DOE Loan Guarantees: Further Actions Are Needed to Improve Tracking and Review of Applications
Published: 2012-03-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Energys (DOE) Loan Guarantee Program (LGP) was created by section 1703 of the Energy Policy Act of 2005 to guarantee loans for innovative energy projects. Currently, DOE is authorized to make up to $34 billion in section 1703 loan guarantees. In February 2009, the American Recovery and Reinvestment Act added section 1705, making certain commercial technologies that could start construction by September 30, 2011, eligible for loan guarantees. It provided $6 billion in appropriations that were later reduced by transfer and rescission to $2.5 billion. The funds could cover DOEs costs for an estimated $18 billion in additional loan guarantees. GAO has an ongoing mandate to review the programs implementation. Because of concerns raised in prior work, GAO assessed (1) the status of the applications to the LGP and (2) for loans that the LGP has committed to, or made, the extent to which the program has adhered to its process for reviewing applications. GAO analyzed relevant legislation, regulations, and guidance; prior audits; and LGP data, documents, and applications. GAO also interviewed DOE officials and private lenders with experience in energy project lending.
section_title: What GAO Found
paragraphs: The Department of Energy (DOE) has made $15 billion in loan guarantees and conditionally committed to an additional $15 billion, but the program does not have the consolidated data on application status needed to facilitate efficient management and program oversight. For the 460 applications to the Loan Guarantee Program (LGP), DOE has made loan guarantees for 7 percent and committed to an additional 2 percent. The time the LGP took to review loan applications decreased over the course of the program, according to GAOs analysis of LGP data. However, when GAO requested data from the LGP on the status of these applications, the LGP did not have consolidated data readily available and had to assemble these data over several months from various sources. Without consolidated data on applicants, LGP managers do not have readily accessible information that would facilitate more efficient program management, and LGP staff may not be able to identify weaknesses, if any, in the programs application review process and approval procedures. Furthermore, because it took months to assemble the data required for GAOs review, it is also clear that the data were not readily available to conduct timely oversight of the program. LGP officials have acknowledged the need for a consolidated system and said that the program has begun developing a comprehensive business management system that could also be used to track the status of LGP applications. However, the LGP has not committed to a timetable to fully implement this system.
The LGP adhered to most of its established process for reviewing applications, but its actual process differed from its established process at least once on 11 of the 13 applications GAO reviewed. Private lenders who finance energy projects that GAO interviewed found that the LGPs established review process was generally as stringent as or more stringent than their own. However, GAO found that the reviews that the LGP conducted sometimes differed from its established process in that, for example, actual reviews skipped applicable review steps. In other cases, GAO could not determine whether the LGP had performed some established review steps because of poor documentation. Omitting or poorly documenting reviews reduces the LGPs assurance that it has treated applicants consistently and equitably and, in some cases, may affect the LGPs ability to fully assess and mitigate project risks. Furthermore, the absence of adequate documentation may make it difficult for DOE to defend its decisions on loan guarantees as sound and fair if it is questioned about the justification for and equity of those decisions. One cause of the differences between established and actual processes was that, according to LGP staff, they were following procedures that had been revised but were not yet updated in the credit policies and procedures manual, which governs much of the LGPs established review process. In particular, the version of the manual in use at the time of GAOs review was dated March 5, 2009, even though the manual states it was meant to be updated at least annually, and more frequently as needed. The updated manual dated October 6, 2011, addresses many of the differences GAO identified. Officials also demonstrated that LGP had taken steps to address the documentation issues by beginning to implement its new document management system. However, by the close of GAOs review, LGP could not provide sufficient documentation to resolve the issues identified in the review.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Secretary of Energy establish a timetable for, and fully implement, a consolidated system to provide information on LGP applications and reviews and regularly update program policies and procedures. DOE disagreed with the first of GAOs three recommendations; GAO continues to believe that a consolidated system would enhance program management.

section_title: Letter
paragraphs: The Department of Energy’s (DOE) loan guarantee program (LGP) is  currently authorized to issue loan guarantees worth up to $34 billion for  certain types of energy projects that need affordable financing. Federal  loan guarantee programs such as the LGP can help companies obtain  such financing because the federal government agrees to reimburse the  lender for the guaranteed amount if a borrower defaults. As directed by  section 1703 of the Energy Policy Act of 2005, the LGP originally focused  on projects that use new or significantly improved energy technologies  and avoid, reduce, or sequester emissions of air pollutants or man-made  greenhouse gases. In February 2009, Congress expanded the scope of  the LGP in the American Recovery and Reinvestment Act (Recovery Act),  by adding section 1705 to the Energy Policy Act, which provided funding  and extended the program to include projects that use commercial energy  technology that employs renewable energy systems, electric power  transmission systems, or leading-edge biofuels that meet certain criteria.  The LGP has issued nine calls for applications—known as solicitations— each of which covers particular types of energy technology.
According to DOE officials, the LGP is important to both develop new  energy technologies for commercial use and make some commercial  projects possible, thereby creating jobs and new energy supplies.  However, loan guarantee programs can also expose the government to  substantial financial risks. For example, a borrower could default on a  federally guaranteed loan, leaving taxpayers to pay for the loss. In the  past, we also found problems with federal loan guarantee programs that  occurred in part because agencies did not exercise sufficient due  diligence. Due diligence is the review process by which a lender identifies  and mitigates potential problems or risks with a project before the lender  makes a loan or loan guarantee. Recently, the filing of bankruptcy  petitions by two recipients of DOE loan guarantees have raised concerns  that DOE may not be sufficiently identifying and mitigating the risk of a  loan default.
GAO has an ongoing mandate under the 2007 Revised Continuing  Appropriations Resolution to review DOE’s execution of the LGP and to  report its findings to the House and Senate Committees on  Appropriations. This is the sixth time we have reported on this program.  We have raised concerns in our prior work about the limitations of the  portion of the program conducted under section 1703 in attracting  financially viable projects representing the full range of targeted  technologies. In addition, we previously reported, among other things,  that the LGP treated applicants inconsistently and recommended that  DOE treat applicants consistently or clearly establish the conditions that  would warrant disparate treatment. Because of questions regarding  inconsistent treatment of applicants and DOE’s review process that we  raised in the 2010 report, our objectives for this report were to determine  (1) the status of the applications to the LGP’s nine solicitations and (2) the  extent to which the LGP has adhered to its process for reviewing  applications for loans that the LGP has committed to or closed.
