April 29, 2015

Assessment of Audit Coverage of Cost Allowability for UT-Battelle, LLC, During Fiscal Year 2013 Under Department of Energy Contract No. DE-AC05-00OR22725

Since 2000, UT-Battelle, LLC, (UT-Battelle) has managed and operated the Oak Ridge National Laboratory under contract with the Department of Energy (Department).  During fiscal year (FY) 2013, UT-Battelle expended and claimed $1,414,239,679.

UT-Battelle 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.  A Cooperative Audit Strategy places reliance on the contractors' internal audit function (Internal Audit) to provide audit coverage of the allowability of incurred costs claimed by contractors.  Consistent with the Cooperative Audit Strategy, UT-Battelle is required by its contract to maintain an Internal Audit activity with the responsibility for conducting audits, including audits of the allowability of incurred costs.

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

Consistent with our previous reports, we identified weaknesses with subcontract auditing that need to be addressed to ensure that only allowable costs are claimed by and reimbursed to the contractor.  Specifically, we found that UT-Battelle did not always conduct or arrange for periodic postaward or interim audits of subcontracts as noted in our assessments and audits.  Consequently, incurred costs totaling $75,387,578 in FY 2013 are considered unresolved pending audit.  UT-Battelle updated its Internal Audit Implementation Design, effective November 2013, to incorporate a risk-based approach to address periodic postaward or interim audits of subcontracts.  Further, UT-Battelle reported it resolved the unaudited subcontract costs identified in our prior reports covering FYs 2010 and 2011.
 

Topic: Management & Administration