Assessment Report: OAS-V-15-06

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September 30, 2015

Audit Coverage of Cost Allowability for Los Alamos National Security, LLC, During Fiscal Year 2013 Under Department of Energy Contract No. DE-AC52-06NA25396

Since June 2006, Los Alamos National Security, LLC, (LANS) has operated the National Nuclear Security Administration's Los Alamos National Laboratory (LANL) for the Department of Energy (Department).  LANL is managed under a $17.3 billion cost-plus contract, including both award and incentive fees, which runs from June 1, 2006, through September 30, 2017.  During fiscal year (FY) 2013, LANS incurred and claimed costs totaling $2.06 billion.

LANS 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 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.  Consistent with the Strategy and as required by its contract, LANS maintains an Internal Audit activity with responsibility for conducting audits, including audits of the allowability of incurred costs.

Based on our assessment, nothing came to our attention to indicate that the allowable cost–related audit work performed by LANS Internal Audit for FY 2013 could not be relied upon.  We did not identify any material internal control weaknesses with cost allowability audits, which generally met International Standards for the Professional Practice of Internal Auditing prescribed by the Institute of Internal Auditors.  As part of its allowable cost audits, Internal Audit identified $205,894 in questioned costs, which have since been resolved.  In addition, we found LANS conducted reviews of subcontractors when costs incurred were a factor in determining the amount payable to the subcontractor.  However, we are questioning $526,562 of questioned costs identified by Internal Audit during audits of subcontracts that had not been resolved.  In addition, we are reporting $85,241 in previously reported questioned costs identified by Internal Audit in subcontract audits that were unresolved.

Topic: Management & Administration