To determine the status of applications to the LGP’s nine solicitations, we  reviewed DOE and LGP documents on the establishment and operation  of the program and analyzed the LGP’s available data on the applications  received and their current status. Because the LGP did not maintain  consolidated information on application status, it had to assemble data  from various sources for all of the applications as of September 30, 2011.  To assist in this effort, we tailored a data request to collect data on the  status of all 460 applications to the program in consultation with agency  officials. These data were to provide a current snapshot of the program by  solicitation and allow analysis of various characteristics. LGP staff familiar  with each solicitation completed the spreadsheets, and these  spreadsheets were reviewed by managers before they were forwarded to  GAO. We assessed the reliability of the data the LGP provided by  reviewing it, comparing it to other sources and following up with the  agency to clarify questions and inconsistencies, and obtain missing data.  Once the data were all collected, we found them to be sufficiently reliable  for our purposes. This process enabled us to develop up-to-date  programwide information on the status of applications. The LGP staff  updated its March 2011 applicant status data as of July 29, 2011, and we  obtained additional data on the conditional commitments and closings  made by the September 30, 2011, expiration of the section 1705 authority  for loan guarantees with a credit subsidy. In cases where multiple  applications were submitted for a single project, we considered each to  be a single application for purposes of this report. In addition, we met with  the LGP’s management and staff from each of the divisions involved with  the review process. To determine the extent to which the LGP has  adhered to its process for reviewing applications for loans that it has  committed to or closed, we identified the key steps in the review process  by analyzing the laws, regulations, policies, guidance, and solicitations for  the program. We verified these key steps in interviews with LGP officials.  We identified the 13 applications that had received conditional  commitments or had closed by December 31, 2010. We then requested  documentation from the LGP of the key review steps it conducted for  selected applications. We initially requested this documentation for a  nonprobability sample of 6 applications representing a range of  solicitations and project types. We also collected more limited  information on the 7 remaining applications to which DOE had  conditionally committed to issue a loan guarantee by the end of calendar  year 2010. For these 7, we reviewed certain key steps for which we found  differences from the LGP’s established process during our review of the  initial 6 applications. We did not evaluate the quality of the LGP’s  analyses supporting the completion of these steps. The applications we  reviewed were processed by the LGP under the policies and procedures  that were in place through September 30, 2011. We also interviewed  seven private lenders with experience financing energy sector projects to  gain insights on the comparability of the LGP and private sector review  processes. A more detailed discussion of our objectives, scope, and  methodology is presented in appendix I.
We conducted this performance audit from September 2010 to February  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: DOE’s LGP was designed to address the fundamental impediment for  investors that stems from the high risks of clean energy projects,  including technology risk—the risk that the new technology will not  perform as expected—and execution risk—the risk that the borrower will  not perform as expected. Companies can face obstacles in securing  enough affordable financing to survive the “valley of death” between  developing innovative technologies and commercializing them. Because  the risks that lenders must assume to support new technologies can put  private financing out of reach, companies may not be able to  commercialize innovative technologies without the federal government’s  financial support. According to the DOE loan program’s Executive  Director, DOE loan guarantees lower the cost of capital for projects using  innovative energy technologies, making them more competitive with  conventional technologies and thus more attractive to lenders and equity  investors. Moreover, according to the DOE loan programs Executive  Director, the program takes advantage of DOE’s expertise in analyzing  the technical aspects of proposed projects, which can be difficult for  private sector lenders without that expertise.
Until February 2009, the LGP was working exclusively under section 1703  of the Energy Policy Act of 2005, which authorized loan guarantees for  new or innovative energy technologies that had not yet been  commercialized. Congress had authorized DOE to guarantee  approximately $34 billion in section 1703 loans by fiscal year 2009, after  accounting for rescissions, but it did not appropriate funds to pay the  “credit subsidy costs” of these guarantees. For section 1703 loan  guarantees, each applicant was to pay the credit subsidy cost of its own  project. These costs are defined as the estimated long-term cost, in net  present value terms, over the entire period the loans are outstanding to  cover interest subsidies, defaults, and delinquencies (not including  administrative costs). Under the Federal Credit Reform Act of 1990, the  credit subsidy cost for any guaranteed loan must be provided prior to a  loan guarantee commitment.
In past reports, we found several issues with the LGP’s implementation of  section 1703. For example, in our July 2008 report, we stated that risks  inherent to the program make it difficult for DOE to estimate credit  subsidy costs it charges to borrowers. If DOE underestimates these  costs, taxpayers will ultimately bear the costs of defaults or other  shortfalls not covered by the borrowers’ payments into a cost-subsidy  pool that is to cover section 1703’s program-wide costs of default. In  addition, we reported that, to the extent that certain types of projects or  technologies are more likely than others to have fees that are too high to  remain economically viable, the projects that do accept guarantees may  be more heavily weighted toward lower-risk technologies and may not  represent the full range of technologies targeted by the section 1703  program.
In February 2009, the Recovery Act amended the Energy Policy Act of  2005, authorizing the LGP to guarantee loans under section 1705. This  section also provided $2.5 billion to pay applicants’ credit subsidy costs.  This credit subsidy funding was available only to projects that began  construction by September 30, 2011, among other requirements. DOE  estimated that the funding would be sufficient to provide about $18 billion  in guarantees under section 1705. Section 1705 authorized guarantees  for commercial energy projects that employ renewable energy systems,  electric power transmission systems, or leading-edge biofuels that meet  certain criteria. Some of these are the same types of projects eligible  under section 1703, which authorizes guarantees only for projects that   Consequently, many  use new or significantly improved technologies.projects that had applied under section 1703 became eligible to have their  credit subsidy costs paid under section 1705.
Because authority for the section 1705 loan guarantees expired on  September 30, 2011, section 1703 is now the only remaining authority for  the LGP. In April 2011, Congress appropriated $170 million to pay credit  subsidy costs for section 1703 projects. Previously, these costs were to  be paid exclusively by the applicants and were not federally funded.  Congress also authorized DOE to extend eligibility under section 1703 to  certain projects that had applied under section 1705 but did not receive a  loan guarantee prior to the September 30, 2011, deadline.
DOE has issued nine calls for applications to the LGP. Each of these nine  “solicitations” has specified the energy technologies it targets and  provided criteria for the LGP to determine project eligibility and the  likelihood of applicants repaying their loans (see table 1).
To help ensure that that these criteria were applied consistently and that  each selected project provided a reasonable prospect of repayment, in  March 2009, the LGP issued a credit policies and procedures manual for  the program, outlining its policies and procedures for reviewing loan  guarantee applications. As shown in figure 1, this review process is  divided into three stages: intake, due diligence, and “conditional  commitment to closing.” We use the term “review process” to refer to the  entire process.
During the intake stage, the LGP assesses applications in a two-part  process for most applicants. In part I, the LGP considers a project’s  eligibility based on the requirements in the solicitation and relevant laws  and regulations. Nuclear solicitation applications are also evaluated  against programmatic, technical, and financial criteria during the part I  review. Based on the LGP’s eligibility determination during part I review,  qualifying applicants are invited to submit a part II application. Generally,  LGP evaluates this application against programmatic, technical, and  financial criteria to form a basis for ranking applications within each  solicitation. Based on these initial rankings, the LGP selects certain  applications for the due diligence stage. During due diligence, the LGP  performs a detailed examination of the project’s financial, technical, legal,  and other qualifications to ensure that the LGP has identified and  mitigated any risks that might affect the applicant’s ability to repay the  loan guarantee. Key to identifying risks during due diligence are required  reports by independent consultants on the technical and legal aspects of  the project and others, such as marketing reports, that the LGP uses  when needed. The LGP also negotiates the terms of the loan guarantee  with the applicant during due diligence.
