, during the month of April 2004 instead of billing 

the subcontractor’s April and May 2004 invoices. The subcontractor’s April 

invoice included more costs than its May invoice; therefore, Energy 

improperly paid an incremental amount of $19,277.

Energy also improperly paid at least $26,523 in other costs billed by 

Westwood that were not permitted under the terms of the contract and the 

FAR. The payments included $21,172 for monthly phone bills, $4,603 for 

staff parking permits, and $748 for water cooler rentals. 

Purchases of Certain 

Furniture and Equipment 

May Not Have Been an 

Efficient Use of 

Government Funds 

We identified $1,162,919 in purchases of furniture and equipment and 

related storage costs that may not have been an efficient use of government 

funds given that Congress was giving consideration to transferring 

responsibility for the program to another agency.32 As part of our review of 

overall program costs, we noted a significant increase in program costs 

during the last 6 months of the program beginning in July 2004. For 

example, the amount of SEA’s invoices increased approximately 87 percent 

from a monthly average of $1.2 million for the 6 months prior to July 2004 

to $2.3 million for the following 3 months. The increase in program 

spending followed a June 2004 transfer of $21.2 million to OWA. According 

to Energy officials in a March 2004 testimony before the Senate Committee 

on Energy and Natural Resources, Energy transferred the funds in part to 

reduce the backlog of unprocessed applications by increasing the number 

of case developers and assistants as well as the number of physicians 

serving on the review panels. 

In July 2004, Energy ordered $748,409 of modular furniture that was to be 

installed in new work space to be occupied by claims processing personnel 

32In June 2004, the Senate passed an amendment to the fiscal year 2005 Defense 

Appropriations bill that would have transferred the administration of EEOICPA Subtitle D to 

DOL. Ultimately, the bill that was signed into law on October 28, 2004, repealed Subtitle D 

and replaced it with Subtitle E, which is administered by DOL. (Pub. L. No. 108-375.)
Page 37 GAO-06-547 Office of Worker Advocacy

provided by SEA. However, by August 2004, OWA had initiated a hiring 

freeze. According to the program manager at the time, Energy was unable 

to cancel the furniture order and the furniture was received in September 

2004. Energy paid $6,060 a month through fiscal year 2005 to store the 

furniture at a storage facility, incurring costs of $72,720 for 12 months. (See 

fig. 3.) We noted that Energy prepaid the manufacturer $50,000 of 

installation charges in 2004 even though the furniture was in storage for 12 

months and not installed until February 2006, over a year and a half later, 

for use by another Energy program. Total costs associated with the 

furniture were $821,129, which we have classified as a questionable use of 

government funds.33

33Storage costs from October 2005 through December 2005 were paid by Energy’s Office of 

Operations, Office of Space Management and Facilities Development Group.
Page 38 GAO-06-547 Office of Worker Advocacy

Figure 3: Unused Modular Furniture in Storage Facility

During this period of increased program spending, SEA more than tripled 

its workforce supporting OWA at the direction of Energy. To equip these 

personnel, SEA purchased and subsequently billed the government for 200 

desktop computers, 5 laptop computers, 6 industrial copiers, and 4 fax 

machines at a cost of $341,790. This equipment was ordered from June 21, 

2004, through July 27, 2004, and SEA received all items by August 2004. 

Because the program ceased new case processing and SEA began 

Source: GAO.
Page 39 GAO-06-547 Office of Worker Advocacy

downsizing its staff in November 2004, SEA only used these items in 

support of the program for at most 5 months. According to Energy officials, 

Energy took possession of the equipment from the contractor when SEA’s 

contract ended on December 31, 2004. At the time of our inquiry nearly 8 

months later, however, 134 items, with a cost of $241,725, were still unused 

and located in storage rooms at Energy or could not be located. 

Conclusion The questionable and improper payments we identified during our review 

represent nearly 30 percent of total program funds spent through 

September 30, 2005. Given the lack of fundamental internal control over the 

payment, monitoring, and reporting of contractor costs, and the fact that 

we did not review all program payments, the amount of improper and 

questionable payments could be even greater. Further, the control 

weaknesses at Energy and SSC NOLA could be indicative of more systemic 

problems at both organizations that could put other program funds at risk. 

Correcting these problems will require a major reassessment of existing 

practices, policies, and procedures and the overall control environment. 

The success of this effort will depend on the level of commitment by senior 

management in setting the “tone at the top” and working proactively to see 

that the needed changes are effectively implemented.

Recommendations for 

Executive Action

We are making 16 recommendations to address the issues identified in this 

report. We are making 14 recommendations to Energy to (1) improve 

controls over the review and approval process for contractor invoices; 

(2) strengthen accountability for government-owned equipment purchased 

by contractors; (3) improve reporting and control of overall contract costs, 

including subcontractor costs; and (4) pursue opportunities for recovery of 

improper and questionable costs identified in this report. We are also 

making 2 recommendations to SSC NOLA to reassess its procedures for 

carrying out its responsibilities for delegated contract administration in 

connection with interagency agreements. 

