Environmental Cleanup

The Rocky Mountain Arsenal, located on 17,000 acres northeast of Denver, is one of the Defense Department's most contaminated installations. The military manufactured chemical weapons there for decades, and the Army leased part of the arsenal to the Shell Oil Company, which produced herbicides and pesticides. A cost-sharing arrangement between the Army and Shell does not provide for timely or efficient collection of what is expected to exceed $500 million in cleanup costs from Shell. When the government does not collect receivables in a timely manner, it loses the opportunity to invest these funds until needed. Since the 1989 settlement agreement with Shell, weak cash management practices have cost the government more than a million dollars. GAO noted three weaknesses in cash management practices at the arsenal. First, the Army bills Shell quarterly, rather than monthly, as is the usual business practice. Second, the payment cycle allows 90 days--rather than the 60 days called for in the settlement agreement--to document cost claims, prepare a quarterly statement, and pay the amount due. Third, the Army and Shell exchange payments through the mail rather than electronically, which further delays access to the funds. Nine of the 10 checks GAO reviewed, including one for $12 million, were deposited after the due date.

GAO noted that: (1) the settlement agreement between the Army and Shell Oil Company does not provide for timely or efficient collection of environmental cleanup costs; (2) if the government does not collect the receivables in a timely manner, it will lose the opportunity to invest these funds in other projects; (3) poor cash management practices at the Arsenal have cost the government more than one million dollars since 1989; (4) the Army bills Shell quarterly rather than monthly because in the past the Arsenal did not have the capacity to process disbursements on a monthly basis; (5) the Army and Shell take 90 days to exchange quarterly payments and document cost claims; (6) the 30-day extension period has cost the government an additional $500,000 in interest costs since 1989; (7) changing from a 90-day payment cycle to a 60-day payment cycle could be accomplished without any additional cost to the government; (8) the government has lost more than $22,000 in interest for checks processed after the payment due date; and (9) the Army should consider using an electronic payment system, since it costs less, accelerates the availability of funds to the receiving party, improves internal controls, reduces remittance processing time, and lessens paper and postage requirements.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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