The Army’s current mission at Rocky Mountain Arsenal is to clean up the contaminated soils, structures, and groundwater there. The arsenal, established in 1942, occupies 17,000 acres northeast of Denver, Colorado, and is contaminated from years of chemical and weapons activities. The Army manufactured chemical weapons, such as napalm bombs and mustard gas, and conventional munitions until the 1960s and destroyed weapons at the arsenal through the 1980s. In addition, it leased a portion of the arsenal to Shell from 1952 to 1987 to produce herbicides and pesticides. In 1983, the United States sued Shell Oil Company for its share of the cleanup costs. In February 1989, after extended litigation, the Army and Shell signed the Rocky Mountain Arsenal Settlement Agreement and the related Rocky Mountain Arsenal Federal Facility Agreement. The agreements apportion cleanup costs to be paid by each party and costs to be shared by both, direct that environmental legislation be complied with, and provide a procedure for resolving disputes. An additional document, the Army/Shell Rocky Mountain Arsenal Financial Manual, provides an overview of financial, accounting, and auditing policies for costs related to the cleanup. Descriptions of the agreements and cost categories and guidance are contained in appendixes I and II. Shell uses contractors for cleanup activities. Two primary contracts provide for studies and cleanup activities and cover about 86 percent of Shell’s shared costs. A third contract provides for public affairs support. Each quarter, Shell provides the Army a claim for its allocable, or shared, costs. After review, the Army generates a quarterly statement, from which the Army determines how much each party owes. Under the agreements, the shared cost to be borne by each party is a percentage of the total shared costs (see table 1). As we previously reported, when the Army negotiated the settlement agreement, it estimated the shared cleanup cost would be less than $700 million, which would not have breached the demarcation between the 65/35 percent split and the 80/20 percent split. The Department of Defense (DOD) currently estimates the cost for arsenal cleanup at $2.1 billion. As of December 1995, the Army’s quarterly statement showed shared costs of $656 million. Army officials stated that shared costs reached $700 million in November 1996, and thus, the Army would begin paying 80 percent of the shared costs. According to Army officials, as of December 1995, the Army had incurred $308 million in costs not shared by Shell. Shell officials told us Shell’s nonallocable costs amounted to $95 million for studies, cleanup activities, and program management costs, including litigation. The Army’s process to review cost sharing claims under its settlement agreement with Shell is insufficient to ensure that costs are documented and appropriate. Weaknesses in the process involve (1) documentation to support claims, (2) agreements to define which costs should be shared, (3) separation of duties for recording and reviewing shared costs, and (4) documentation of decisions on the treatment of capital assets and disposition of real estate. Federal standards require that, among other elements, internal control systems provide reasonable assurance that assets are safeguarded and that revenues and expenditures are recorded and accounted for properly. The Arsenal Financial Manual allows costs to be disputed on several grounds. Specifically, costs can be disputed if: the work was not supported by a task plan, the work was not performed or the costs were not incurred, duplicate charges were made, or the costs were arbitrary and capricious in comparison with normal commercial practices. However, the Army’s review of the costs to be shared with Shell has been minimal. Our work showed that additional documentation is available in most cases and could have been reviewed by the Army. In some cases, however, more documentation would have been needed to perform detailed reviews. We examined 153 randomly selected summary vouchers covering $31 million of Shell’s allocable costs incurred from January 1988 to February 1995. As part of this examination, we reviewed documentation that Shell had provided the Army in support of its quarterly cost claim. We also reviewed secondary documentation maintained by the primary contractor. Based on these examinations and additional data later provided by Shell, we stated in our draft report that 31 entries for items totaling $3.1 million lacked the documentation needed for the Army to review the appropriateness of the cost claims. In some cases, the claims were partially documented, and in others, there was no documentation provided. In commenting on the draft report, Shell stated that in every instance, adequate information was either already in our possession or provided to us in meetings during March and April 1996. Shell further stated that full support was attached to invoices for each of three examples cited in our report. We again met with representatives of Shell and its principal contractor, Morrison Knudsen, in November 1996, but most of the documentation was not yet available and we agreed to examine additional documentation that was provided to us in December 1996. As a result of the most