To improve Energy’s controls over its review and approval process for 

contractor invoices, we recommend that the Secretary of Energy instruct 

the Deputy Secretary to: 

• Develop an assessment process to use as a basis for determining 

reliance on and monitoring the performance of other federal agencies 

that perform key contract management functions on Energy’s behalf, 
Page 40 GAO-06-547 Office of Worker Advocacy

such as monitoring contractor services, review and approval of invoices, 

and approval of subcontractor agreements.

• Establish policies and procedures for an effective review and approval 

process for contractor invoices, including (1) conducting and 

documenting observations (surveillance) of services provided by 

contractors, (2) linking those observations to the invoice review and 

approval process, (3) verifying labor hours are billed at appropriate 

rates and that employees are qualified to perform the work consistent 

with the terms of the underlying agreement, and (4) ensuring other 

direct costs are properly supported and reviewed prior to payment. 

• Develop guidance for CORs or other payment/review officials that detail 

appropriate steps for review and approval of invoices and appropriate 

documentation of that review process.

• Require timely and periodic reviews of contractual agreements, 

especially time and materials contracts or task orders, including the 

statements of work, to ensure that agreements continue to reflect both 

the work that is being performed and the needs of the agency. 

To strengthen Energy’s accountability for contractor-acquired government 

property, we recommend that the Secretary of Energy instruct the Deputy 

Secretary to establish or reinforce existing policies and procedures to: 

• Approve contractor equipment purchases prior to purchase.

• Verify that contractors receive and safeguard the assets during the 

operation of the program, including physical inventories or some other 

process to validate that all assets paid for are accounted for.

• Timely conduct physical inventories of contractor-acquired government 

property upon taking possession of the equipment at the close of 

contract, including resolving with the contractor any missing or 

defective items.

To improve Energy’s reporting and control of time and materials and cost 

reimbursement contract costs, including subcontractor costs, we 

recommend that the Secretary of Energy instruct the Deputy Secretary to 

establish or reinforce existing policies and procedures to: 
Page 41 GAO-06-547 Office of Worker Advocacy

• Review subcontracts, including those for labor obtained through 

temporary staffing agencies. 

• Require contractors to obtain formal approval in advance for significant 

new subcontract agreements or changes to existing subcontract 

agreements, such as significant changes in the nature, scope, or amount 

of subcontracted activities, including labor obtained through temporary 

staffing agencies.

• Systematically monitor overall contract costs and require documented 

justifications from contractors for increased ceiling amounts, as well as 

specific documentation to support Energy’s approval of the increases 

before incurrence of any costs beyond the ceiling.

• Properly assign costs incurred to the correct program at the time of 

payment and accurately report such costs in internal and external 

financial reports.

• Reinforce requirements for reconciliation of intragovernmental 

payments for amounts due under interagency agreements to appropriate 

supporting documentation.

To pursue opportunities for recovery of improper or questionable costs 

identified in this report, we recommend that the Secretary of Energy in 

coordination with the Administrator of General Services and, in relation to 

SEA costs, the Commanding Officer, Space and Naval Warfare Systems 

Center, New Orleans, to: 

• Determine, in consultation with DOJ, the amount, if any, of potentially 

recoverable costs associated with the improper and questionable 

payments for labor associated with SEA that we identified in this report 

in light of the settlement agreement dated November 2005.

• Determine whether the other improper and questionable payments of 

contractor costs, including payments to SEA that are identified in this 

report, should be reimbursed to Energy by any contractor. 

In light of the findings in this report, we recommend that the Commanding 

Officer, Space and Naval Warfare Systems Center, New Orleans, reassess 

the organization’s procedures for carrying out its delegated responsibilities 

in connection with interagency agreements for delegated contract 

administration responsibilities, including the following:
Page 42 GAO-06-547 Office of Worker Advocacy

• Assess the adequacy of the review and approval process for contractor 

invoices, including (1) oversight and monitoring of contractor services 

and linkage of these activities to the invoice review and approval 

process, (2) verification that labor hours are billed in the appropriate 

categories at the appropriate rates, and (3) determining that contractor 

travel and other direct costs are in accordance with the contract and 

applicable federal regulations.

• Establish policies to document guidance sought from GSA and the 

direction received on all matters of substance, including the use and 

billing implications of subcontracted labor, and to communicate the 

direction provided by GSA to the customer agency (e.g., Energy) for 

consideration by the customer.