The proposed loan guarantee transaction is then submitted for review  and/or approval by the following entities:
DOE’s Credit Committee, consisting of senior executive service DOE  officials, most of whom are not part of the LGP.
DOE’s Credit Review Board (CRB), which consists of senior-level  officials such as the deputy and undersecretaries of Energy.
The Office of Management and Budget (OMB), which reviews the  LGP’s estimated credit subsidy range for each transaction.
Department of the Treasury.
The Secretary of Energy, who has final approval authority.
Following the Secretary’s approval, the LGP offers the applicant a  “conditional commitment” for a loan guarantee. If the applicant signs and  returns the conditional commitment offer with the required fee, the offer  becomes a conditional commitment, contingent on the applicant meeting  conditions prior to closing. During the conditional commitment to closing  stage, LGP officials and outside counsel prepare the final financing  documents and ensure that the applicant has met all conditions required  for closing, and the LGP obtains formal approval of the final credit subsidy  cost from OMB. Prior to closing, applications may be rejected by the LGP.  Similarly, applicants can withdraw at any point during the review process.  Once these steps have been completed, the LGP “closes” the loan  guarantee and, subject to the terms and conditions of the loan guarantee  agreement, begins to disburse funds to the project. For further detail on  the review process, see appendix III.
section_title: DOE Has Made $15.1 Billion in Loan Guarantees but Does Not Maintain Consolidated Data on Status of Applications
paragraphs: For 460 applications to the LGP from its nine solicitations, DOE has made  $15.1 billion in loan guarantees and conditionally committed to an  additional $15 billion, representing $30 billion of the $34 billion in loan  guarantees authorized for the LGP. However, when we requested data  from the LGP on the status of the applications to its nine solicitations, the  LGP did not have consolidated data readily available but had to assemble  them from various sources.
subsections: section_title: DOE Has Made $15.1 Billion in Loan Guarantees and Committed to Another $15 Billion
paragraphs: As of September 30, 2011, the LGP had received 460 applications and  made (closed) $15.1 billion in loan guarantees in response to 30  applications (7 percent of all applications), all under section 1705. It had  not closed any guarantees under section 1703. In addition, the LGP had  conditionally committed another $15 billion for 10 more applications (2  percent of all applications)—4 under section 1705 and 6 under section  1703. The closed loan guarantees obligated $1.9 billion of the $2.5 billion  in credit subsidy appropriations funded by the Recovery Act for section  1705, leaving $600 million of the funds unused before the program  expired. For section 1703 credit subsidy costs, the $170 million that  Congress appropriated in April 2011 to pay such costs is available, but it  may not cover all such costs because the legislation makes the funds  available only for renewable energy or efficient end-use energy  technologies.covered by the appropriation must pay their own credit subsidy costs. To  date, credit subsidy costs for loan guarantees that DOE has closed have,  on average, been about 12.5 percent of the guaranteed loan amounts.
Applicants whose projects’ credit subsidy costs are not  The median loan guarantee requested for all applications was $141  million. Applications for nuclear power projects requested significantly  larger loan amounts—a median of $7 billion—and requested the largest  total dollar amount by type of technology—$117 billion. Applications for  energy efficiency and renewable energy solicitations requested the  second-largest dollar amount—$74 billion. Table 2 provides further details  on the applications by solicitation and the resulting closed loan  guarantees and conditional commitments. Appendix II provides further  details on the individual committed and closed loan guarantees.
For all 460 LGP applications submitted, figure 2 shows the total loan  guarantee amounts requested by type of energy technology.
Table 3 provides an overview, as of September 30, 2011, of the status of  the 460 loan guarantee applications that the LGP received in response to  its nine solicitations. Of the 460 applications, 66 were still in various  stages of the approval process (intake and due diligence), 40 had  received conditional commitment or were closed, and 354 had been  withdrawn or rejected. DOE documents list a wide range of reasons for  application withdrawals, including inability to submit application material in  a timely manner, inability to secure feedstock, project faced many  hurdles, applicant did not pursue project, and applicant switched to  another program. Solicitations that primarily targeted efficiency and  renewable energy received the most applications, while those targeting  nuclear front-end technologies (for the beginning of the nuclear fuel  cycle), manufacturing, and fossil fuels received the fewest. The rejection  rate was highest for applications submitted for two of the earlier  solicitations and much lower for DOE’s FIPP, a more recent solicitation  involving applications sponsored by private financial institutions. Since we  began our review, two of the borrowers with closed loan guarantees have  declared bankruptcy—Solyndra, Inc., with a $535 million loan guarantee  for manufacturing cylindrical solar cells, and Beacon Power Corporation,  with a $43 million loan guarantee for an energy storage technology.
The elapsed time for LGP to process loan applications generally  decreased over the course of the program, according to LGP data. LGP  officials noted that the elapsed time between review stages includes the  time the LGP waited for the applicants to prepare required documents for  each stage. The process was longest for applications to the earlier  solicitations, issued solely under section 1703, from start to closing.review process was shorter for applications under the four more recent  solicitations, issued after the passage of section 1705. For example, the   The  first solicitation, known as Mixed 06, had the longest overall time frames  from intake to closing—a median of 1,442 days—and the FIPP solicitation  had the shortest time frames—a median of 422 days. Applications to the  FIPP solicitation had the shortest elapsed time because this program was  carried out in conjunction with private lenders, who conducted their own   Table 4 shows  reviews before submitting loan applications to the LGP.the median number of days elapsed during each review stage, by  solicitation, as of September 30, 2011.
From September 4, 2009, to July 29, 2011—a period of nearly 2 years— the LGP closed $5.8 billion in loan guarantees for 13 applications under  section 1705. In the last few months before the authority for section 1705  loan guarantees expired, the LGP accelerated its closings of section 1705  applications that had reached the conditional commitment stage. Thus,  over the last 2 months before the authority for section 1705 expired, the  LPG closed an additional $9.3 billion in loan guarantees for 17  applications under section 1705. The program did not use about $600 million of the $2.5 billion that Congress appropriated to pay credit subsidy  costs before the section 1705 authority expired, and these funds were no  longer available for use by LGP.
section_title: The LGP Does Not Maintain Consolidated Information on Application Status
paragraphs: When we requested data from the LGP on the identity of applicants,  status, and key dates for review of all the applications to its nine  solicitations, the LGP did not have consolidated information on application  status readily available. Instead, it had to assemble these data from  various sources.
