GAO shows grade inflation at the Department of Energy

Remember this moment from two weeks ago?  Rep. Paul Broun (R-GA) challenged Energy Secretary Steven Chu to assign himself a grade specifically on his stewardship of Department of Energy resources in relation to the 2009 stimulus funds granted for the Loan Guarantee Program.  After Broun recites a litany of failures in the LGP, Chu insists that he’s done very well — and gives himself an A-minus:

As it turns out, the Government Accountability Office (GAO) has another grade entirely for the LGP, the DoE, and ultimately Energy Secretary Steven Chu.  In the report released this week, the GAO’s spot check of applications and loans granted and committed under the LGP — $30 billion in all — shows systemic mismanagement, uncompleted reviews, missing documentation, and a process failure rate of 85% or more, emphases mine:

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.

On 11 of 13 loan applications investigated by the GAO, they found that the DoE hadn’t done the required work for reviewing and approving applications.  That’s an 85% failure rate.  And more than three years into this program, even with the deficiencies identified, the DoE still hasn’t fixed their problems.  That kind of failure is more associated with an F-minus, not an A-minus.

Furthermore, as I note in my column for The Fiscal Times, this comes from the same administration that loves to harp on “irresponsible lenders” who fail to adhere to lending and documentation standards when playing with their own money:

President Obama himself told a Nevada town hall in February 2010 that “tax dollars shouldn’t be used to reward the very irresponsible lenders and borrowers who helped bring about the housing crisis.”  At least that was Obama’s position until this month, when he announced a plan that would expand HAMP to include the real-estate speculators that helped inflate the housing bubble.

Almost exactly a year prior to the Nevada town hall, Obama gave a speech in Mesa, Arizona in which he castigated “dishonest lenders who acted irresponsibly, distorting the facts and dismissing the fine print at the expense of buyers who didn’t know better.”

Just one month ago, Obama spoke about the legal settlement with the banks that finally allowed long-pent-up foreclosures to move forward.  In his speech, Obama twice mentions irresponsible actions by lenders that hurt others who acted more responsibly.  He specifically noted the robo-signing and other violations that drove the process off the rails and cost many people their homes:“In many cases, they didn’t even verify that these foreclosures were actually legitimate.  Some of the people they hired to process foreclosures used fake signatures on fake documents to speed up the foreclosure process.  Some of them didn’t read what they were signing at all.”

Except for the fake signatures, that sounds like a pretty fair description of what the GAO found in its audit of the Department of Energy and the Loan Guarantee Program.  With $30 billion in taxpayer money at risk, the DOE under Steven Chu didn’t bother to conduct the reviews it claimed it would on applications for loan guarantees, didn’t keep records of what reviews they did accomplish, and signed off on loans with incomplete documentation and inadequate oversight of the risk.  The result — perhaps $6.5 billion immediately at risk, according to CBS, and possibly most of the $30 billion.

Be sure to read it all.  This GAO report should have heads rolling at the Department of Energy, especially that of Professor Chu, who demonstrated the most extreme case of grade inflation yet seen.

Update: The Anchoress asks, ” remember when he wanted us all to paint our rooftops white, to save the planet?”

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Jazz Shaw 9:21 AM on June 09, 2023