April 9, 2021

The Transition to Independent Audits of Management and Operating Contractors’ Annual Statements of Costs Incurred and Claimed

This Special Project Report summarizes the results of a multi-year review of the Cooperative Audit Strategy.  Prior to 1994, the Office of Inspector General (OIG), with assistance from independent public accounting firms, was responsible for auditing the annual Statements of Costs Incurred and Claimed for the Department of Energy’s management and operating contracts.  The OIG conducted these audits pursuant to the United States Government Accountability Office’s Generally Accepted Government Auditing Standards (GAGAS) that are issued by the Comptroller General of the United States.

Since 1994, the Cooperative Audit Strategy has placed the primary audit functions within the internal audit departments of the Department’s management and operating contractors.  As a result, the contractors’ internal audit departments now conduct the audits of their own annual Statements of Costs Incurred and Claimed.  In addition, the Cooperative Audit Strategy allows these audits to rely upon auditing standards promulgated by the Institute of Internal Auditors, instead of GAGAS.

From its inception, some stakeholders questioned the independence of the contractors’ audits of their own Statements of Costs Incurred and Claimed pursuant to the Cooperative Audit Strategy.  In 2017, the OIG initiated a multi-year review to assess the validity, accuracy, and effectiveness of the contractors’ internal audits of their Statements of Costs Incurred and Claimed under the Cooperative Audit Strategy.  This Special Project Report is the culmination of this multi-year review and recommends that the OIG and the Department transition to an independent audit strategy.  This recommendation was made due to systemic threats to auditor independence; the increased likelihood of fraud, waste, and abuse; significant lapses in the audits of subcontracts; and other major deficiencies.