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The Inspector General began using private contractors to perform audit services in fiscal year 1983. In that year, the first fixed-price contracts were awarded for financial and compliance audits of the Department's integrated contractors. Expansion of the use of outside contractors was made in late fiscal year 1984 when additional contracts were awarded to enhance the Inspector General's ability to provide other needed contract and internal audit services. The fiscal year 1986 budget includes $3.7 million for these audit services with an increase to $5.8 million included in the fiscal year 1987 budget request

In addition, extensive use is made of the Defense Contract Audit Agency (DCAA) to audit DOE contracts where that organization has audit cognizance. The estimated cost of the DCAA audit services, as included in the budget request, is $5.6 million in fiscal year 1986, decreasing to $4.5 million in fiscal year 1987.

ACCOMPLISHMENTS The Office of Audits completed its first full year of using the services of contractors to augment its full-time staff and perform all types of audits within the Department. The substantial commitment of resources that had been made to prepare for this innovative approach to partially accomplishing the Office's internal audit mission proved to be a good investment as productivity improved appreciably throughout the year. For example, the Office issued 161 reports in fiscal year 1984 and reported $16 million as potential savings resulting from audit recommendations. During fiscal year 1985, the Office issued 200 audit reports with recommendations which could result in potencial savings of over $40 million. It is expected this growth in the number and the impact of audit reports will be sustained for the foreseeable future as the contractors gain more internal audit experience and become more familiar with the Inspector General's audit procedures.

In addition to these audit accomplishments, a number of initiatives were undertaken to assure quality work and effective management of the contractors.

- A comprehensive management information system was developed. -An exhaustive resource analysis study was concluded which better identified the

audit universe and produced an assessment of the audit resources required to

provide adequate audit coverage of the Department's activities. -The third fully integrated annual work plan for all audits to be done within the

Department was published.
In addition, five manuals providing audit guidance were published. These were:

1. An audit report manual designed to ensure the production of uniform, concise, accurate, and professional audit reports;

2. A contract audit manual providing all policies to be used as guidelines in conducting contract and grant audits;

3. A post-award contract management guide providing the procedures for technical administration of the contracts;

4. An integrated contractor audit manual providing guidance for the conduct of cyclic audits of the Department's Government-owned, contractor-operated operations; and

5. A procedures manual for audits of federally assisted programs providing guidance on the administration and conduct of audits done of grants awarded by the Department.

The Office of Inspections directed its efforts toward the evaluation of the Department's scientific and engineering programs and projects. In this effort they had substantial success. For example, one inspection addressed facilities revitalization projects at Sandia National Laboratory. Almost $127 million in new facilities was proposed for weapons research and development upgrades without considering less costly alternatives such as refurbishing or modernizing existing facilities. As a result of our report, the program office will require that facilities being requested after fiscal year 1986 will be fully justified in light of other alternatives, and further, that these other alternatives, and the reasons for which they were not selected, will be fully documented. The Office of Inspections also completed an inspection of nuclear safeguards and security at four DOE weapons facilities plus the Department's transportation system. Beyond the 97 actual findings that emerged and are in process of being corrected, we developed a unique methodology that will greatly impact future assessments in the allocation of some $2 billion in resources for improving security. Security personnel have indicated that this methodology represents a major contribution to their approach in addressing this complex problem, has already saved some development costs, and has the potential to introduce significant cost savings when integrated into their planned program for security upgrades.

The Office of Investigations continued its work on discovering and preventing waste, fraud, and abuse. During fiscal year 1985, 62 cases were referred to prosecutive authorities and other investigative agencies. Fifteen of the cases were accepted for prosecution, Moneys identified for recovery as a result of investigative cases totaled $166,994 and investigations resulted in four indictments and seven convictions (contractor employees).

The Inspector General has taken an active role in assisting the Department in meeting the requirements of the Federal Managers' Financial Integrity Act. The Inspector General is also a member of the Department of Energy's Internal Control and Audit Review Council. One of the purposes of the Council is to provide management over sight, to review the progress and make decisions about the deployment of resources to the Department's internal control efforts, and to advise the Secretary on the result of these efforts. We continue to work closely on cooperative efforts with the President's Council on Integrity and Efficiency-a combined program of the Inspectors General and the Office of Management and Budget.

The semiannual report covering our Offices' activities for the first half of fiscal year 1986 will be submitted to you in May 1986.