recent data, we revised the examples described below. The difficulty in obtaining documentation for the three examples illustrates our point that the Army needs to have procedures for documentation and the examination of claims. Taking the additional information into consideration, the following are examples from our sample of selected summary vouchers where insufficient documentation was available to make an adequate review of shared costs. For a $666,035 line item at first described as “other direct costs,” support for only $30,125 had been provided to us at the time of our draft report. Shell provided detailed support by December 1996 for an additional $479,015. The detailed support indicated that the costs were for contractor studies and left $156,895 in need of further documentation. $301,977 for brine disposal by a subcontractor did not have, at the time of our draft report, information on the quantity to be paid for, such as number and size of railroad tank cars. The separate agreements cited in Shell’s comments permitted payments up to a limit, but data on actual amounts were still needed. Such data were provided for $266,723, but were still lacking for the remaining $35,254. $187,275 of $326,566 for operations of an incinerator appeared to be for incentive awards but was not specified sufficiently, such as the number or type, to show the basis for the expenditure. The claim did not actually include awards, and support for $166,183 was provided in December 1996, although a clear link to invoices was not always shown. The remaining $21,092 lacked sufficient detail. Overall, the Army does not have detailed procedures for examining Shell’s shared costs. In the absence of such procedures, the Army’s examination consists of comparing Shell’s monthly costs with the previous month’s costs to look for significant variances. We found that the Army has not fully exercised its authority to review the costs of Shell’s contractors and subcontractors. For example, the Army shared about $48 million in costs that Shell claimed for technical studies, but has not examined the relevant contracts. Army officials said that they operate with Shell in an atmosphere of trust. They also stated that they believe that they have no right to interfere in Shell’s relationship with its contractors and that standard government contract controls do not apply to Shell’s commercial contracts. Notwithstanding these points, the Army is permitted to review Shell’s costs under the arsenal agreements and should do so to ensure that costs being claimed are appropriate. The arsenal agreements require that shared costs be supported by an approved task plan or other written agreement. The arsenal’s Program Manager’s Office and Shell officials have made numerous agreements implementing the guidance in the settlement agreement. However, not all agreements were written, and written agreements sometimes lacked approval signatures, estimates of costs to be incurred, clear descriptions of the tasks to be done, or statements that costs can be shared. Of the 153 summary vouchers we reviewed, 48 lacked specific written support, such as a signed agreement, a statement stipulating that the item was allocable or reimbursable, or authorization for the task. In some cases where signed agreements were lacking, Shell and the Army used their commercial and government practices as a standard in determining reasonableness of costs. Community relations activities is one area where cost sharing agreements have not been finalized and documentation was limited, thus making it difficult to adequately review claims. A written agreement was drafted and dated June 1990 (retroactive to January 1988), but was never signed. Although the unsigned agreement called for the Army to assume the lead responsibility in this area, Shell retained a contractor to provide public relations support. Shell and Army officials stated that for guidance on community relations activities, they refer to the requirements of the Comprehensive Environmental Response Compensation and Liability Act. Our random sample included $481,000 in charges for public affairs activities, and the Army had approved them based on two Shell statements of allocable costs that gave totals for broad categories. Incurred from August 1991 through December 1992, the largest categories were for public affairs activities regarding the successful operation of an incinerator ($245,047), public education/involvement ($120,927), and agency support ($73,864). Each category in the statements included a brief summary but no breakout of amounts for specific activities. Breakouts were often available on request, but detailed expense data were incomplete. For example, Shell provided additional data to us showing that public education/involvement included subcategories such as an arsenal brochure ($19,066), a Fish and Wildlife Service Spring Event ($14,480), and Bald Eagle Day ($15,567). Further, the detailed data for Bald Eagle Day showed $4,679 for unspecified labor costs; $4,622 for promotional “eagle pencils;” $3,026 for advertising; $1,278 for bus service; and other categories of less than $1,000 each for such items as photographs, videotape, copying, and box lunches. We did not review the appropriateness of individual cost claims.