Officials at a pair of government contractors routinely overbilled the Energy Department and used government funds for personal expenses such as home renovation and donations to an executive’s child’s school, according to federal watchdogs.
Those were just a few of the numerous improper expenditures of grant funds under a DOE weatherization program funded by federal taxpayers and administered by the Maryland Department of Housing and Community Development (DHCD).
"Weak fiscal controls over subgrantees, combined with deficiencies in subgrantee accounting systems, have led to the Program funding improper payments to local agencies rather than furthering the Program's goals of installing energy efficiency retrofits for low-income families," DOE’s inspector general said in a report released on Tuesday.
The report accuses the contractors, C&O Conservation and Maryland Energy Conservation (MEC), of "unethical accounting practices" and warns, "in the absence of immediate improvements in financial controls, the risk of fraud, waste, and abuse is increased."
The two contractors together received more than $15 million in taxpayer funds through the weatherization program. In addition to illicit financial practices, the report raises concerns about the two contractors’ "less-than-arm's-length business arrangements."
According to the report, M&O routinely overbilled DHCD for services related to DOE weatherization grants partly funded by the 2009 stimulus bill, which set aside $5 billion for weatherization grants to state agencies.
The IG examined just 80 of C&O’s 1,135 federally funded weatherization projects. It identified 57 examples of the company charging excessive fees for its services or inflating the hourly rates for which it billed the DHCD.
The report also identified a host of unallowable billings under the program, including maintenance of a C&O director’s personal vehicle, a $4,000 donation to a director’s child’s school, and "about $8,000 in bad debt expenses related to reimbursement claims that C&O had written off and then charged to the Program."
"C&O used Program funds for the personal benefit of inside directors," the IG wrote. "Of great concern, we found that construction on a C&O inside director's home was funded in part with Program funds."
C&O and MEC employees took part in insulation and drywall installation "training," they told the IG. That training entailed renovating the home of a C&O director and charging related expenses to the weatherization program.
The relationship between the two contractors is also of concern, the IG found. "C&O and MEC's boards of directors included employees and multiple related family members," the report found.
"Given this lack of independence on the boards, family members and executive employees had the ability to substantially influence the actions of their respective organizations, such as approving their own compensation or conducting business with inside directors and related parties."
Due in part to those apparent conflicts, excessive compensation was a particular issue of concern for the contractors. One C&O director who also served as an "executive employee" received a 79 percent raise in 2012, which the IG deemed "unreasonable under OMB cost principles."
It also questioned compensation for an MEC director’s spouse, who received "an hourly rate more than 50 percent higher than that of the nearest counterpart in the organization" while performing administrative work from home.
MEC declined to comment on the report. C&O did not return a request for comment by press time.