To respond to our initial data request, LGP staff provided information from  the following five sources:  “Origination portfolio” spreadsheets, which contain information for  applications that are in the due diligence stage of the review process.  These spreadsheets contain identifying information, the solicitation  applied under, commitment or closing status, type of technology,  overall cost, proposed or closed loan amount, and expected or actual  approval dates. Information in these spreadsheets is limited. For  example, they do not contain dates that the applicant completed each  stage and do not have information on applications that have been  rejected or withdrawn. “Tear sheet” summaries for each application, which give current  status and basic facts about the project and its technology, cost,  finances, and strengths and weaknesses. Tear sheets are updated  periodically, or as needed, but LGP officials could not easily  consolidate them because they were kept in word processing software  that does not have analysis or summarization capabilities. “Application trackers,” which are spreadsheets that give basic  descriptive information and status of applications for some  solicitations. LGP staff said they were maintained for most, but not all,  solicitations.  “Project Tracking Information” documents showing graphic  presentations of application status summaries, loan guarantee  amounts requested, technology type, planned processing dates, and  procurement schedules for technical reports. These documents were  updated manually through December 20, 2010. “Credit subsidy forecasts,” which are documents that track the actual  or projected credit subsidy costs of the section 1705 projects in  various stages of the review process and the cumulative utilization of  credit subsidy funding.
LGP staff needed over 3 months to assemble the data and fully resolve  all the errors and omissions we identified. LGP staff also made further  changes to some of these data when we presented our analysis of the  data to the LGP in October 2011. According to LGP officials in 2010, the  program had not maintained up-to-date and consolidated documents and  data.  An LGP official said at the time that LGP considered it more  important to process loan guarantee applications than to update records.  Because it took months to assemble the information required for our  review, it is also clear that the LGP could not be conducting timely  oversight of the program. Federal regulations require that records be kept  to facilitate an effective and accurate audit and performance evaluation.  These regulations—along with guidance from the Department of the  Treasury and OMB—provide that maintaining adequate and proper  records of agency activities is essential to oversight of the management  of public resources.
In addition, under federal internal control standards, federal agencies are  to employ control activities, such as accurately and promptly recording  transactions and events to maintain their relevance and value to  management on controlling operations and making decisions. Under  these standards, managers are to compare actual program performance  to planned or expected results and analyze significant differences.  Managers cannot readily conduct such analysis of the LGP if the agency  does not maintain consolidated information on applications to the  program and their status. Moreover, the fact that it took the LGP 3 months  to aggregate data on the status of applications for us suggests that its  managers have not had readily accessible and up-to-date information and  have not been doing such analysis on an ongoing basis. This is not  consistent with one of the fundamental concepts of internal control, in  which such control is not a single event but a series of actions and  activities that occur throughout an entity’s operations and on an ongoing  basis. Thus, providing managers with access to aggregated, updated  data could facilitate more efficient management of the LGP.
Furthermore, without consolidated data about applicants, LGP actions,  and application status, LGP staff may not be able to identify weaknesses,  if any, in the program’s application review process and approval  procedures. For example, consolidated data on application status would  provide a comprehensive snapshot of which steps of the review process  are taking longer than expected and may need to be addressed. If  program data were consolidated in an electronic tracking system,  program managers could quickly access information important to  managing the LGP, such as the current amount of credit subsidy  obligated, as well as whether the agency is consistently complying with  certain procedural requirements under its policies and regulations that  govern the program. In addition, the program cannot quickly respond to  requests for information about the program as a whole from Congress or  program auditors.
In March 2011, the LGP acknowledged the need for such a system.  According to the March 2011 LGP summary of its proposed data  management project, as the number of applications, volume of data and  records, and number of employees increased, the existing method for  storing and organizing program data and documents had become  inadequate, and needed to be replaced. In October 2011, LGP officials  stated that while the LGP has not maintained a consolidated application  tracking database across all solicitations, the program has started to  develop a more comprehensive business management system that  includes a records management system called “iPortal” that also could be  used to track the status of applications. Officials did not provide a  timetable for using iPortal to track the status of applications but said that  work is under way on it. However, until iPortal or some other system can  track applications’ status, the LGP staff cannot be assured that  consolidated information on application status necessary to better  manage the program will be available.
section_title: The LGP Did Not Always Adhere to Its Review Process, Which May Pose Risks and Result in Inconsistent Treatment
paragraphs: We identified 43 key steps in the LGP’s guidance establishing its review  process for assessing and approving loan guarantee applications. The  LGP followed most of its established review process, but the LGP’s actual  process differed from this established process at least once on 11 of the  13 applications we reviewed, in part because the process was outdated.  In some cases, LGP did not perform applicable review steps and in other  cases we could not determine whether the LGP had completed review  steps. Furthermore, we identified more than 80 instances of deficiencies  in documentation of the LGP’s reviews of the 13 applications, such as  missing signatures or dates. It is too early to evaluate the impact of the  specific differences we identified on achieving program goals, but we and  the DOE Inspector General have reported that omitting or poorly  documenting review steps may pose increased financial risk to the  taxpayer and result in inconsistent treatment of applications.
subsections: section_title: The LGP Did Not Consistently Follow Its Established Review Process, in Part Because the Process Was Outdated
paragraphs: We identified 43 key steps in the LGP credit policies and procedures  manual and its other guidance that establish the LGP’s review process for  assessing and approving loan guarantee applications. Not all 43 steps  are necessary for every application, since the LGP’s guidance lets  officials tailor aspects of the review process on an ad hoc basis to reflect  the specific needs of the solicitation. For example, under the EERE 08  solicitation, the LGP required two parts of intake review for applications  involving large projects that integrate multiple types of technologies, but it  required only one part for small projects. Furthermore, according to LGP  officials, they have changed the review process over time to improve  efficiency and transparency, so the number of relevant steps also  depends on when the LGP started reviewing a given application. LGP  guidance recognizes the need for such flexibility and maintains that  program standards and internal control need to be applied transparently  and uniformly to protect the financial interests of the government. For  more information on the key steps we identified, see appendix III.
According to private lenders we contacted who finance energy projects,  the LGP’s established review process is generally as stringent as or more  stringent than those lenders’ own due diligence processes. For example,  like the LGP, private lenders evaluate a project’s proposed expenses and  income in detail to determine whether it will generate sufficient funds to  support its debt payments. In addition, private lenders and the LGP both  rely on third-party expertise to evaluate the technical, legal, and  marketing risks that might affect the payments. Lenders who were not  participating in the LGP generally agreed that the LGP’s process, if  followed, should provide reasonable management of risk. Some lenders  that sponsored applications under the FIPP solicitation said that the  LGP’s review process was more rigorous than their own. They said this  level of rigor was not warranted for the FIPP solicitation because it  covered commercial technology, which is inherently less risky than the  innovative technologies covered by other solicitations. Some private  lenders we spoke with also noted that financing an innovative energy  project involves a certain amount of risk that cannot be eliminated, and  one lender said that a failure rate of 2 or 3 percent is common, even for  the most experienced loan officers.
