September 17, 2021
The Closure of Savannah River Nuclear Solutions’ Fiscal Year 2016 Allowable Cost Internal Audit
Since 2008, Savannah River Nuclear Solutions, LLC (SRNS) has managed the Department of Energy’s Savannah River Site located near Aiken, South Carolina under a performance-based management and operating contract. The Savannah River Site is tasked with processing and storing nuclear materials, developing and deploying technologies to treat nuclear and hazardous wastes, and performing environmental management. As a management and operating contractor, SRNS’ financial accounts were required to be integrated with those of the Department. SRNS’ Internal Audit Department was required to conduct annual cost allowability audits on costs included on SRNS’ annual Statement of Costs Incurred and Claimed.
In October 2019, the President of SRNS closed the fiscal year 2016 allowable cost internal audit being conducted by SRNS’ Internal Audit Department prior to its completion. The Internal Audit Department’s draft report included about $1.2 million in questioned costs. We initiated this inspection to determine the facts and circumstances regarding the closure of SRNS’ fiscal year 2016 allowable cost internal audit.
Due to conflicts between an internal auditor and SRNS management, the required fiscal year 2016 allowable cost internal audit was closed. An internal auditor filed a whistleblower complaint with the Department alleging that SRNS management exhibited unprofessional behavior during internal audit briefings and pressured staff to remove findings from the internal audit report. When deciding to close the internal audit, the President cited concerns that the internal auditor’s objectivity appeared to be impaired and that the audit exceeded budgeted hours. Upon closing the internal audit, the President indicated that the draft report and working papers had been provided to the Department’s Contracting Officer. The Contracting Officer directed an independent review of the internal audit’s findings in this case, determined the findings were sound, and subsequently issued a Notice of Intent to Disallow Costs for the $1.2 million in questioned costs.
Closing this internal audit exposed an inherent problem in the Department’s Cooperative Audit Strategy. The ability of a management official to close an ongoing internal audit required by contract indicates that the Internal Audit Department lacked sufficient organizational independence.
In April 2021, the Office of Inspector General issued a Special Project Report, The Transition to Independent Audits of Management and Operating Contractors’ Annual Statements of Costs Incurred and Claimed, highlighting its concerns with the effectiveness of the Cooperative Audit Strategy in providing adequate audit coverage of contractors’ costs. The results of this inspection and associated recommendations were incorporated into the Special Project Report. Accordingly, we have made no separate recommendations in this report.