Agency Comments and 

Our Evaluation

In the letter transmitting its detailed written comments on a draft of this 

report, Energy stated that it agreed with the spirit and intent of our 

recommendations and that it will give careful consideration to each of 

them. Energy also said it would revise its current policies or procedures as 

appropriate and described corrective actions it had already undertaken to 

improve its controls, including those over interagency contracting. In its 

detailed comments, Energy agreed with some of our findings and disagreed 

with others without specifically commenting on any of the 16 

recommendations, including the 14 directed to Energy. In particular, 

Energy (1) disagreed with our view that it was ultimately responsible for 

the issues that we identified relating to payments and controls for SEA, a 

contractor obtained through an interagency agreement; (2) stated that it 

was engaging the Defense Contract Audit Agency (DCAA) to audit the costs 

of two contractors that we reported as having a number of issues related to 

improper payments, and that it considers this to be a control that addresses 

some of our findings; (3) disagreed with our findings that Energy 

improperly paid $557,429 to Westwood for add-on rates and $98,305 to TDI 

for base fees; and (4) stated that its June 2004 transfer of $21.2 million was 

proper and that the large purchases of furniture and equipment near the 

end of the program were also proper. Energy also observed that the 

November 29, 2005, settlement and release between the government and 

SEA would appear to preclude the recovery of any additional money from 

the contractor for the improper and questionable payments that we 

identified in this report. 

In written comments reprinted in appendix III, SSC NOLA stated that it 

concurred with the two recommendations calling for it to reassess its 
Page 43 GAO-06-547 Office of Worker Advocacy

procedures for carrying out its responsibilities in connection with 

interagency agreements and that it expects to complete actions on both 

recommendations by August 1, 2006. SSC NOLA separately provided 

technical comments, which we have incorporated as appropriate. 

Energy took issue with a number of our findings related to SEA contract 

payments because Energy did not agree that it had ultimate responsibility 

for the contract with SEA. Energy stated that it was the responsibility of 

the contractor to comply with the terms of its contract. Energy stated that 

it is a customer of SSC NOLA and, as such, had no direct contractual 

relationship with the contractor, SEA. Energy’s position is that SSC NOLA 

was responsible for conducting appropriate oversight and administration 

of contractor costs and that it had relied on SSC NOLA and GSA to ensure 

that SEA complied with the terms of its contract. Energy further stated that 

it deferred to SSC NOLA and GSA on issues with the SEA contract such as 

labor categories, billing rates, qualifications of personnel, and 

subcontractor arrangements and that those issues were the responsibility 

of SSC NOLA and GSA, not Energy. 

We disagree with Energy’s position that it had no responsibility as it relates 

to the propriety of the payments made to SEA. As discussed in the 

Background section of our report, in cases where authority for contract 

oversight and administration is delegated among multiple agencies, 

ultimate responsibility for the contract rests with the customer agency 

(receiving agency), in this case Energy. Energy cannot assign or delegate 

away its responsibilities34 through interagency agreements; the ultimate 

responsibility for ensuring the success of the contracted efforts as well as 

the propriety of payments remains with the receiving agency. In particular, 

the Economy Act requires that agencies ordering and paying for services 

under Economy Act agreements are responsible for ensuring that they 

receive the required services and pay for actual costs that were incurred by 

the performing agency, in this case SSC NOLA.35 While Energy may not 

have had sole responsibility for ensuring that payments made to SEA were 

proper, Energy was responsible for making sure that others were 

adequately conducting work on its behalf to ensure that program funds 

were not used to make questionable and improper payments. 

34GAO, Principles of Federal Appropriations Law, vol. 4, 2nd ed., pp. 15-69 through 15-70, 

GAO-01-179SP (Washington, D.C.: March 2001).

3531 U.S.C. §§ 1535, 1536 and chapter 2 of title VII of GAO’s Policy and Procedures Manual 

for Guidance of Federal Agencies provide guidance on agencies’ responsibilities.
Page 44 GAO-06-547 Office of Worker Advocacy

Notwithstanding its stated view that it was the responsibility of others and 

not Energy to conduct appropriate oversight and administration of the SEA 

contract, Energy stated that it did conduct observations and monitoring of 

SEA services. Energy further stated that it linked those observations to 

amounts billed each month through multiple levels of metrics and the 

contractor’s monthly cost report. However, we found that Energy did not 

receive any of the SEA billings under the interagency agreement. Also, we 

found that Energy had no processes in place to link the cost reports, any 

metrics it may have produced, or any observations it may have made to 

amounts that the contractor billed each month. Further, because 

information in the contractor’s monthly cost report was not compared to 

amounts billed each month, the procedures Energy described in its 

comments would be of limited value as a control process against improper 

payments and would not provide Energy with the necessary assurance that 

amounts subsequently paid to the contractor were appropriate.

In response to a number of our findings related to improper payments 

made to Westwood and TDI, Energy stated that it is currently having DCAA 

audit these contracts. Energy further stated that these audits were initiated 

as part of its “normal course of business” and anticipated that many of the 

issues we cited would normally be identified as part of a DCAA audit. While 

we agree that a DCAA audit of contract costs can provide a detective 

control to help determine whether contractor costs were proper, reliance 

on an after-the-fact audit is not an acceptable replacement for the type of 

real-time monitoring and oversight of contractor costs-preventive controlsthat we found to be lacking at Energy. Further, a DCAA audit of civilian 

contractor costs is not automatic and requires an additional cost to the 

government to procure. In addition, as stated in our report, the numerous 

issues that we identified with Westwood and TDI occurred over a 4-year 

period. It is important that Energy establish a control environment that 

includes control activities that prevent questionable or improper payments 

to begin with or that detects them soon after they occur so that they can be 

resolved in a timely manner, thus ensuring program funds are fully 

available to achieve the purposes of the program. Reliance on an audit by 

DCAA in 2006 or later of contractor activity that began in 2001 is not an 

efficient or effective approach to implementing proper internal controls 

over payments to contractors. 

