Assessment Report: DOE-OIG-19-26

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April 9, 2019

Audit Coverage of Cost Allowability for URS | CH2M Oak Ridge LLC During Fiscal Years 2014 through 2016 under Department of Energy Contract No. DE-SC0004645

The East Tennessee Technology Park, formerly the Oak Ridge Gaseous Diffusion Plant, began operations during World War II as part of the Manhattan Project.  As the mission of the Department of Energy changed, operations at the plant ceased, and the Department began a massive environmental remediation effort.  In 2011, the Department contracted with URS | CH2M Oak Ridge LLC (UCOR) for the completion of the decontamination, demolition, and environmental remediation of the East Tennessee Technology Park under a Cost-Plus-Award-Fee contract that included performance based incentives.  As a management and operating contractor, UCOR’s financial accounts are integrated with those of the Department.  Therefore, we conducted this assessment to help ensure that audit coverage of cost allowability was adequate for fiscal years (FYs) 2014 through 2016.

Based on our assessment, nothing came to our attention to indicate that the allowable cost-related audit work performed by UCOR’s Internal Audit (Internal Audit) for FYs 2014 through 2016 could not be relied upon.  We did not identify any material internal control weaknesses with cost allowability audits, which generally met the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing, except for the treatment of unsupported subcontract costs.  Additionally, we found that UCOR conducted or arranged for audits of subcontractors when costs incurred were a factor in determining the amount payable to a subcontractor. 

During FYs 2014 through 2016, Internal Audit identified $390,928 of questioned costs through various audits, all of which had been resolved.  Internal Audit also identified $5,667,791 in unsupported costs for a $30,685,002 subcontract, which were not explicitly questioned or provided to the Contracting Officer for an allowability determination.  Subsequent to Internal Audit’s work, the results of an Office of Inspector General criminal investigation were made public through a Department of Justice press release impacting a UCOR subcontractor — Transportation, Operations and Professional Services, Inc. (TOPS).  The Department of Justice stated that the former operator of TOPS was found guilty of using an elaborate system of false invoices and cash payments to channel funds to the son of UCOR’s President.  Accordingly, there is an increased risk of fraud and an increased risk that unallowable costs were charged to the TOPS subcontract.  However, subsequent to the results of the investigation, Internal Audit has not performed any additional audit work pertaining to the TOPS subcontract; thus, we consider the entire $30,685,002 unresolved pending a final audit by Internal Audit. 

Although we ultimately determined that we could rely on Internal Audit’s work, we identified issues that need to be addressed prior to the Contracting Officer making a final determination of allowability for FYs 2014 through 2016.   Therefore, we made nine recommendations to help ensure that only allowable costs are claimed by and reimbursed to the contractor. 

Topic: Management & Administration