Special Report on Prospective Considerations for the Loan Authority Supported Under the Loan Programs Office to Improve Internal Controls and Prevent Fraud, Waste, and Abuse

Under the Infrastructure Law, the Department of Energy’s Office of Fossil Energy and Carbon Management is to receive $2.1 billion to implement the new Carbon Dioxide Transportation Infrastructure Finance and Innovation Program, which can be distributed through loans, loan guarantees, or grants. To carry out this new program, the Department entered into a Memorandum of Understanding with the Loan Programs Office (LPO) to administer the funding based on its experience in evaluating financing for large-scale energy infrastructure projects and issuing Government loans and loan guarantees. In addition to the impending Infrastructure Law funding, the LPO currently administers three distinct loan programs with more than $40 billion in loan and loan guarantee authority, as well as manages a portfolio comprising of more than $30 billion of loans, loan guarantees, and conditional commitments. The Office of Inspector General has identified prior reports from six audits, two inspections, and numerous investigations regarding the LPO. Additionally, we identified several Government Accountability Office reports related to the LPO. Based on our review of this body of work, we identified four major risk areas that warrant immediate attention and consideration from Department leadership to prevent similar problems from recurring. Specifically, this includes: insufficient federal staffing; inadequate policies, procedures, and internal controls; lack of accountability and transparency; and potential conflicts of interest and undue influence. As part of this effort, we discussed the risk areas highlighted above with LPO officials. According to LPO officials, actions have been taken or were underway to address the risk areas. For example, officials asserted that the number of staff has significantly increased in recent years and additional positions are being actively pursued to ensure sufficient staffing exists to meet program needs. In addition, officials indicated that enhanced policies and procedures are in place that address previously identified weaknesses. These policies include more stringent documentation requirements and require the LPO to conduct an annual assessment of internal controls to validate their effectiveness. Further, LPO officials noted that administrative remedies would be considered and pursued as necessary as the program moves forward with new loans and loan guarantees. While LPO officials asserted that actions have been taken or were underway to address the risk areas, we did not perform test work to determine whether the actions will be fully effective to correct previously identified weaknesses. As such, we have identified several prospective considerations to help prevent fraud, waste, and abuse as the Department moves forward with financing projects funded through the Infrastructure Law and existing loan authorities. As a top priority, we suggest that the LPO undertake proper staffing, and develop comprehensive policies, procedures, and internal controls to ensure the Government and taxpayers are adequately protected.