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Fort Knox and the Army Need To Improve Internal Controls for Utility Energy Services Contracts

DODIG-2014-107

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Objective

Our audit objective was to determine whether the contract and task orders related to the energy program at Fort Knox, Kentucky, were properly awarded and administered. We reviewed 108 task orders, totaling about $270 million, awarded by Fort Knox officials, related to the energy program at Fort Knox.

Finding

Fort Knox officials did not properly award and administer 108 task orders, valued at about $270 million, for energy-saving projects. In addition, Fort Knox officials could not support the claim that projects achieved the projected energy savings. This occurred because Fort Knox officials did not:

  • establish adequate internal controls over the award and administration of the task orders, or
  • determine whether the Government received fair and reasonable prices.

As a result, Fort Knox officials spent millions on projects that may not have achieved sufficient energy savings to repay the utility company’s investment as required. This means the projects might not meet Department of Defense financing requirements for energy savings projects using Utility Energy Services Contracts (UESC), and Fort Knox officials do not have assurance that they paid fair and reasonable prices. Furthermore, the lack of adequate internal controls increases the risk of fraud, waste, and abuse. During our audit, the U.S. Army Installation Management Command issued guidance to correct the problems we found, so we will not make a recommendation to this organization.

Recommendations

We recommend the Garrison Commander, Fort Knox, Kentucky:

  • establish policies and procedures to track energy savings for individual projects awarded under UESC task orders.
  • coordinate with appropriate contracting officials and establish internal controls over the process for awarding and administering UESC task orders under contract DABT23-84-C-0089 and for any future energy contracts.

We recommend the Director, Mission and Installation Contracting Command:

  • direct Fort Knox contracting officials to discontinue awarding task orders under contract DABT23-84-C-0089 until adequate internal controls are in place;
  • develop standard operating procedures and contracting officer guidance to complete fair and reasonable price determinations for UESCs; and
  • review the contracting officer’s actions in negotiating and determining prices for contract DABT23-84-C-0089 task orders and, as appropriate, initiate actions to hold the contracting officer accountable.

Management Comments and Our Response

Comments from the Garrison Commander, Fort Knox, were responsive. We did not receive comments from the Director, Mission and Installation Contracting Command. We request the director to provide comments to the final report.