Nolin Rural Electric Cooperative Corporation Of Elizabethtown, Kentucky, Enters A Non-Prosecution Agreement And Civil Settlement With The United States Related To Fort Knox Billings

Nolin RECC agrees to pay $7,619,333

LOUISVILLE, Ky. - Acting United States Attorney John E. Kuhn, Jr. announced today that the United States has entered into a Non-Prosecution Agreement with Nolin Rural Electric Cooperative Corporation (Nolin RECC) of Elizabethtown, Kentucky, related to bills submitted to Fort Knox under an Army energy-saving program.  Under the terms of the agreement, Nolin RECC will pay the United States $2,619,333 as part of a civil settlement, and will forfeit an additional $5 million to the United States Marshals Service, for a total settlement amount of $7,619.333.  In addition, Nolin RECC has agreed to employ a corporate ethics monitor for two years to oversee its dealings with the federal government.

“The Agreements we announce today result from an extensive investigation of the Ft. Knox energy program,” stated Acting United States Attorney John Kuhn.  “The investigation uncovered criminal acts and millions of dollars in questionable payments.  We have vigorously pursued justice by prosecuting responsible parties and now, with these Agreements, recovering over $7.6 million in questionable payments.  The settlement also brings about an important correction to ensure compliance with program requirements going forward.”

Brian J. Reihms, Defense Criminal Investigative Service (DCIS) Special Agent-in-Charge, stated, “DCIS is dedicated to working with our investigative partners to investigate the conduct of DoD officials and contractors and ensuring the integrity of the procurement system.”

As part of the civil Settlement Agreement and the Non-Prosecution Agreement, the United States and Nolin RECC agreed to the relevant facts in Appendix A to the Non-Prosecution Agreement, which describes the conduct in question.  In exchange for the total civil settlement amount of $2,619,333, the United States has released civil claims under the False Claims Act, the Procurement Integrity Act, the Program Fraud Civil Remedies Act and common law causes of action.

In 1996, Nolin RECC and Fort Knox entered into a Utility Energy Service Contract (UESC), which authorized and enabled Fort Knox and Nolin RECC to undertake energy saving projects.  Each project was called an Energy Conservation Opportunity (ECO).  Since 1996, Fort Knox awarded 108 ECOs to Nolin RECC, which were intended to make Fort Knox more energy efficient and were cumulatively valued at approximately $270 million. By design, the projected savings associated with each ECO project were intended to offset the cost of each project.

In early 2010, Nolin RECC billed Fort Knox $199,020 for work performed and expenses incurred related to a proposed waste-to-energy project that was never approved for implementation.  Because the proposed ECO was not approved, Nolin RECC submitted a bill for expenses under another unrelated ECO that had been approved.  $398,040, representing double damages for these unauthorized expenses, has been recovered by the United States as part of the civil settlement.

Similarly, in 2010, Nolin RECC worked on a Sample Solar Panel Project at Fort Knox.  Although this project was never authorized or approved by the Fort Knox Contracting Officer, Nolin RECC billed the Sample Solar Panel Project costs of $94,178 under three unrelated but previously authorized ECOs. $12,394, representing double damages on Nolin RECC’s profits, has been recovered by the United States as part of the civil settlement.

Pursuant to ECOs 70 and 102, Nolin RECC became involved in the extraction of natural gas from Fort Knox land.  Pursuant to those ECOs, Nolin RECC was authorized to bill Fort Knox for the gas at a specified rate.  Notwithstanding the ECO rate definition, Nolin RECC billed Fort Knox in excess of the rate allowed by the ECOs, adding an additional sum characterized as "Retained Savings."  This additional billing amounted to $800,089 more than the amount authorized by the ECOs.  As part of the civil settlement, Nolin has agreed that Fort Knox will receive credit for these payments.

Nolin RECC understood that the Army required that all ECOs pay for themselves within ten years.  Between 2002 and May 2008, Nolin RECC presented pro formas to the Army for twenty proposed ECOs which gave the impression that these twenty ECOs paid for themselves within ten years and were projected to save over $7 million in ten years. In fact, these twenty ECOs were actually projected to lose over $15 million over ten years.  None of these twenty ECOs paid for themselves within ten years, and therefore, they should not have been authorized by the Army.  These twenty ECOs resulted in over $8,000,000.00 in payments to Nolin RECC.  Nolin RECC is forfeiting $5,000,000 to the United States as a result of the improperly authorized ECOs.

Nolin RECC has also paid double damages to the United States in connection with hiring  Gary T. Meredith as its Resource Energy Manager (REM).  Before becoming Nolin RECC's REM in August 2007, Meredith was employed by Fort Knox as its Energy Program Manager, working closely with Nolin RECC in that capacity for more than a decade.

The ECO for the REM position required Nolin RECC to comply with the Joint Ethics Regulations (Regulations which incorporate ethics statutes Meredith is charged with violating). The United States will recover $1,408,810, double the amount Nolin RECC received to pay Meredith for the REM position. Meredith is currently charged in a 38-count federal superseding indictment with conflict of interest and wire fraud for actions he took as an Army employee and as the Nolin RECC REM.  His case is set for trial on December 1, 2015. Meredith’s co-defendant, Matthew Bowman, a former Army attorney, pleaded guilty on October 1, 2014, to providing a false written statement to a DCIS Special Agent investigating Meredith.

On September 8, 2014, the Department of Defense, Office of Inspector General (DoD OIG) issued an audit report that documented the results of an independent audit conducted on Ft. Knox’s energy program.  The audit concluded that “Fort Knox officials did not properly award and administer 108 task orders, valued at about $270 million, for energy-saving projects.  In addition, Fort Knox officials could not support the claim that projects achieved the projected energy savings. The audit further found that “the lack of adequate internal controls increases the risk of fraud, waste, and abuse.”  The full audit can be viewed here:  http://www.dodig.mil/reports.html/Article/1119054/fort-knox-and-the-army-need-to-improve-internal-controls-for-utility-energy-ser/

This agreement is neither an admission of liability by Nolin RECC nor a concession by the United States that its claims regarding the covered conduct are not well-founded.

The legal work for the criminal investigation and matter was handled by Assistant United States Attorney David Weiser, the civil matter by Assistant United States Attorney William F. Campbell, and the forfeiture by Assistant United States Attorney Amy Sullivan. The investigation was conducted by the Defense Criminal Investigative Service, Dayton Resident Agency.  The Defense Contract Audit Agency and Army Criminal Investigations Command also supported the investigation.