Energy disagreed with our findings that it improperly paid $557,429 to 

Westwood in the form of a 12 percent add-on rate and also improperly paid 

$98,305 to TDI for base fees. Energy stated that Westwood had an approved 

rate of 13 percent for general and administrative expense that was verified 
Page 45 GAO-06-547 Office of Worker Advocacy

by the CO in a DCAA pre-award audit. However, we found that the 13 

percent general and administrative expense that Energy refers to was 

evaluated in the context of a price proposal for a cost plus contract. 

Further, under time and materials contracts like this one, general and 

administrative expenses are typically included in the hourly rate associated 

with each labor hour. While FAR 52.232-7 allows for “reasonable and 

allocable” material handling costs, including general and administrative 

expenses, for materials and subcontractors to the extent that they are 

“clearly excluded from the hourly rate,” neither Westwood nor Energy 

provided evidence during our review that any such costs were clearly 

excluded from Westwood’s labor rates. Therefore we stand by our 

conclusion that the 12 percent add-on rate to Westwood’s time and 

materials contract was improper.

With respect to the improper payment to TDI of $98,305 in base fees, 

Energy stated that our approach of adding TDI’s fee to the fees associated 

with its subcontractor (Westwood) was not appropriate because there is no 

“base fee” in Westwood’s contract. Energy’s stated basis for its position was 

that the TDI contract was a cost-plus-award-fee type while TDI’s 

subcontract with Westwood was a cost-plus-fixed-fee type contract, with 

no base fee. However, as stated in our report, TDI did not have a 

subcontract or other binding agreement with Westwood for services 

Westwood provided to Energy that TDI subsequently included on its 

invoices to Energy. Further, Energy’s contract with TDI limited the amount 

of base fees to $82,847 applied to the level of effort (i.e., labor hours billed) 

provided by TDI and made no distinction between hours incurred by the 

prime contractor or any contractor viewed as a subcontractor. Thus, the 

contract terms necessitate considering, as we did, the base fees of TDI and 

Westwood together. As stated in our report, Energy paid a total of $181,152 

in base fees when the maximum should have been $82,847, thus resulting in 

improper payments of $98,305. 

Energy stated that the information in our report showing that $21.2 million 

in funds was transferred to OWA in June 2004 during the same time that 

legislation was moving through Congress to transfer the administration of 

the program to DOL implies that Energy’s ramp-up activities were 

unsupportable. Energy also stated that using these funds to purchase 

furniture and equipment in the summer of 2004 was consistent with 

congressional approval of its reprogramming actions. 

Our report does not imply that Energy’s ramp-up activities were 

unsupportable. Our report provides extensive background information on 
Page 46 GAO-06-547 Office of Worker Advocacy

the program, including the June 2004 transfer of $21.2 million in funds to 

OWA in an effort to clear the backlog of claims. This background 

information was provided for context. As discussed in our report, however, 

we did identify $1,162,919 in purchases of furniture and equipment and 

related storage costs that may not have been an efficient use of government 

funds given that Congress was giving consideration to transferring 

responsibility for the program to another agency. As discussed in the 

report, Energy ordered $748,409 of modular furniture in July 2004 that was 

to be installed in new work space to be occupied by claims processing 

personnel provided by SEA. However, by August 2004, OWA had initiated a 

hiring freeze and therefore placed the furniture in a storage facility, 

incurring costs of $72,720 for 12 months. Further, Energy paid the vendor 

$50,000 up front in 2004 for installation charges even though the furniture 

was not installed until February 2006, over a year and a half later, for use by 

another Energy program. 

Regarding our recommendation that Energy pursue opportunities for 

recovery of labor and other SEA costs that we identified as improper or 

questionable, Energy stated that the November 29, 2005, settlement 

agreement and release between the government and SEA would appear to 

preclude the recovery of any additional moneys for expenditures in support 

of Energy’s programs. Our report stated that we did not determine whether, 

or to what extent, the terms of the November 29, 2005, settlement and 

release with SEA may affect any potential additional monetary recoveries 

by the government for the questionable and improper payments made to 

SEA that we identified. We also stated in our report that the release clause 

of the settlement is limited to “covered conduct” investigated by the 

government related to two areas: billing indirect labor costs as direct labor 

costs and billing for employees in labor categories for which they were not 

qualified. It is important that Energy consult with DOJ in order to 

determine the recoverability of funds from SEA before concluding that the 

funds are not recoverable. Therefore, we reaffirm our recommendation. 

