June 6, 2016

Audit Coverage of Cost Allowability for Iowa State University During Fiscal Years 2013 and 2014 Under Department of Energy Contract No. DE-AC02-07CH11358

Since 1947, Iowa State University (ISU) has managed and operated the Ames Laboratory (Ames) under contract with the Department of Energy.  During fiscal years (FYs) 2013 and 2014, ISU expended and claimed $83,601,772.

ISU is required by its contract to account for all funds advanced by the Department annually on its Statement of Costs Incurred and Claimed, to safeguard assets in its care, and to claim only allowable costs.  The Department’s Cooperative Audit Strategy places reliance on the contractors’ internal audit function (Internal Audit) to provide audit coverage of the allowability of incurred costs claimed by contractors.

Based on our assessment, nothing came to our attention to indicate that the allowable cost–related audit work performed by Internal Audit could not be relied upon.  We did not identify any material control weaknesses with the cost allowability audits, which generally met the International Standards for the Professional Practice of Internal Auditing prescribed by the Institute of Internal Auditors.  Internal Audit identified $775 in questioned costs during its audits of FY 2013 and 2014 costs, all of which had been resolved.  At the time of our review, ISU had not conducted any subcontract audits but did schedule an audit of one subcontract.  Finally, nothing came to our attention to indicate that questioned costs and internal control weaknesses affecting allowable costs that were identified in audits and reviews had not been adequately resolved.  We identified no other audits or reviews that reported questioned costs or internal control weaknesses affecting the allowability of costs claimed for FYs 2013 and 2014.

In response to our previous report Assessment of Audit Coverage of Cost Allowability for Ames Laboratory during Fiscal Years 2009 through 2012 under Department of Energy Contract No. DE-AC02-07CH11358 (OAS-V-14-07, January 2014) ISU established a policy for auditing cost-type subcontracts using a risk methodology in July 2014 that generally addressed our previous subcontract audit concerns.  However, we noted areas that could be strengthened as the practices evolve under this new policy.  Specifically, we found that the subcontract audit policy did not establish a risk methodology for determining whether to perform interim audits of cost-type subcontracts, but rather relied on sampling subcontractor invoices during the annual cost allowability audit performed by Internal Audit.

Topic: Management & Administration