August 13, 2014

Assessment of Audit Coverage of Cost Allowability for Lawrence Livermore National Laboratory under Department of Energy Contract No. DE-AC52-07NA27344 during Fiscal Years 2011-2012

Lawrence Livermore National Laboratory (LLNL) is part of the Department of Energy's National Nuclear Security Administration (NNSA) which has national security responsibilities that include ensuring the safety, security and reliability of the Nation's nuclear weapons stockpile. In May 2007, NNSA awarded a 7-year contract to Lawrence Livermore National Security, LLC to manage and operate LLNL. During Fiscal Years (FYs) 2011 and 2012, LLNL incurred and claimed costs totaling $1,296,940,581 and $1,628,530,304 respectively. LLNL is 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. Under a Cooperative Audit Strategy, the contractor's internal audit function (Internal Audit) provides audit coverage of the allowability of incurred costs claimed by the contractor. 

Based on our assessment, nothing came to our attention to indicate that the allowable cost-related audit work performed by Internal Audit for FYs 2011 and 2012 could not be relied upon. We did not identify any material internal control weaknesses with the cost allowability audits, which generally met the International Standards for the Professional Practice of Internal Auditing prescribed by the Institute of Internal Auditors.

We did, however, identify two issues which need to be addressed to ensure that only allowable costs are claimed and reimbursed to the contractor. Specifically, our testing of Internal Audit's cost allowability audit work identified additional questioned costs. In particular, we determined that LLNL purchased fiduciary liability insurance without required Contracting Officer approval in the amount of $19,101. Due to this exception, we expanded our tests of insurance transactions and identified additional insurance costs totaling $1,442,799 that were incurred during FYs 2008 through 2012. We also identified $304,158 in unallowable daycare insurance costs that were claimed by LLNL and reimbursed by the Department. LLNL repaid the $304,158 to the Department after we brought it to their attention. NNSA management concurred with the findings and recommendations, and planned to complete all actions by May 31, 2015.
 

Topic: Management & Administration