FUNDING LEVEL The following is a description of the fiscal year 1986 adjusted appropriation and the fiscal year 1987 request:

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In fiscal year 1986 we have 178 FTE's and in fiscal year 1987 our request is for 178 FTE's.

The Office of Inspector General continues to make steady progress in fulfilling its mandate to detect and prevent fraud and abuse and to promote efficiency and economy in the Department of Energy's programs and operations.


AND ANALYSIS, DEPARTMENT OF ENERGY Mr. Chairman, members of the subcommittee, I appreciate the opportunity to appear before you today to discuss the fiscal year 1987 budget request for the Department of Energy's Office of Policy, Planning, and Analysis (PPA).

POLICY, PLANNING, AND ANALYSIS–ROLE AND RESPONSIBILITIES The Office of Policy, Planning, and Analysis acts as a principal advisor to the Sec retary for formulating and recommending national energy policy and carries out

analyses of DOE programs to aid them in maximizing their contribution to the achievement of national energy policy objectives. PPA provides analyses of policy issues, develops policy proposals, and coordinates these initiatives within the Department and the executive branch. The Office concentrates upon strategic planning issues, analysis of potential policy options, and analytical efforts required for policy development PPA provides the Secretary with an objective policy analysis and evaluation capability.

An important policy statement which PPA oversees is the national energy policy plan (NEPP). As described in the NEPP, the goal for all of the Department's energy policy actions is to foster an adequate supply of energy at reasonable costs. PPA's analytic, advisory, and coordinating activities are undertaken in support of this goal and are designed to assure that DOE activities encourage energy stability, security, and strength by pursuing strategies to minimize Federal involvement in energy markets while maintaining public health and safety and environmental quality; and to promote a balanced and mixed energy resource system.

OBJECTIVES AND GOALS Within the framework of the NEPP, specific objectives for fiscal year 1987, formulated in response to sections 102, 203, 657, and 801 of Public Law 95-91, the Energy Organization Act, are: • Analyses of policy-related energy topics of congressional, Presidential, and sec

retarial concern; and • Further development and implementation of an analytical framework for energy

policy, improvement of analytic capability, and expansion of in-depth analyses to

provide knowleldge for areas of current and potential energy policy concern. The major goals of the Office of Policy, Planning, and Analysis are: • Early and accurate identification of major energy policy issues that need to be ad

dressed through long-term studies and analyses. Continued development, analyses, and evaluation of specific policies and programs, both in response to congressional and Presidential mandates, and in fulfillment of more general responsibilities of the Office and the Secretary. A program of fundamental, long-term studies of the nature, causes, and potential solutions of the Nation's energy problems, designed to lead to improved insights and to form the basis for innovation and improvement in the Nation's energy policies and programs.

ACCOMPLISHMENTS Significant accomplishments during the past year include: • Completed the second report required by section 123 of the Natural Gas Policy

Act of 1978. • Prepared DOE's comments on FERC's notice of inquiry on interstate transporta

tion of gas and on FERC's notice of inquiry on natural gas pipeline ratemaking,

nisk, and financial implications after partial decontrol. • Completed phase I of study on “Economic Analysis of Electricity 'Rate Shock'." • Completed intial analysis of effects of partial deregulation of railroads on coal

transportation costs and electric utility prices. • Completed technical and economical analysis of automotive fuel economy issues. • Prepared detailed analysis of energy use trends in the U.S. economy from 1972 to

1984. Results presented in national and international forums. • Completed a study of the economy's response (in terms of energy use and ef

ficiency) to economic growth and changing energy prices. • Completed a multiyear project with the National Academy of Science on behav

orial aspects of energy consumption. • Initiated an analysis to project fuel shares (focusing on oil and electricity) in the

residential and industrial sectors for the period 1985–95. • Prepared energy projections portion of the U.S. submission to the International

Energy Agency Standing Group on Long-Term Cooperation (IEA/SLT). Prepared analyses of the costs and benefits of alternative acid rain control strategies, including utility coal conversions.


Prepared the NEPP V required under section 801 of the DOE Organization Act. • Completed study assessing the economics of selected first-generation commercial

nuclear powerplants. • Analyzed effects of Federal regulations on utility decisions to cancel partially built

nuclear powerplants. Completed study of the comparative economics of electric generating facilities as a

function of size. • Completed development of the motor fuel consumption model which analyses consumption trends for automotive fuels for the 1980–95 period.

