Assessment Report: OAS-V-15-04

September 21, 2015

Audit Coverage of Cost Allowability for Stanford University During Fiscal Years 2012 and 2013 Under Department of Energy Contract No. DE-AC02-76SF00515

During fiscal years (FYs) 2012 and 2013, Stanford University (Stanford) incurred and claimed costs totaling $362,928,586 and $352,559,959 respectively.  Stanford is required by its contract to account for all funds advanced by the Department of Energy (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 to provide audit coverage of the allowability of incurred costs claimed by contractors.  Consistent with the Cooperative Audit Strategy, Stanford is required by its contract to maintain an Internal Audit activity with responsibility for conducting audits, including audits of the allowability of incurred costs.  In addition, Stanford is required to conduct or arrange for audits or reviews of its subcontractors when costs incurred are a factor in determining the amount payable to a subcontractor.  In FY 2012, Stanford's Procurement Department was responsible for preaward and postaward subcontract reviews.  Then in FY 2013, Stanford's Internal Audit Department (Internal Audit) assumed the responsibility for conducting preaward and postaward subcontracts audits.

Based on our assessment, nothing came to our attention to indicate that the allowable cost–related audit work performed by Internal Audit for FYs 2012 and 2013 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 Standards prescribed by the Institute of Internal Auditors (IIA Standards).  However, we identified issues that need to be addressed to ensure that only allowable costs are claimed and reimbursed to the contractor.  Specifically, we found that Internal Audit's workpapers did not always include documentation to support their conclusions; Stanford's subcontract audit and reviews did not ensure that all cost type subcontracts, specifically nonuniversity subcontracts, were subject to an audit as required; and Stanford was found to be noncompliant with Cost Accounting Standards 405.

Topic: Management & Administration