Discussions on other matters are provided following Energy's comments, 

which are reprinted in appendix II. SSC NOLA's comments are reprinted in 

appendix III. 

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from its 

date. At that time, we will send copies to the Secretary of Energy and the 

Commanding Officer of SSC NOLA and interested congressional 
Page 47 GAO-06-547 Office of Worker Advocacy

committees. Copies will also be made available to others upon request. In 

addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov.

If you or your staffs have any questions about this report, please contact 

me at (202) 512-9508 or calboml@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Major contributors to this report are acknowledged in 

appendix IV.

Linda M. Calbom

Director, Financial Management and Assurance
Page 48 GAO-06-547 Office of Worker Advocacy

Appendix I

Scope and Methodology AAppenednxidexiIs

For this review, we considered costs recorded by the Office of Worker 

Advocacy (OWA), the Department of Energy (Energy) office tasked with 

administering Subtitle D of the Energy Employees Occupational Illness 

Compensation Program Act of 2000 (EEOICPA) from October 2000 through 

September 30, 2005. Our review focused primarily on costs incurred under 

contracts for services by four contractors: Eagle Research Group, Inc. 

(Eagle); Science and Engineering Associates, Inc. (SEA); Westwood Group, 

Inc. (Westwood); and Technical Design, Inc. (TDI). In total, payments made 

to these contractors represented approximately $55.5 million, or 60 

percent, of total program costs reported by the EEOICPA program through 

September 2005. Our work did not extend to the program costs for claims 

research activities at Energy facilities. These activities were performed by 

Energy’s major facility operating contractors that are subject to audit by 

Energy’s Inspector General and to other reviews by Energy’s financial 

management officials. 

To assess the reliability of OWA cost data for purposes of our review, we 

reviewed reconciliations of OWA costs to amounts in the audited 

Statements of Net Cost for fiscal years 2001 through 2004.1

 In addition, for 

all OWA cost data for the period October 2000 through September 2005, we 

(1) obtained electronic files of OWA costs and performed electronic testing 

for obvious errors in accuracy and completeness, (2) reviewed supporting 

documentation for selected payments to contractors and other vendors and 

compared them to OWA cost data, and (3) reviewed documentation 

obtained from selected contractors of cumulative billings for OWA costs 

and compared these amounts to OWA cost data. Except for the cost 

tracking and reporting issues identified in the internal control section of 

this report and the questionable and improper payments that we identify, 

and the effect of any future actions taken by the agency to recover any 

improper payments, the OWA cost information we reviewed is considered 

reliable for purposes of this report. We performed the majority of our work 

in Washington, D.C., at Energy and Westwood. We also performed work at 

1

For these years, Energy received an unqualified opinion on its financial statements. In April 

2005, Energy implemented a new financial management system. A significant number of 

conversion, posting, reconciliation, and reporting issues associated with the conversion 

hindered Energy’s ability to ensure the accuracy and completeness of the financial 

statement balances. As a result, Energy’s auditors issued a disclaimer of opinion for fiscal 

year 2005. Four percent of OWA’s program costs were initially recorded in Energy’s new 

financial management system, and therefore the conversion does not have a material effect 

on the usability of the data for purposes of our report.
Appendix I

Scope and Methodology

Page 49 GAO-06-547 Office of Worker Advocacy

SEA and TDI offices in Albuquerque, New Mexico. Additionally, we 

observed Energy’s furniture inventory located in Laurel, Maryland. 

To determine whether Energy’s internal controls provided reasonable 

assurance that improper payments to contractors would not be made or 

would be detected in the normal course of business, we used Standards for 

Internal Control in the Federal Government as a basis to assess the 

internal control structure—control environment, risk assessment 

procedures, control activities, information and communications, and 

monitoring efforts of Energy over its OWA program. Further, we reviewed 

contractual agreements, including prime contracts with four contractors; 

Energy’s interagency agreement with the Space and Naval Warfare Systems 

Center, New Orleans, (SSC NOLA); and certain subcontract agreements 

provided by prime contractors. We also considered (1) prior GAO reports 

on the EEOICPA program, Subtitle D; (2) the results of the reviews by the 

inspectors general of the General Services Administration (GSA) 

(concerning SSC NOLA’s use of SEA’s schedule contract) and Energy 

(concerning Energy’s use of interagency agreements); and (3) a prior audit 

report of the Naval Audit Service concerning SEA services provided to SSC 

NOLA. We obtained and reviewed current Energy policies regarding 

contracting and financial management matters, including Energy’s 

Acquisition Guide and accounting handbook. We also conducted 

interviews with program, procurement, and financial management 

personnel regarding policies and procedures that were in place over 

contract payments, and walk-throughs of key processes, such as the 

invoice review and approval process, to gain an understanding of Energy’s 

controls over contract payments. We conducted similar interviews with 

SSC NOLA and GSA officials to assess Energy’s contractual relationship 

with its federal contracting partners. We compared Energy’s controls to 

those recommended in our Standards for Internal Control in the Federal 

Government.

