The Department of Energy mismanaged a nearly $1.5 billion carbon program paid for by stimulus funds, awarding contracts despite serious financial concerns and conflicts of interest.

That was the conclusion of an Office of Inspector General audit of a program designed to capture and store industrial carbon dioxide emissions, made public today.

The report found a slew of problems with the program, tracing them to DOE’s failure to fully develop and enforce policies to avoid such issues.

“For example, the Department awarded more than $48 million to one recipient whose financial condition precluded it from obtaining a satisfactory merit review score,” the report said. “Rather than addressing the underlying issues, the Department accepted increased risk and lowered the recipient’s required cost share.”

At the time of the review, the recipient had not even been able to raise the amount of its reduced contribution, casting doubt on its entire project. The recipient was one of three who were awarded a total of over $90 million despite similar concerns.

DEO also awarded $16.8 million in questionable reimbursements, handing out money without reviewing invoices or other documents proving recipients’ costs.

About half of the program costs were given to existing projects instead of new awards, contrary to federal policy. Of the $1.1 billion it has so far, DOE spent $575 million on existing projects, but didn’t adequately document its rationale.

“Even when program officials provided explanations regarding the selection process, our review of available documentation revealed evidence that was either inconsistent with or did not otherwise support their assertions,” the report said.

Conflicts of interest even snuck into some contracts. DOE failed to review three contracts totaling more than $4.1 million.

“We identified transactions totaling over $1.4 million in which one recipient contracted with an affiliated company that had representatives on its own Board of Directors,” the IG report notes.

Despite the long list of problems with it, the carbon program will still go forward, with $860 million left to spend. The IG’s office concluded on an optimistic note.

“With approximately $860 million in Recovery Act Carbon Program funds yet to be spent, we believe the Department still has an opportunity to implement needed program enhancements and internal controls designed to increase the likelihood of a successful outcome,” the report said. DOE agreed with three of the report’s four recommendations — all but the IG’s direction to prevent conflicts of interest. “Management did not agree that procedures should exist related to identifying and documenting potential conflicts of interest,” the DOE said in its response. “In particular, management indicated that it was the recipients’ responsibility to identify and mitigate conflicts of interest using plans or policies specific to the organization.