However, we found that the LGP did not always follow the review process  in its guidance. The LGP completed most of the applicable review steps  for the 6 applications that we reviewed in full, but its actual process  differed from the established process at least once on 5 of the 6  applications we reviewed. We also conducted a more limited examination  of 7 additional applications, in which we examined the steps where the  actual process differed from the established process for the first 6  applications. We again found that the LGP’s actual process differed from  its established process at least once on 6 of the 7 applications. Table 4  summarizes review steps for which we either identified differences or  could not determine whether the LGP completed a particular review step  across all 13 applications. The 13 applications we reviewed represent all  of the applications that had reached conditional commitment or closing,  as of December 31, 2010, excluding 3 applications that had applied under  the earliest solicitation, since the LGP’s review process was substantially  different for these 3 applications.
For the 13 applications we examined, we found 19 differences between  the actual reviews the LGP conducted and the applicable review process  steps established in LGP guidance. In most of these instances, according  to LGP officials, the LGP did not perform an applicable review step  because it had made changes intended to improve the process but had  not updated the program’s credit policies and procedures manual or other  guidance governing the review process.
The following describes the 19 differences we identified, along with the  LGP’s explanations:  In six cases, the LGP did not obtain CRB approval prior to due  diligence, contrary to the March 2009 version of its credit policies and  procedures manual. This version states that CRB approval is an  important internal check to ensure only the most promising projects  proceed to due diligence. LGP officials explained that this step was  not necessary for these applications because the CRB had verbally  delegated to the LGP its authority to approve applications before  these projects proceeded to due diligence. However, LGP documents  indicate that CRB delegated approval authority after these projects   According to an LGP official, the  had proceeded to due diligence.delegation of authority was not retroactive.
In seven cases, the LGP did not obtain final due diligence reports  from independent consultants prior to conditional commitment, as  required by its credit policies and procedures manual. Through their  reporting, these independent third parties provide key input to the  LGP’s loan underwriting and credit subsidy analyses in technical,  legal, and other areas such as marketing, as necessary. LGP officials  said that it was a preferable practice to proceed to conditional  commitment with drafts of these reports and obtain a final report just  prior to closing. They said this practice helps the LGP reduce financial  risk, since it allows the LGP to base its decision to close the loan  guarantee on final reports rather than reports completed 1 to several  months earlier. An LGP official explained that this part of the review  process had evolved to meet the program’s needs, but that these  changes were not yet reflected in the manual. However, the LGP does  not appear to have implemented this change consistently. Specifically,  over the course of several months in 2009 and 2010, the LGP  alternated between the old and the new process concerning final due  diligence reports from independent consultants.  In commenting on a  draft of this report, LGP officials said that in all cases they received  final independent consultant reports before the closing of the loan  guarantees.  Because the LGP’s policies and procedures manual at  the time required final reports at the conditional commitment stage,  we reviewed the reports available at conditional commitment and did  not review whether LGP received final reports before closing.
In three cases, the LGP conditionally committed to a loan guarantee  before OMB had completed its informal review of the LGP’s credit  subsidy cost estimate. According to the credit policies and procedures  manual, OMB should be notified each time the LGP estimates the  credit subsidy cost range, and informal discussions between OMB  and LGP should ensue about the LGP estimate. This cost is to be  paid by the borrower for all section 1703 projects to date and by the  federal government for section 1705 projects. LGP officials explained  that, in two of these cases, the LGP had provided OMB with their  credit subsidy estimates, but that OMB had not completed its review  because there were unresolved issues with the LGP estimates. LGP  officials did not provide an explanation for the third case. Contrary to  the manual, LGP officials said that OMB’s informal review of the credit  subsidy estimates for these applications was not a necessary  prerequisite to conditional commitment because the actual credit  subsidy cost is calculated just prior to closing and is formally approved  by OMB. Furthermore, under section 1705, the government rather  than the borrower, was to pay credit subsidy costs. Accordingly, the  LGP used these credit subsidy estimates for internal planning  purposes rather than for calculating a fee to the applicant. In contrast,  the LGP completed OMB’s informal review prior to conditionally  committing to at least three of the other loan guarantees we  reviewed—including one section 1705 project—and thus the LGP did  not perform this step consistently across all projects. In its October  2011 update of its credit policies and procedures manual, the LGP  retained the requirement that OMB review the LGP’s credit subsidy  cost estimate prior to conditional commitment. Further, the updated  guidance added that formal discussions with OMB may be required  each time OMB reviews LGP’s credit subsidy cost estimate and  should result with their approval.
In two cases, the LGP did not complete its required background check  for project participants. The documents provided indicate that LGP did  not determine whether the applicants had any delinquent federal debt  prior to conditional commitment. In one of these cases, LGP officials  said that the delinquent federal debt check was completed after  conditional commitment. In the other case, the documents indicate   that the sponsor did not provide a statement on delinquent debt, and  LGP officials confirmed that LGP did not perform the delinquent debt  check prior to conditional commitment.
In one case, the LGP did not collect the full fee from an applicant at  conditional commitment as required by the EERE 08 solicitation.  According to a LGP official, the LGP changed its policy to require 20  percent of this fee at conditional commitment instead of the full fee  specified in the solicitation, in response to applicant feedback. This  official said the policy change was documented in the EERE 09  solicitation, which was published on July 29, 2009. However, this   particular application moved to conditional commitment on July 10,  2009, prior to the formal policy change.
As outlined in these cases, the LGP departed from its established  procedures because, in part, the procedures had not been updated to  reflect all current review practices. The version of the manual in use at the  time of GAO’s review was dated March 5, 2009, even though the manual  states that it was meant to be updated at least on an annual basis and  more frequently if needed. The LGP issued its first update of its credit  policies and procedures manual on October 6, 2011,2009 manual states that it was meant to be updated at least annually and  more frequently if needed. We reviewed the revised manual and found  that the revisions addressed many of the differences that we identified  between the LGP’s established and actual review processes. The revised  manual also states that LGP analyses should be properly documented  and stored in the new LGP electronic records management system.  However, the revised guidance applies to loan guarantee applications  processed after October 6, 2011, but not to the 13 applications we  reviewed or to any of the 30 loan guarantees the LGP has closed to date.
section_title: The LGP Did Not Always Fully Document Review Steps
paragraphs: In addition to the differences between the actual and established review  processes, in another 18 cases, we could not determine whether the LGP  had performed a given review step. In some of these cases, the  documentation did not demonstrate that the LGP had applied the required  criteria. In other cases, the documentation the LGP provided did not show  that the step had been performed. The following discusses these cases:  In one case, we could not determine whether LGP guidance calls for  separate part I and part II technical reviews for a nuclear front-end  application or allows for a combined part I and part II technical review.  The LGP performed a combined part I and part II technical review.
In eight cases, we could not determine the extent to which the LGP  applied the required criteria for ranking applications to the EERE 08  solicitation. The LGP’s guidance for this solicitation requires this step  to identify “early mover” projects for expedited due diligence. The LGP  expedited four such applications but the documentation neither   demonstrated how the LGP used the required criteria to select  applications to expedite nor why other applications were not selected.