To determine whether Energy’s payments to contractors were properly 

supported and a valid use a government funds, we used a variety of data 

mining, document analysis, and other forensic auditing techniques to 

nonstatistically select transactions or groups of transactions for detailed 

review. For the transactions we selected, we reviewed supporting 

documentation to assess the appropriateness of payments based upon 

contract documents and applicable federal regulations, such as the Federal 

Acquisition Regulation (FAR), Federal Travel Regulation, and Joint 

Travel Regulations. While we identified some payments as questionable or 
Appendix I

Scope and Methodology

Page 50 GAO-06-547 Office of Worker Advocacy

improper, our work was not designed to identify all improper or 

questionable payments or to estimate their extent. 

For each of the major contracts, we obtained copies of invoices from the 

contractor and compared the amounts to a listing of payments made by 

Energy. In addition to this high-level analysis, we performed detailed tests 

on labor and other direct costs, as described below.

Labor We obtained an electronic file of all SEA labor charges, for both employees 

and subcontracted labor, for analysis. Based upon our review of the file for 

trends or anomalies, we nonstatistically selected 94 employees for testing. 

SEA provided personnel files containing supporting documentation, such 

as employee résumés, and company information, such as hire and 

termination dates. Because each person may have been billed under more 

than one labor category, we attempted to make 187 comparisons of 

personnel information to labor category requirements. SEA was unable to 

provide us with proper documentation of personnel obtained through 

temporary hiring agencies, thus preventing us from making 28 

comparisons. We could not make an additional 72 comparisons because the 

contract’s labor categories did not contain adequate education or 

experience requirements. We made 87 comparisons of employee 

qualifications to labor category requirements. 

To review Westwood labor charges, we obtained compensation 

information, such as W-2s and 1099s, and compared certain amounts 

reported to underlying payment records and amounts Westwood billed the 

government for these costs. For 25 Westwood employees supporting OWA 

activities, we compared their education and experience requirements as 

documented on their résumés to the labor category requirements 

negotiated in its contract. 

We also compared the documentation of the two TDI employees’ 

qualifications to the contract labor category descriptions.

Other Direct Costs Neither SEA nor Westwood provided a detailed list or breakdown of other 

direct costs as part of its invoice to Energy; therefore, we performed a 

preliminary review all the supporting documentation for these two 

contractors’ other direct costs. From this documentation we identified a 
Appendix I

Scope and Methodology

Page 51 GAO-06-547 Office of Worker Advocacy

high volume of the following types of transactions at each contractor, for 

which we performed a more detailed review. 

• Payments for equipment and travel costs incurred by SEA. The 

supporting documentation we reviewed for these costs included 

expense vouchers, vendor invoices, travel authorization forms, and 

plane ticket receipts and itineraries. 

• Payments for services provided by independent contractors incurred by 

Westwood. These services were mainly provided by the physician panel 

members. We obtained and reviewed the supporting invoices or other 

documentation of time and costs for 6 of 167 physician panel members 

billed. We chose these 6 physicians for detailed review because of the 

high volume of charges or unusual charges that we noted during our 

preliminary reviews of supporting documentation. We only considered 

their billings for fiscal year 2004, the year of the highest physician panel 

activity. 

In addition to this review of payments made to the major contractors, we 

analyzed other payments made by Energy in support of OWA. For example, 

we requested supporting documentation for a nonstatistical selection of 

payments based upon our analysis of payment information by payee and 

amount. We also performed an analytical review of Department of Labor 

(DOL) reimbursements under memorandums of understanding dated July 

2001 and December 2004 for the operation of the EEOICPA resource 

centers. These reimbursements totaled approximately $11 million and were 

offset against costs for the Eagle contract and other OWA program 

activities.

We reviewed the November 29, 2005, settlement agreement and release 

between the Department of Justice and SEA resulting from investigations 

by the government of alleged improper billing by SEA. We also reviewed 

the related January 2006 administrative settlement agreement between the 

Department of the Navy and SEA that provided for SEA to implement a 

compliance program to ensure that it adheres to lawful and ethical 

procedures and practices in all areas relating to its role as a government 

contractor.

We provided Energy a draft of this report and SSC NOLA a draft of 

applicable sections of this report for review and comment. Energy’s Deputy 

Assistant Secretary of Planning and Administration, Office of Environment, 

Safety and Health, and SSC NOLA’s Commanding Officer provided written 
Appendix I

Scope and Methodology

Page 52 GAO-06-547 Office of Worker Advocacy

comments, which are reprinted in appendixes II and III, respectively. 

Energy and SSC NOLA also provided technical comments, which we have 

incorporated as appropriate. We also provided key officials of SEA, 

Westwood, Eagle, and TDI with draft summaries of the findings noted in 

this report relating to them. We incorporated as appropriate oral and 

written comments we received on these draft summaries from 

management officials from Westwood, Eagle, and TDI and from outside 

legal counsel for SEA. We performed our work in accordance with 

generally accepted government auditing standards in Washington, D.C., and 

at three contractor locations from February 2005 through March 2006.
Page 53 GAO-06-547 Office of Worker Advocacy

Appendix II

Comments from the Department of Energy ApendxiI

Note: GAO comments 

supplementing those in 

the report text appear 

at the end of this 

appendix.

