Assessment Report: OAI-V-17-02

January 13, 2017

Audit Coverage of Cost Allowability for Fermi Research Alliance LLC During Fiscal Years 2012 Through 2014 Under Department of Energy Contract No. DE-AC02-07CH11359

Fermi Research Alliance LLC (FRA) has managed and operated Fermi National Accelerator Laboratory (Fermi) for the Office of Science’s Fermi Site Office under a contract with the Department of Energy since January 2007.  During fiscal years (FYs) 2012 through 2014, FRA incurred and claimed costs totaling approximately $1.2 billion.

FRA 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 (Strategy) makes efficient use of available audit resources while ensuring that the Department’s contractors claim only allowable costs.    The Strategy places reliance on the contractors’ internal audit function (Internal Audit) to provide audit coverage of the allowability of incurred costs that are claimed by contractors.

Based on our assessment, nothing came to our attention to indicate that the allowable cost-related audit work performed by FRA’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.  We did note FRA had not conducted or arranged for any audits of subcontractor costs for FYs 2012 through 2014.  Instead, FRA’s Internal Audit used its quick closeout process to determine the cost-type subcontracts did not warrant audits.  Finally, nothing came to our attention to indicate that questioned costs and internal control weaknesses affecting allowable costs that were identified in audits and reviews had not been adequately resolved.  We did, however, identify an issue regarding local meal costs that needs to be addressed to ensure that only allowable costs are claimed and reimbursed.  Specifically, we questioned $1,268 for local employee dinners at receptions held during the FRA Board of Directors meetings between FYs 2012 and 2014.  According to the Federal Acquisition Regulation (FAR) 31.205-14, “Entertainment Costs,” the cost of social activities like meals would generally be unallowable.  Therefore, we questioned the local employees’ dinner costs as entertainment expenses per the FAR, Department guidance, and FRA’s policy.

Topic: Management & Administration