June 10, 2016

Audit Coverage of Cost Allowability for URS|CH2M Oak Ridge LLC During Fiscal Years 2011, 2012, and 2013 Under Department of Energy Contract No. DE-SC0004645

The East Tennessee Technology Park (ETTP), 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 and demolition and environmental remediation of ETTP under a Cost-Plus-Award-Fee contract that included performance based incentives.  

UCOR 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.  A Cooperative Audit Strategy (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, no material concern came to our attention to indicate that the allowable cost-related audit work performed by UCOR’s Internal Audit could not be relied upon.  We did not identify any material internal control weaknesses with cost allowability audits, which generally met the International Standards for the Professional Practice of Internal Auditing prescribed by the Institute of Internal Auditors (IIA Standards).  UCOR’s Internal Audit questioned $404,252 of the costs incurred and claimed during FYs 2011 through 2013, of which $112,613 had not been resolved.  Therefore, we are questioning this amount.  In addition, we identified certain weaknesses that need to be addressed to ensure that only allowable costs are claimed and reimbursed to the contractor.

Although we ultimately determined that we could rely on Internal Audit’s work, we found instances where Internal Audit’s work papers did not contain sufficient documentation to support their conclusions.  We also found instances where the conclusions reported by Internal Audit were not accurate.  After discussing our concerns with Internal Audit, we were provided additional documentation to support their conclusions for all costs except for $4,929 in relocation costs.  Internal Audit did not provide sufficient documentation to reach a conclusion regarding these costs; therefore, we are questioning them.

Topic: Management & Administration