See comment 1.

See comment 1.
Appendix II

Comments from the Department of Energy

Page 54 GAO-06-547 Office of Worker Advocacy

See comment 2.
Appendix II

Comments from the Department of Energy

Page 55 GAO-06-547 Office of Worker Advocacy

See comments 1 and 3.

See comment 1.
Appendix II

Comments from the Department of Energy

Page 56 GAO-06-547 Office of Worker Advocacy

See comment 4.

See comment 1.

See comment 1.

See comment 1.
Appendix II

Comments from the Department of Energy

Page 57 GAO-06-547 Office of Worker Advocacy

See comment 1.

See comment 5.

See comment 1.
Appendix II

Comments from the Department of Energy

Page 58 GAO-06-547 Office of Worker Advocacy

See comment 6.

See comment 7.

See comment 8.

See comment 9.

See comment 1.
Appendix II

Comments from the Department of Energy

Page 59 GAO-06-547 Office of Worker Advocacy

See comment 10.

See comment 1.
Appendix II

Comments from the Department of Energy

Page 60 GAO-06-547 Office of Worker Advocacy

See comment 1.

See comment 11.

See comment 1.

See comment 12.
Appendix II

Comments from the Department of Energy

Page 61 GAO-06-547 Office of Worker Advocacy

See comment 1.

See comment 1.
Appendix II

Comments from the Department of Energy

Page 62 GAO-06-547 Office of Worker Advocacy

See comment 13.

See comment 14.

See comment 15.

See comment 16.
Appendix II

Comments from the Department of Energy

Page 63 GAO-06-547 Office of Worker Advocacy

See comment 17.

See comment 4.
Appendix II

Comments from the Department of Energy

Page 64 GAO-06-547 Office of Worker Advocacy

The following are GAO’s comments on the Department of Energy’s letter 

dated April 20, 2006.

GAO Comments 1. See the Agency Comments and Our Evaluation section.

2. We have not included the acquisition letter attached to this letter in this 

report. The letter can be found on Energy’s Web site, www.doe.gov.

3. We did not assess or conclude on whether the government received 

“good value” from the contract with SEA. The scope of our work was to 

determine whether internal controls over program payments were 

adequately designed, and if program payments were properly 

supported as a valid use of government funds. We addressed financial 

management practices and procedures and whether payments were 

proper, not the value or quality of services received. 

4. We modified the report for this additional information. 

5. We disagree. Our report stated that the contract with Westwood did not 

fully reflect actual duties that were subsequently performed and 

provided three examples of such. The quotation provided by Energy in 

its comments is from the statement of work section of the Westwood 

contract entitled “Advisory Committee Activities” that only addresses 

the work that Westwood should perform in support of the Advisory 

Committee, and therefore this language does not address the other 

activities Westwood performed. 

6. Energy states that a complete cost proposal was obtained from 

Westwood. However, Energy does not address that our report stated 

that Westwood’s cost proposal was not incorporated into the prime 

contact with TDI nor was any other binding agreement created 

between Energy and Westwood relative to its cost proposal. Thus, as 

our report also stated, without an effective contractual agreement, 

including negotiated rates, it was not possible for Energy to adequately 

review the amounts TDI billed for costs attributed to what Energy 

characterizes as the subcontractor, Westwood. We reaffirm this 

position. 

7. A formal agreement between a prime and a subcontractor not only 

protects the interests of the parties involved, but also those of the 

government. Additionally, as discussed in the Agency Comments and 
Appendix II

Comments from the Department of Energy

Page 65 GAO-06-547 Office of Worker Advocacy

our Evaluation section of our report, after-the-fact detective controls, 

such as the Defense Contract Audit Agency audits are not a 

replacement for real-time monitoring and oversight of contract costs. 

8. At the time of our first inquiry, Energy told us it was still updating and 

finalizing the locations and conditions of the government-owned 

equipment that SEA purchased. On September 29, 2005, the Director of 

the Office of Information Management within the Office of 

Environment Safety and Health stated that “the identification and 

recording process is still underway.” This was 8 months after expiration 

of the SEA contract in December 2004. Our report also stated that an 

inventory of contractor-purchased, government owned equipment that 

Westwood purchased was not conducted until December 2005, nearly 9 

months after Westwood’s contract expired, which Energy does not 

dispute. 

9. We did not review Energy’s work in 2006 to address the missing items. 

10. We do not agree with Energy’s statement that “at no time did Energy 

exceed a contractually negotiated and established contact ceiling.” Our 

report stated that Energy did not establish internal control monitoring 

practices to effectively manage overall contract costs, including using 

contract ceilings to manage and encourage cost-effectiveness. We 

found, for example, that Westwood was paid amounts that exceeded 

the “not to exceed” ceiling on other direct costs each year under its first 

contract, which covered the 3 1⁄2 year period August 2001 through 

February 2005 as well as under the second contract that began in 

September 2004. As a specific example, the other direct cost ceiling 

was $600,000 in year 3, but Westwood was paid $2,421,176, or 

$1,821,176 more than the “not to exceed” limit per the contract. 

