Audit Report: DOE-OIG-20-02

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October 21, 2019

Battelle Energy Alliance, LLC Costs Claimed under Department of Energy Contract No. DE-AC07-05ID14517 for Fiscal Year 2016

Since fiscal year (FY) 2005, Battelle Energy Alliance, LLC (BEA) has managed and operated the Idaho National Laboratory under a 20-year contract with the Department of Energy valued at $17.18 billion.  The Idaho National Laboratory is part of the Department’s Office of Nuclear Energy.  As a management and operating contractor, BEA’s financial accounts are integrated with those of the Department, and the results of transactions are reported monthly.  BEA is required by contract to account for all net expenditures accrued annually on its Statement of Costs Incurred and Claimed, to safeguard assets in its care, and to claim only allowable costs.  During FY 2016, BEA incurred costs totaling $972,328,027.31.  BEA is required to comply with the Department’s Cooperative Audit Strategy, under which BEA internal auditors perform audits of the contractor, including the annual audit of costs claimed on the Statement of Costs Incurred and Claimed, also referred to as the annual incurred cost audit.

In recent years, the Office of Inspector General began selecting one management and operating contractor to test the effectiveness of the internal audit group’s annual incurred cost audit.  This is accomplished by performing the annual audit in place of the internal audit group.  For FY 2016, we selected BEA.  The objectives of our audit were to determine if the FY 2016 incurred costs were allowable, allocable, and reasonable in accordance with the terms of the contract, applicable cost principles, laws, and regulations, and to assess BEA’s internal audit work for the annual incurred cost audit.

Based on our audit, we identified BEA practices that were not compliant with Cost Accounting Standards, other issues for which we were not always able to quantify the full monetary impact, and weaknesses in BEA’s Internal Audit (Internal Audit) procedures.  For FY 2016, we questioned $17.66 million of positive (over-recovered) funds and $8.4 million of negative (under-recovered) funds from year-end indirect cost pool variances.  We also questioned $11,176 of Laboratory Directed Research and Development burdens.  Also, for areas where Internal Audit had provided audit coverage in FY 2016, e.g., subcontract costs, we reviewed its work to determine whether we could rely on the audit work in lieu of performing our own testing.  Based on our review, we determined that Internal Audit work could be relied upon in the select areas reviewed and identified minor additional questioned costs of $8,013.  These issues occurred because BEA did not properly follow contract terms and conditions, including Federal Acquisition Regulations and Cost Accounting Standards, and did not sufficiently adhere to internal policy.

We identified areas that require improvement by Internal Audit.  The audit procedures used by Internal Audit did not identify certain Cost Accounting Standards noncompliance issues in BEA’s cost accounting and management practices.  We consider these areas to be fundamental for proper accounting of costs on Government contracts.  Accordingly, we are recommending certain corrective actions and additional oversight to ensure that these problems do not recur.

Topic: Management and Adminstration