November 10, 2015

Audit Coverage of Cost Allowability for DM Petroleum Operations Company During October 1, 2011, Through March 31, 2014, Under Department of Energy Contract No. DEAC96-03P092207

From 1993 through March 31, 2014, DM Petroleum Operations Company (DM) operated the Strategic Petroleum Reserve under a management and operating contract with the Department of Energy (Department).  During the period of October 1, 2011, through March 31, 2014, DM expended and claimed $366,798,705 in costs incurred.

Because DM was an integrated management and operating contractor, its financial accounts were integrated with those of the Department, and the results of transactions were reported monthly according to a uniform set of accounts.  DM was required by its contract to account for all funds advanced by the Department annually on its Statement of Costs Incurred and Claimed, to safeguard assets in its care, and to claim only allowable costs.

Based on our assessment, we determined that we could not rely on the allowable cost–related audit work for costs incurred during October 1, 2013, through March 31, 2014.  Specifically, we found DM had not ensured that the allowable cost review performed by an independent certified public accounting firm met the established procedures for conducting allowable cost reviews.  Accordingly, we consider costs totaling $72,623,697 incurred during this period to be unresolved pending audit.

Topic: Management & Administration