July 20, 2017

Audit Coverage of Cost Allowability for Consolidated Nuclear Security LLC during July 1, 2014, through September 30, 2015, under Department of Energy Contract No. DE-NA-0001942

Since July 1, 2014, Consolidated Nuclear Security LLC (CNS) has managed and operated the Y-12 National Security Complex and Pantex Plant under contract with the Department of Energy. Both the Y-12 National Security Complex and the Pantex Plant are part of the Department’s National Nuclear Security Administration, which has responsibilities that include ensuring the safety, security, and effectiveness of the nation’s nuclear weapons stockpile. During the period of July 1, 2014, through September 30, 2014, and fiscal year (FY) 2015, CNS incurred and claimed costs of $396,655,647 and $1,640,090,371, respectively on its FY 2014 and FY 2015 statements of costs incurred and claimed.

CNS 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 makes efficient use of available audit resources while ensuring that the Department’s contractors claim only allowable costs.  This 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 CNS’ Internal Audit for the period of July 1, 2014, through September 30, 2015, could not be relied upon. We did not identify any material internal control weaknesses with the cost allowability audits, which generally met the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing. During the period under review, Internal Audit identified questioned costs totaling $36,706 in its cost allowability audits, all of which had been resolved. Additionally, we found that CNS conducted or arranged for audits of subcontractors when costs incurred were a factor in determining the amount payable to a subcontractor. Internal Audit conducted 27 audits of subcontractors, identifying $13,993,275 in questioned costs and two control weaknesses, all of which had been resolved. We noted that costs totaling $1,482,161 for FY 2013 and $517,604 for FY 2014 questioned in our previous report, Assessment of Audit Coverage of Cost Allowability for Babcock and Wilcox Technical Services Y-12 LLC During Fiscal Years 2013 and 2014 Through June 30, 2014, Under Department of Energy Contract No. DE-AC05-00OR22800 (OAS-V-15-05), had been resolved. Finally, we determined that Internal Audit did not test executive compensation costs for allowability. As such, we consider $4,012,957, the total compensation of CNS executives charged to the contract for the period under review, unresolved pending audit. This did not adversely affect our ability to rely on Internal Audit’s work.

Topic: Management & Administration