1987 BUDGET REQUEST The fiscal year 1987 request reflects a continuation of the kinds of policy initiatives which have been supported historically by the Department of Energy as a cabinet-level agency. This request fully supports the goals and strategies set forth in the national energy policy plan.

The requested level of funding is $7,855,000. The fiscal year 1987 request includes funding for two primary program elements-policy analysis and system studies and program direction. A breakout is shown below.

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PPA's request for policy and system studies is $4.5 million. This request will continue to provide a high-quality level of both short- and long-term studies and analyses. Results from these studies are important for the development of energy policy in an orderly way. In addition to short and long-term studies, efforts will be directed toward continuous monitoring, analyzing, and forecasting of the Nation's energy production, supply, and markets.

PPA's request for program direction is $3,355,000 which provides funding for salaries, benefits, and travel expenses to support 64 FTE's. The primary functions of the PPA staff are: Review, analysis, and development of options for the Secretary on the full range of energy policy issues. Analyses typically are quantitative in nature, focusing on macro and micro-economic impacts of alternative policies on U.S. and world markets. Substantial effort is made toward identifying emerging energy policy issues for early resolution.

The budget request corresponds to the responsibilities of PPA under its mission statement. It provides manpower resources to perform its specific functions in areas critical to the continued implementation of administration energy policy and in fulfillment of congressional mandates. It also provides acceptable levels of policy analysis and evaluation support to the Secretary, the Congress, and the President

Mr. Chairman, this concludes my formal presentation. I would be happy to answer any questions you may have.


ECONOMIC IMPACT, DEPARTMENT OF ENERGY Mr. Chairman, members of the subcommittee, I am Geraldine P. Flowers, Deputy Director, Office of Minority Economic Impact (MI). I appreciate the opportunity to discuss the MI budget request for fiscal year 1987.

MI was established in November 1978, pursuant to section 641 of the National Energy Conservation Policy Act (Public Law 95-619). Its legislative mandate is to ad

vise the Secretary of Energy on the impact of the Department's energy policies, regulations, and programs on minorities, and to undertake, program activities that would ensure that minorities and minority businesses are afforded an opportunity to participate fully in the Department of Energy's programs.

To assure participation in DOE's program activities at all levels, MI is responsible, within the Department for a number of ongoing minority program activities in three major categories. The categories are socio-economic research, management and technical assistance, and financial assistance. Research activities include the updating and maintenance of the regional minority data bank and improvements of the capabilities of the minority energy assessment model (MEAM); providing socio-economic and other information and related analyses for specific policy and programmatic efforts within DOE and relevant Federal agencies at the regional level; and identifying and defining economic opportunities for minorities in various segments of the energy industry through economic analyses, feasibility studies, and other technical assistance.

The activities in the management and technical assistance area are a Minority Economic Development Program, an Honors Vocational Training Program in energyrelated technologies, a minority energy information clearinghouse effort, and a Minority Educational Institution Assistance Program. The Institutional Assistance Program is designed to encourage the development of an increased research infrastructure at minority institutions. MI is responsible for coordination of the Department's implementation of Executive Order 12320, the historically black college and universities initiative (HBCU). DOE program awards to the HBCU's in fiscal year 1985 increased to $8,074,534, compared to $1,899,000 in fiscal year 1982. This increase enhances DOE's potential to assure a broad base of research and development at our minority educational institutions.

There are two programs in the financial assistance category. They are the loan program which is set forth in Public Law 95–619, and the Minority Financial Institutions Development Program. The latter program is designed to help minority financial institutions make loans and investments in the communities they serve by providing a stable deposit base in the form of certificates of deposit from consent order funds.

The MI request for fiscal year 1987 is $1,789,000. The following table provides a more detailed breakout:

[In thousands of dollars)

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A deterral of $393,000 from fiscal year 1986 for the Minority Educational Institution Assistance Program will be utilized in fiscal year 1987 to enable continuation of this program for the second year.

? Funded from the fiscal year 1986 carryover balance.

FISCAL YEAR 1987 BUDGET HIGHLIGHTS In research, MI will: • Continue to incorporate national and regional economic, residential, and transporta

tion data and increase the level of minority representation information; enhance the minority energy assessment model's capability by updating and incorporating

new modeling methodologies and options. • Continue to incorporate special impact and economic studies, data, and analysis on

minorities into assessments for DOE legislative and regulatory actions and in the

formulation of policy and programmatic options. • Continue to focus on market research and financial planning analysis to provide

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