August 28, 2023

Fermi Research Alliance, LLC, Costs Claimed under Department of Energy Contract No. DE-AC02-07CH11359 for Fiscal Year 2018

In 2016, the Office of Inspector General (OIG) began evaluating the Department of Energy’s management and operating contractors using a series of audits of costs claimed by those contractors.  This is the fourth audit in that series.  This audit examined fiscal year (FY) 2018 costs claimed by Fermi Research Alliance, LLC (FRA), the management and operating contractor that operates the Department’s Fermi National Accelerator Laboratory.

Our audit’s objective was to determine whether FY 2018 claimed costs were allowable, allocable, and reasonable in accordance with the terms of the contract, applicable cost principles, laws, and regulations.

We found that FRA’s FY 2018 costs claimed may not have always been allowable, allocable, or reasonable in accordance with contract terms, applicable cost principles, laws, and regulations.  We questioned the FY 2018 allocation of $159,472,886 in indirect costs as unsupported.  Additionally, we considered $14,914,107 in subcontract costs as unresolved, pending audit.  Finally, we questioned costs totaling $2,545,253.47 as unsupported, unallowable, or unreasonable.

Specifically, we found that FRA was unable to support the cost bases used to determine its indirect cost rates.  As a result, we are questioning the unsupported allocation of $159,472,886 of indirect costs for FY 2018.  Additionally, we found that FRA had not always identified cost-type subcontracts for audit consideration, as required by its contract, resulting in $14,914,107 in subcontract costs as unresolved, pending audit.  We also found that FRA did not obtain external vendor invoices to support $2,427,681.64 in small dollar purchases.  Finally, we questioned other FY 2018 costs in the amount of $117,571.83 and $25,537.35 in other FYs.

These issues could result in the Department reimbursing FRA for costs that were unallowable, not allocable, or unreasonable.

In response to the OIG’s Special Project Report, The Transition to Independent Audits of Management and Operating Contractors’ Annual Statements of Costs Incurred and Claimed (DOE-OIG-21-26, April 2021), the OIG has transitioned to an independent audit strategy that will not rely on contractor internal audits of costs claimed.  This audit commenced before the transition, and we are required to communicate the matters identified.  As such, we provided 10 recommendations that, if fully implemented, should help ensure that the concerns identified are corrected.