In one case, we could not determine whether the LGP completed its  required background check for project participants. The documents  provided indicated there were unresolved questions involving one  participant’s involvement in a $17 billion bankruptcy and another’s  pending civil suit.
In one case, we could not determine whether the LGP had received a  draft or final marketing report prior to conditional commitment in  accordance with its guidance. The LGP provided a copy of the report  prepared before closing but did not provide reports prepared before  conditional commitment.
In seven cases, LGP either did not provide documents supporting  OMB’s completion of its informal review of the LGP’s estimated credit  subsidy range before conditional commitment, or the documentation  the LGP provided was inconclusive.
We also found 82 additional documentation deficiencies in the 13  applications we reviewed. For example, in some cases, there were no  dates or authors on the LGP documents. The documentation deficiencies  make it difficult to determine, for example, whether steps occurred in the  correct order or were executed by the appropriate official. The review  stage with the fewest documentation deficiencies was conditional  commitment to closing, when 1 of the 82 deficiencies occurred. Table 6  shows the instances of deficient documentation that we identified.
During our review, the LGP did not have a central paper or electronic file  containing all the documents supporting the key review steps we  identified as being part of the review process. Instead, these documents  were stored separately by various LGP staff and contractors in paper files  and various electronic storage media. As a result, the documents were  neither readily available for us to examine, nor could the LGP provide us  with complete documentation in a timely manner. For example, we  requested documents supporting the LGP’s review for six applicants in  January 2011. For one of the applications, we did not receive any of the  requested documents supporting the LGP’s intake application reviews  until April 2011. Furthermore, for some of the review steps, we did not  receive documents responsive to our request until November 2011 and,  as we discussed earlier, in 18 cases we did not receive sufficient  documentation to determine whether the LGP performed a given review  step. Federal regulations and guidance from Treasury and OMB provide  that maintaining adequate and proper records of agency activities is  essential to accountability in the management of public resources and the  protection of the legal and financial rights of the government and the  public.agencies are to clearly document internal control, and the documentation  is to be readily available for examination in paper or electronic form.
Furthermore, under the federal standards for internal control,  Moreover, the standards state that all documentation and records should  be properly managed and maintained.
As stated above, the LGP recognized the need for a recordkeeping  system to properly manage and maintain documentation supporting  project reviews. In March 2011, the LGP adopted a new records  management system called “iPortal” to electronically store documents  related to each loan application and issued guidance for using this  system. As of November 1, 2011, LGP officials told us that the system  was populated with data or records relevant to conditionally committed  and closed loan guarantees and that they plan to fully populate it with  documentation of the remaining applications in a few months. The LGP  was able to provide us with some additional documents from its new  system in response to an early draft of this report, but the LGP did not  provide additional documentation sufficient to respond to all of the issues  we identified. Accordingly, other oversight efforts may encounter similar  problems with documentation despite the new system.
section_title: Differences Between the Actual and Established Processes and Incomplete Documentation May Pose Risks
paragraphs: It is too early in the loan guarantees’ terms to assess whether skipping or  poorly documenting review steps will result in problems with the  guarantees or the program. However, we and the DOE Inspector General  have reported that omitting or poorly documenting review steps may lead  to a risk of default or other serious consequences. Skipping or poorly  documenting steps of the process during intake can lead to several  problems. First, it reduces the LGP’s assurance that it has treated  applications consistently and equitably. This, in turn, raises the risk that  the LGP will not select the projects most likely to meet its goals, which  include deploying new energy technologies and ensuring a reasonable  prospect of repayment. In July 2010, we reported that the inconsistent  treatment of applicants to the LGP could also undermine public  confidence in the legitimacy of the LGP’s decisions. Furthermore, DOE’s  Inspector General reported in March 2011 that incomplete records may  impede the LGP’s ability to ensure consistency in the administration of  the program, make informed decisions, and provide information to  Congress, OMB, and other oversight bodies. The Inspector General  also stated that, in the event of legal action related to an application, poor  documentation of the LGP’s decisions may hurt its ability to prove that it  applied its procedures consistently and treated applicants equitably.  Moreover, incomplete records may leave DOE open to criticism that it  exposed taxpayers to unacceptable financial risks.
Differences between the actual and established review processes that  occur during or after due diligence may also lead to serious  consequences. These stages of the review process were established to  help the LGP identify and mitigate risks. Omitting or poorly documenting  its decisions during these stages may affect the LGP’s ability to fully  assess and communicate the technical, financial, and other risks  associated with projects. This could lead the program to issue guarantees  to projects that pose an unacceptable risk of default. Complete and  thorough documentation of decisions would further enable DOE to  monitor the loan guarantees as projects are developed and implemented.  Furthermore, without consistent documentation, the LGP may not be able  to fully measure its performance and identify any weaknesses in its  implementation of internal procedures.
section_title: Conclusions
paragraphs: Through the over $30 billion in loan guarantees and loan guarantee  commitments for new and commercial energy technologies that DOE has  made to date, the agency has set in motion a substantial federal effort to  promote energy technology innovation and create jobs. DOE has also  demonstrated its ability to make section 1705 of the program functional by  closing on 30 loan guarantees. It has also improved the speed at which it  was able to move section 1705 applications through its review process.  To date, DOE has committed to six loan guarantees under section 1703  of the program, but it has not closed any section 1703 loan guarantees or  otherwise demonstrated that the program is fully functional. Many of the  section 1703 applications have been in process since 2008 or before. As  DOE continues to implement section 1703 of the LGP, it is even more  important that it fully implement a consolidated system for overseeing the  application review process and that LGP adhere to its review process and  document decisions made under updated policies and procedures. It is  noteworthy that the process LGP developed for performing due diligence  on loan guarantee applications may equal or exceed those used by  private lenders to assess and mitigate project risks. However, DOE does  not have a consolidated system for documenting and tracking its progress  in reviewing applications fully implemented at this time. As a result, DOE  may not readily access the information needed to manage the program  effectively and to help ensure accountability for federal resources. Proper  recordkeeping and documentation of program actions is essential to  effective program management. The absence of such documentation may  have prevented LGP managers, DOE, and Congress from having access  to the timely and accurate information on applications necessary to  manage the program, mitigate risk, report progress, and measure  program performance. DOE began to implement a new records  management system in 2011, and LGP staff stated that the new system  will enable them to determine the status of loan guarantee applications  and to document review decisions. However, the LGP has neither fully  populated the system with data or records on all applications it has  received nor its decisions on them. Nor has DOE committed to a  timetable to complete the implementation of the new records  management system. Until the system has been fully implemented, it is  unclear whether the system will enable the LGP to both track applications  and adequately document its review decisions.
