Audit Report: DOE-OIG-22-16

December 21, 2021

Sandia National Laboratories Subcontract Closeout Process

The Sandia National Laboratories (SNL) management and operating contract, and Department of Energy Acquisition Regulation 970.5232–3(c), requires SNL to audit subcontractors’ records, with respect to any subcontracts, where, under the terms of the subcontract, costs incurred are a factor in determining the amount payable to the subcontractor.  At SNL, subcontractors are audited by SNL’s Contract Audit, and subcontract audit findings, such as questioned costs, are resolved by SNL Subcontract Closeout’s Subcontract Administrators.  This audit was initiated to determine whether cost-type subcontracts issued by SNL were audited, decisions on questioned costs were fully supported, and Federal oversight provided assurance that questioned costs were properly resolved in accordance with acquisition regulations.  We found that SNL misclassified and inappropriately excluded subcontracts from audit.  In addition, SNL’s decisions not to sustain subcontract costs questioned by its own Contract Audit office were not fully supported by appropriate and relevant evidence, clearly showing the questioned costs were allowable, allocable, and reasonable, as required.  The issues we identified occurred, in part, because of (1) weaknesses in the contractor’s subcontract administration training, and (2) Department of Energy Acquisition Regulation providing insufficient guidance for the Contracting Officers to protect the Department’s interests by being involved timely in the resolution of costs questioned by the contractors’ audits.  Except for Recommendation 3a, management concurred with our recommendations and agreed to take action to address the issues identified in the report.  Additionally, Recommendation 3b has been removed.