September 30, 2020

Audit Coverage of Cost Allowability for Bechtel Marine Propulsion Corporation from October 1, 2013, to September 30, 2018, Under Department of Energy Contract No. DE-NR0000031

Since 2009, the Bechtel Marine Propulsion Corporation (BMPC) has operated the Bettis Atomic Power Laboratory in West Mifflin, Pennsylvania; the Kesselring site in West Milton, New York; the Naval Reactors Laboratory at the Idaho National Laboratory; and the Knolls Atomic Power Laboratory in Niskayuna, New York, under contract with the Department of Energy.  BMPC was established solely to operate the aforementioned sites, collectively known as the Naval Nuclear Laboratory, on behalf of the Naval Nuclear Propulsion Program, which is a joint Navy-Department program responsible for the research, design, construction, operation, and maintenance of U.S. nuclear-powered warships.  During the period of fiscal years 2014 to 2018, BMPC expended and claimed over $5.664 billion in costs incurred.

We initiated this assessment to determine whether: (1) the Naval Reactors Laboratory Field Office (NRLFO) and BMPC audit groups conducted cost allowability audits that complied with professional standards and could be relied upon; (2) BMPC Internal Audit conducted or arranged for audits of its subcontractors when costs incurred were a factor in determining the amount payable to a subcontractor; and (3) questioned costs and internal control weaknesses affecting allowable costs that were identified in audits and reviews had been adequately resolved.

During our assessment, nothing came to our attention to indicate that allowable cost-related audit work performed by the NRLFO and BMPC audit groups for the period of fiscal years 2014 to 2018 could not be relied upon.  We conducted our assessment as a review attestation.  A review is substantially less in scope than an examination or audit.  Our review was limited and would not necessarily have disclosed all internal control deficiencies that may have existed at the time of our review.  Based on our limited sampling, we did not identify any material internal control weaknesses with allowable cost audits, which generally met the International Standards for the Professional Practice of Internal Auditing prescribed by the Institute of Internal Auditors for audits produced by BMPC Internal Audit and government auditing standards for audits produced by the Field Office Audit Group.  Additionally, BMPC Internal Audit used a risk-based approach for conducting or requesting audits of subcontractors.  Further, questioned costs and internal control weaknesses affecting allowable costs that were identified in audits and reviews had been adequately resolved.  While we determined we could rely on the work conducted by BMPC Internal Audit, we could not always verify that the NRLFO audit group’s professional education hours met professional auditing standards for the assessment period.  Additionally, we found the NRLFO Audit Group did not have an external peer review conducted during our assessment period to meet their established professional auditing standards.

The issues we identified occurred, in part, because the NRLFO Audit Group has been unable to identify a method to meet the requirement of receiving an external peer review at least once every 3 years as required because they do not currently have access to an established peer review program within the Department or within the Naval Reactors programs and have not actively pursued other outside contracting possibilities.

Topic: Financial