In addition, DOE did not always follow its own process for reviewing  applications and documenting its analysis and decisions, potentially  increasing the taxpayer’s exposure to financial risk from an applicant’s  default. DOE has not promptly updated its credit policies and procedures  manual to reflect its changes in program practices, which has resulted in  inconsistent application of those policies and procedures. It also has not  completely documented its analysis and decisions made during reviews,  which may undermine applicants’ and the public’s confidence in the  legitimacy of its decisions. Furthermore, the absence of adequate  documentation may make it difficult for DOE to defend its decisions on  loan guarantees as sound and fair if it is questioned about the justification  for and equity of those decisions. DOE has recently updated its credit  policies and procedures manual, which, if followed and kept up to date,  should help the agency address this issue.
section_title: Recommendations for Executive Action
paragraphs: To better ensure that LGP managers, DOE, and Congress have access  to timely and accurate information on applications and reviews necessary  to manage the program effectively and to mitigate risks, we recommend  that the Secretary of Energy direct the Executive Director of the Loan  Programs Office to take the following three actions:
Commit to a timetable to fully implement a consolidated system that  enables the tracking of the status of applications and that measures  overall program performance.
Ensure that the new records management system contains  documents supporting past decisions, as well as those in the future.
Regularly update the LGP’s credit policies and procedures manual to  reflect current program practices to help ensure consistent treatment  for applications to the program.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a copy of our draft report to DOE for review and comment.  In written comments signed by the Acting Executive Director of the Loan  Programs Office, it was unclear whether DOE generally agreed with our  recommendations.  The Acting Executive Director stated subsequently to  the comment letter that DOE disagreed with the first recommendation and  agreed with second and third recommendations. In its written comments,  DOE also provided technical and editorial comments, which were  incorporated as appropriate.  DOE’s comments and our responses to  specific points can be found in appendix IV of this report.
Concerning our first recommendation that LGP commit to a timetable to  fully implement a consolidated system that enables the tracking of the  status of applications and that measures overall program performance, in  its written comments, DOE states that the LGP believes that it is  important that our report distinguish between application tracking and  records management.  We believe we have adequately distinguished the  need for application tracking and management of documentation.  These  are addressed in separate sections of our report and in separate  recommendations.  DOE also states that LGP has placed a high priority  on records management and is currently implementing a consolidated  state-of-the-art records management system. In the statement  subsequent to DOE’s written comments, the Acting Executive Director  stated the office did not agree to a hard timetable for implementing our  first recommendation.  As stated in the report draft, under federal internal  control standards, agencies are to employ control activities, such as  accurately and promptly recording transactions and events to maintain  their relevance and value to management on controlling operations and  making decisions.  Because LGP had to manually assemble the  application status information we needed for this review, and because this  process took over 3 months to accomplish, we continue to believe DOE  should develop a consolidated system that enables the tracking of the  status of applications and that measures overall program performance.  This type of information will help LGP better manage the program and  respond to requests for information from Congress, auditors, or other  interested parties.
Concerning our second recommendation that LGP ensure that its new  records management system contains documents supporting past  decisions as well as those in the future, subsequent to DOE’s written  comments, the Acting Executive Director stated that DOE agreed.
Concerning our third recommendation that LGP regularly update the  credit policies and procedures manual to reflect current program  practices, subsequent to DOE’s written comments, the Acting Executive  Director stated that DOE agreed.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Energy, and other interested parties. In  addition, this report also is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff that made major contributions to  this report are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This appendix details the methods we used to examine the Department of  Energy’s (DOE) Loan Guarantee Program (LGP). We have reported four  times and testified three times on this program, including two previous  reports in response to the mandate in the 2007 Revised Continuing  Appropriations Resolution to review DOE’s execution of the LGP and to  report our findings to the House and Senate Committees on  Appropriations. (See Related GAO Products.) Because of questions  regarding inconsistent treatment of applications raised by the most recent  report in this mandated series, this report, also in response to the  mandate, assesses (1) the status of the applications to the LGP’s nine  solicitations and (2) the extent to which the LGP has adhered to its  process for reviewing applications for loans that the LGP has committed  to or closed.
To gather information on the program, we met with the LGP’s  management and staff from each of the program’s divisions involved with  the LGP’s review of loan guarantee applications from intake to closing. In  general, we reviewed the laws, regulations, policies and procedures  governing the program and pertinent agency documents, such as  solicitations announcing loan guarantee opportunities. We reviewed prior  GAO and DOE Inspector General reports performed under or related to  our mandate to audit the LGP. In addition, we gathered agency data and  documents on the loan guarantee applications in process, those that had  received a DOE commitment, and those that had been closed.
To determine the status of the applications to all nine of the solicitations  for our first objective, we explored the LGP’s available sources to see  what data the program had compiled on the applications received and  their current status in the review process. Because the LGP did not have  comprehensive or complete application status data, we tailored a data  request to collect data on the status of all 460 applications to the  program. In consultation with agency officials, we prepared a data  collection form requesting basic information on the identity, authority,  amount requested, status, key milestone dates, and type of energy  technology for all of the applications to date. These data were to provide  a current snapshot of the program by solicitation and allow analysis of  various characteristics. To ease the data collection burden, we populated  the spreadsheets for each solicitation with the limited data from available  sources. LGP staff or contractors familiar with each solicitation completed  the spreadsheets, and these spreadsheets were reviewed by managers  before they were forwarded to GAO. We assessed the reliability of the  data the LGP provided by reviewing these data, comparing them to other  sources, and following up repeatedly with the agency to clarify questions  and inconsistencies, and obtain missing data. This process enabled us to  develop up-to-date program-wide information on the status of  applications. This process resulted in data that were complete enough to  describe the status of the program. Once we collected these data, we  found them to be sufficiently reliable for our purposes. The LGP updated  its March 2011 applicant status data as of July 29, 2011, and we obtained  additional data on the conditional commitments and closings made by the  September 30, 2011, expiration of the section 1705 authority for loan  guarantees with a credit subsidy. To maintain consistency between the  application status data initially provided by the LGP and later data  updates, we use the terms application and project interchangeably,  although in some cases multiple applications were submitted for a single  project.
To assess the LGP’s execution of its review process for our second  objective, we first analyzed the law, regulations, policies, procedures, and  published solicitations for the program and interviewed agency staff to  identify the criteria and the key review process steps for loan guarantees,  as well as the documents that supported the process. We provided a list  of the key review steps we identified to LGP officials, and incorporated  their feedback as appropriate. Based on the key review steps and  supporting documentation identified by LGP staff, we developed a data  collection instrument to analyze LGP documents and determine whether  the LGP followed its review process for the applications reviewed. Since  the LGP’s review process varied across solicitations, we tailored the data  collection instrument to meet the needs of the individual solicitations. We  then selected a nonprobability sample of 6 applications from the 13 that  had received conditional commitments from DOE or had progressed to  closing by December 31, 2010, and had not applied under the Mixed  2006 solicitation, since the LGP’s review process was substantially  different for this solicitation and not directly comparable to later  solicitations. We requested documentation for these 6 applications  representing a range of solicitations and project types. We selected our  initial sample to represent each of the five solicitations where applications  had reached conditional commitment and different LGP investment  officers to reduce the burden on LGP staff. We requested the documents  supporting the LGP’s review process from intake to closing and examined  them to determine whether the applicable review steps were carried out.  While we examined whether the applicable review steps were carried out,  we did not examine the content of the documents and the quality of work  supporting them. Where the documents were not clear about completion  of the process, showed potential differences from the review process, or  raised questions, we followed up with program officials to obtain an  explanation and, as applicable, documentation supporting the  explanation. On key questions where we identified differences from the  review process for the initial sample of 6, we conducted a targeted review  of documents for the 7 remaining applications that had reached  conditional commitment or closed prior to December 31, 2010, excluding  Mixed 2006 applicants. The six loan guarantee application files reviewed  in full and the seven files reviewed in part were a nongeneralizable  sample of applications.
