Assessment Report: OAI-V-16-13

Septemeber 21, 2016

Audit Coverage of Cost Allowability for Honeywell Federal Manufacturing & Technologies LLC During Fiscal Years 2012 Through 2014 Under Department of Energy Contract No. DE-NA0000622

Honeywell Federal Manufacturing & Technologies LLC (Honeywell) has managed and operated the National Security Campus, formerly known as the Kansas City Plant, for the National Nuclear Security Administration Kansas City Field Office under contract with the Department of Energy since October 2010.  The National Security Campus is responsible for manufacturing and procuring nonnuclear components for nuclear weapons, including electronic, mechanical, and engineered material components, and it also supports the national laboratories, universities, and U.S. industry.  During fiscal years (FYs) 2012 through 2014, Honeywell incurred and claimed costs totaling approximately $2 billion.

Honeywell 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 Honeywell’s Internal Audit for FYs 2012 through 2014 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 its FYs 2012 through 2014 audits of cost allowability, Internal Audit identified $289,110 in questioned costs, all of which had been resolved.  Further, we found that Internal Audit had conducted 12 audits of subcontractors totaling $830,929 and identified $7,070 in questioned costs, all of which had been resolved.

In addition, the Office of Inspector General report Assessment of Audit Coverage of Cost Allowability for Honeywell Federal Manufacturing & Technologies, LLC for the period October 1, 2008 thru September 30, 2011 under Department of Energy Contract Nos. DE-AC04-01AL66850 and DE-NA0000622 (OAS-V-13-09, April 2013) questioned costs totaling $31,429,218 related to unaudited subcontract costs, of which $5,148,928 has been sent to the Defense Contract Audit Agency to be audited but is still pending audit and therefore is still unresolved.

Topic: Management and Administration