September 29, 2023

UT-Battelle, LLC, Costs Claimed under Department of Energy Contract No. DE-AC05-00OR22725 for Fiscal Year 2017

In 2016, the Office of Inspector General began evaluating the Department of Energy’s Cooperative Audit Strategy in a series of audits on costs incurred by management and operating contractors.  This is the third audit in that series.  This audit examined the fiscal year (FY) 2017 costs claimed by UT-Battelle, LLC (UT-Battelle), the management and operating contractor that operates the Department’s Oak Ridge National Laboratory.

The objectives of our audit were to determine if UT-Battelle’s FY 2017 costs claimed were allowable, allocable, and reasonable in accordance with the terms of the contract, applicable cost principles, laws, and regulations and to assess UT-Battelle’s Internal Audit work on subcontract costs.

We found that UT-Battelle’s FY 2017 costs claimed may not have always been allowable, allocable, or reasonable.  We identified issues with UT-Battelle’s year-end indirect rate variance disposition practice and treatment of unallowable costs.  As a result, we questioned $20.8 million of over-recovered funds, $11.1 million of under-recovered funds from year-end indirect cost pool variances, and $33,815 of indirect cost burdens related to unallowable costs.  We also identified a material control weakness in the subcontract audit function that resulted in our considering $379.4 million in subcontract costs as unresolved, pending audit.  Further, we questioned an additional $5.6 million in costs related to unapproved real estate transactions and unallocable or unsupported subcontract costs.  Finally, we identified issues related to travel costs, legal settlement costs, and UT-Battelle’s Internal Audit peer reviews.

The issues we identified could result in UT-Battelle charging significant amounts of unallowable costs to the Department that could go undetected.

In response to the Office of Inspector General’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 Office of the Inspector General and the Department have transitioned to an independent audit strategy that will not rely on contractor internal audit organization audits of costs claimed.  Significant results of this audit were previewed in the Special Project Report.  In our report here, we provide recommendations to the Department on addressing the questioned costs we identified from costs claimed for FY 2017.