To identify the initial universe of private lenders with experience financing  energy projects, we reviewed the list of financial institutions that had  submitted applications to the LGP under the Financial Institution  Partnership Program (FIPP) solicitation. We used these firms as a  starting point because of their knowledge about DOE’s program and  processes. To identify financial institutions involved in energy sector  project finance outside of FIPP, we searched or contacted industry  associations, industry conferences, and other industry groups in the same  energy sectors that LGP solicitations to date have targeted. We  interviewed seven private lenders identified through this process using a  set of standard questions and the outline of the DOE’s review process to  gain insights on its comparability to the review process for underwriting  loans in the private sector.
We conducted this performance audit from September 2010 to February  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Tables of Loan Guarantees Conditionally Committed or Closed
paragraphs: The following tables provide basic details on the loan guarantee  applications that received a conditional commitment by September 30,  2011, or had proceeded to closing by that date. Table 7 lists applications  under section 1703 with conditional commitments. Table 8 lists section  1705-eligible applications with conditional commitments that did not reach  closing by the expiration of the section 1705 authority on September 30,  2011. Table 9 lists the section 1705 applications with conditional  commitments that reached closing by the expiration of the section of the  1705 authority on September 30, 2011.
section_title: Appendix III: Key Tasks in the LGP’s Review and Approval Process for Loan Guarantee Applications
paragraphs: Table 10 provides basic details about key review tasks in LGP’s process  for reviewing and approving loan guarantee applications, as identified  from our review of relevant laws, regulations, LGP guidance, published  solicitations and interviews with LGP officials. These tasks formed the  basis for our examination of LGP files to determine if LGP followed its  review process for each of the 13 applications that had received  conditional commitments from DOE or had progressed to closing by  December 31, 2010, and had not applied under the Mixed 2006  solicitation. Accordingly, the tasks listed below reflect LGP’s review  process for the applications we reviewed and do not reflect LGP’s review  process for applicants to the Mixed 2006 solicitation, which was  substantially different and not directly comparable to later solicitations.  Additionally, since we found minor variations in LGP’s review process  across the solicitations, we have noted below which tasks are only  applicable under certain solicitations. If no exceptions are listed, then the  particular task is applicable across all the relevant solicitations.
section_title: Appendix IV: Comments from the Department of Energy
subsections: section_title: GAO Comments
paragraphs: 1.  We disagree with DOE’s assertion that our findings relate only to  procedures that LGP had in place in 2009 and early 2010.  We  compared LGP’s actual process to its established process for each of  the applications that reached closing or conditional commitment by  December 31, 2010.  As we note in the report, LGP did not revise its  policies and procedures manual until October 2011, so the same  established procedures were in place for all of the applications that  closed by September 30, 2011.  We did not review any of the  applications that were committed or closed during 2011 in depth, in  part because it took through November 2011 for LGP to respond to  our repeated requests for available documentation for the applications  closed or committed to through 2010. Our 2010 report on LGP (GAO- 10-627) and this report had information on five of the same  applications.  We examined DOE’s review process for these  applications in much more depth for this report than in the previous  one. We did take into account changes in LGP procedures, systems,  and other improvements as part of our review, as noted by the  references to LGP’s new records management system and its  updated policies and procedures manual.  We also took into account  changes in LGP policies and procedures that affected the 13 files that  we reviewed, when LGP was able to document that these changes  had occurred. 2.  As noted in the report, these systems were not fully implemented at  the time we were gathering data for our review and this is still the  case, according to DOE’s written comments, dated February 23,  2012.   3.  As stated above, we disagree with LGP’s statement that our findings  relate only to procedures that LGP had in place in 2009 and early  2010.  As we note in the report, LGP did not revise its policies and  procedures manual until October 2011, so the same established  procedures were in place for all of the applications that closed by  September 30, 2011.  The report describes LGP’s efforts to update its  documentation management and tracking systems and notes that  none of these were fully implemented at the time of our review.  4.  DOE disagrees with the recommendation to implement an application  tracking system.  However, as noted in our report and DOE’s  comments, LGP is in the process of implementing a consolidated  state of the art business management system that DOE believes may  address this need.  As we stated in the draft report, under federal  internal control standards, federal agencies are to employ control  activities, such as accurately and promptly recording transactions and  events to maintain their relevance and value to management on  controlling operations and making decisions.  Because LGP had to  manually assemble the application status information we needed for  this review, and because this process took the program over three  months to accomplish, we continue to believe DOE should develop a  consolidated system that enables the tracking of the status of  applications and that measures overall program performance.  This  type of information will help LGP better manage the program and  respond to requests for information from Congress, auditors, or other  interested parties.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Karla Springer, Assistant  Director; Marcia Carlsen; Cindy Gilbert; Cathy Hurley; Emily Owens; John  Scott; Ben Shouse; Carol Shulman; Barbara Timmerman; and Lisa Van  Arsdale made key contributions to this report.
section_title: Related GAO Products
paragraphs: Recovery Act: Status of Department of Energy’s Obligations and  Spending. GAO-11-483T. Washington, D.C.: March 17, 2011.
Department Of Energy: Further Actions Are Needed to Improve DOE’s  Ability to Evaluate and Implement the Loan Guarantee Program.  GAO-10-627. July 12, 2010.
Recovery Act: Factors Affecting the Department of Energy’s Program  Implementation. GAO-10-497T. March 4, 2010.
American Recovery and Reinvestment Act: GAO’s Role in Helping to  Ensure Accountability and Transparency for Science Funding.  GAO-09-515T. March 19, 2009.
Department Of Energy: New Loan Guarantee Program Should Complete  Activities Necessary For Effective and Accountable Program  Management. GAO-08-750. July 7, 2008.
Department Of Energy: Observations On Actions To Implement The New  Loan Guarantee Program For Innovative Technologies. GAO-07-798T.  September 24, 2007.
The Department of Energy: Key Steps Needed to Help Ensure the  Success of the New Loan Guarantee Program for Innovative  Technologies by Better Managing Its Financial Risk. GAO-07-339R.  February 28, 2007.