AssessmentReport: DOE-OIG-19-02

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October 23, 2018

Audit of Cost Allowability for Battelle Memorial Institute Under its Contract to Manage Pacific Northwest National Laboratory for FYs 2015 and 2016

Since 1965, Battelle Memorial Institute (Battelle) has operated the Pacific Northwest National Laboratory under contract with the Department of Energy.  This Laboratory, as part of the Department’s Office of Science, performs research and innovations in the areas of environmental protection and cleanup, energy resources, and national security.  As a management and operating contractor, Battelle’s financial accounts are integrated with those of the Department, and the results of transactions are reported monthly according to a uniform set of accounts.  Battelle 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.  

To help ensure that audit coverage of cost allowability was adequate during fiscal years 2015 through 2016, the objectives of our assessment were to determine whether Battelle’s Internal Audit conducted cost allowability audits that complied with professional standards and could be relied upon; Battelle conducted or arranged for audits of its subcontractors when costs incurred were a factor in determining the amount payable to a subcontractor; and questioned costs and internal control weaknesses impacting allowable costs that were identified in prior audits and reviews have been adequately resolved.

Based on our assessment, nothing came to our attention to indicate that the allowable cost-related audit work performed by Battelle’s Internal Audit for fiscal years 2015 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.  Although we ultimately concluded that we could rely on Battelle’s Internal Audit work, due to the timing of improvements implemented in its fiscal year 2016 audit files, we noted that work papers from fiscal year 2015 audit reports did not always include adequate documentation of supervision; determined that Battelle’s Internal Audit did not always document all potential impairments to auditor independence and objectivity; and identified a weakness in the implementation of Battelle’s risk-based approach.  Therefore, we made two recommendations to assist in strengthening Battelle’s processes and procedures.

Topic: Management & Administration