Assessment Report: DOE-OIG-19-24

March 29, 2019

Audit Coverage of Cost Allowability for Sandia Corporation During Fiscal Years 2014 and 2015 Under Department of Energy Contract No. DE-AC04-94AL85000

From October 1993 to April 30, 2017, Sandia Corporation, a Lockheed Martin Company, managed and operated the Sandia National Laboratories (Sandia) under contract with the Department of Energy and National Nuclear Security Administration.  As an integrated management and operating contractor, Sandia Corporation’s financial accounts are integrated with those of the Department.  Therefore, we conducted this assessment to help ensure that audit coverage of cost allowability for Sandia Corporation was adequate during fiscal years (FYs) 2014 and 2015.

Based on our assessment, nothing came to our attention to indicate that the allowable cost-related audit work performed by Sandia Corporation’s Internal Audit for FYs 2014 and 2015 could not be relied upon.  We did not identify any material internal control weaknesses with cost allowability audits, which generally met the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing.  Further, Sandia Corporation’s Contract Audit Department (Contract Audit) had conducted or arranged for audits of subcontractors when costs incurred were a factor in determining the amount payable to a subcontractor.  

We observed that Sandia Corporation’s Internal Audit identified $127,636 in questioned costs in FY 2014 and $4,802 in FY 2015, which have been resolved and reimbursement has been made to the Department.  While we did not identify any material internal control weaknesses with either cost allowability or subcontract audit, we are questioning $183,928 of unresolved questioned costs identified by Contract Audit in FY 2014 and $211,285 in FY 2015, which remained unresolved as of February 2018.  The Office of Inspector General is reporting these unresolved costs in FY 2014 and 2015 as absolute values.

In addition, we are reporting $2,459,152 in FY 2014 and $2,728,702 in FY 2015 in home office expenses, which remained unresolved as of February 2018 since these costs were pending Defense Contract Audit Agency’s audit of the parent corporation, Lockheed Martin Corporation.  Finally, we are reporting on the following prior questioned and unresolved costs: $16,487,033 in potential overpayments of New Mexico gross receipts tax, which remained unresolved at the time of our review; $20,852 in Contract Audit findings from FY 2012 and FY 2013, which remained unresolved as of February 2018; and $6,982,097 in unresolved home office expenses from FYs 2011 through 2013 that were included in our previously issued audit report (OAS-V-15-03, September 2015) and remained unresolved as of September 2018 while either undergoing or pending Defense Contract Audit Agency’s audit.

Topic: Management and Administration