11. Our report stated that the scope of our work was to determine whether 

internal controls over program payments were adequately designed and 

if program payments were properly supported as a valid use of 

government funds. The furniture purchases were considered by us in 

the context of both objectives.

12. Our report recognized that there are different interpretations of the 

time and material payment clause (FAR 52.232-7). For purposes of our 

report, we have based our findings on the literal application of this 

clause. Further, as also stated in our report, we found that neither 

Energy nor SSC NOLA for SEA exercised sufficient management 
Appendix II

Comments from the Department of Energy

Page 66 GAO-06-547 Office of Worker Advocacy

oversight to be fully informed of the nature, extent, scope of services, 

and terms of billing to the government for subcontracted services. In 

addition, we found inconsistencies in the application of what Energy 

refers to in its comments as its “method established for T&M contracts 

of requiring both primes and subcontractors to be reimbursed for direct 

labor based on their own established fully burdened labor rates.” 

13. Energy originally told us that the hiring freeze instituted in August 2004 

was because of the combination of a probable continuing resolution 

and the possible transfer of the program to DOL. We modified the 

report based on Energy’s written comments.

14. We modified the report to reflect that the $50,000 of up-front 

installation charges were paid in 2004 even though the equipment “was 

not installed until February 2006.” Notwithstanding this, the furniture 

installation fee, like the furniture, did not benefit OWA but rather 

another Energy program. 

15. We did not review the procedures described as a corrective action to 

address our finding that Energy’s monitoring of services provided 

under the Westwood contract was insufficient. However, it will be 

important that changes are made to comprehensively address the 

conditions we found at the contractor and at Energy. Our report stated 

that the productivity measures used by the contractor to monitor work 

performed by physician panel members were developed based on the 

hours actually billed on the invoices submitted by the physicians, and 

therefore Energy had no independent baseline to measure productivity 

or to assess the reasonableness of hours billed on the invoices 

submitted by the physicians. Further, our report stated that doctors 

who performed a quality check function on claims were also not 

sufficiently monitored. Energy did not systematically observe the hours 

worked and compare any observations to the amounts paid for those 

hours, nor did it determine that Westwood was adequately monitoring 

these services as a basis for its billings. 

16. The contracting officer’s representative told us that supporting 

documentation for Westwood’s invoices was not requested because of 

the “voluminous amounts” of paper that Westwood would need to copy 

and transmit to Energy each month. Our report stated that one of the 

elements of the control weakness for other direct costs was that the 

contractor was not required to report a detailed breakdown of its other 

direct costs as stipulated by its contracts. Without this level of 
Appendix II

Comments from the Department of Energy

Page 67 GAO-06-547 Office of Worker Advocacy

information, it was not possible for Energy officials to effectively 

review and approve these invoices for payment. Further, a substantial 

portion of the amount billed by Westwood for other direct costs was for 

temporary labor, and Energy’s controls would not, therefore, be 

enhanced by the corrective action put in place covering purchases of 

$50 or more. According to the implementation memo, this action is 

intended to address purchases such as government-owned equipment 

and travel, but does not specifically state whether temporary labor 

would be covered. It will be important for Energy to take further 

corrective actions that address enforcing its requirements for a detailed 

breakdown of other direct costs as well as controls specifically 

designed for temporary labor that are not covered by its new policy on 

purchases. 

17. We disagree. Our report stated that Energy improperly assigned the 

costs of OWA services provided by Westwood to other program 

reporting units, in effect using other programs’ funds to pay for OWA 

activities. We found that these practices occurred throughout the 4 

years of the program for both the Westwood and TDI contracts, not just 

for “a short period” as Energy stated in its written comments. 
Page 68 GAO-06-547 Office of Worker Advocacy

Appendix III

Comments from the Space and Naval Warfare 

Systems Center, New Orleans ApendxiI
Appendix III

Comments from the Space and Naval Warfare 

Systems Center, New Orleans

Page 69 GAO-06-547 Office of Worker Advocacy
Page 70 GAO-06-547 Office of Worker Advocacy

Appendix IV

GAO Contact and Staff Acknowledgments ApendxiIV

GAO Contact Linda Calbom, (202) 512-9508 or calboml@gao.gov

Acknowledgments In addition to the contact named above, staff members who made key 

contributions to this report include Robert Owens, Assistant Director; 

Marie Ahearn; Sharon O. Byrd; Richard Cambosos; Donald Campbell; Lisa 

Crye; Tyshawn Davis; Timothy DiNapoli; Abe Dymond; Ryan Geach; Jason 

Kelly; Dina Landoll; Patrick McCray; and Ruth S. Walk.

(190135)
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