HOLLAND, MI — A federal investigation into the misuse of a stimulus grant forced LG Chem to repay $842,000 in taxpayer funds.

A report released Wednesday, Feb. 13, confirmed that some LG Chem employees were paid to watch movies, play games or volunteer at local non-profits as production lines for battery cells sat idle. The report concluded that taxpayers will likely receive little benefit from a project for which they provided about half the funding.

"Our review revealed that LG

Chem Michigan inappropriately claimed and was reimbursed for labor charges incurred by a

variety of supervisory and staff employees for activities that did not benefit the project," a memorandum accompanying the investigation stated. "Through

interviews with LG Chem Michigan management and other staff, we confirmed that employees

spent time volunteering at local non-profit organizations, playing games and watching movies

during regular working hours."

RELATED: U.S. Department of Energy's Office of Inspector General special report on LG Chem

The investigation determined the U.S. Department of Energy paid LG Chem $842,000 out of an American Recovery and Reinvestment Act grant. LG Chem was awarded a $151 million stimulus grant in February 2010 to build a battery cell manufacturing plant in Holland. State and local governments also ceded LG Chem tax concessions to help in construction of the plant.

The company has established internal safeguards to prevent the misuse of funds from happening again, according to a statement from LG Chem published by WOOD TV.

"We regret this situation occurred, and we are confident that we are now taking every measure to

be fully compliant in our use of the project grant funding," the company stated.

The plant was to create more than 440 jobs and produce enough battery cells each year to power 60,000 electric vehicles by the end of this year. In September 2012, LG Chem imposed furloughs. The investigation found that less than half of the expected jobs had been created.



As of the federal investigation, LG Chem had not yet produced a single battery cell that could be used in a commercially available electric vehicle. The company had also spent $142 million of the $151 million grant — 94 percent — but only completed about 60 percent of the production capacity required.

"Based on progress to date and despite the expenditures of $142 million in Recovery Act funds, LG Chem Michigan had not yet achieved the objectives outlined in its Department-approved project plan," the investigation concluded.

RELATED:

During its investigation, the U.S. Department of Energy's Office of the Inspector General interviewed employees concerning work performed at LG Chem. Sixteen employees told investigators they volunteered at Habitat for Humanity, animal shelters, outdoor nature centers and other organizations while on company time.

Thirteen employees said they watched movies or played board, card and video games, according to the investigation.

When confronted with these statements, LG Chem managers told investigators "they wanted to do their best to maintain the workforce in hopes that production would start soon." They allowed employees to volunteer and "engage in non-productive activities" to keep the investment made in training, the investigation indicated.

Delays in the production of and demand for electric vehicles, namely the Chevrolet Volt, did not meet expectations, causing LG Chem managers to shift their construction and production schedules, officials told investigators. The company also erred in estimating labor costs and submitted expenses for reimbursement by the government that were not allowed under the terms of the stimulus grant, according to the investigation.

The investigation also noted a lack of oversight by the energy department's National Energy Technology Laboratory, charged with monitoring the use of grant funds. When it became clear in early 2012 that the development was not happening as planned, the government did not study whether payments should be suspended and the project reviewed, the investigation stated.

"The Department did not always take sufficient action to ensure adequate oversight of project progress and, in turn, protect the taxpayers $142 million investment in the

project," the investigation determined.

LG Chem paid back the $842,000, but the U.S. Department of Energy's Office of Inspector General raised concern that fundamental problems with LG Chem may limit the success of battery production in Holland and lead to more wasted taxpayer money.

The investigation recommended more strict monitoring, holding LG Chem accountable for the results of the Holland plant and working with the company to start production of batteries at the plant or find an alternative use for the plant.

— Contact Aaron Aupperlee at aaupperl@mlive.com or (616) 430-4820. Follow him on Twitter at @tinynotebook.