Federal Reports

The Department of Energy uses management and operating (M&O) contracts to carry out 90 percent of the agency’s mission. The National Nuclear Security Administration’s (NNSA) M&O contractors for the Kansas City National Security Campus and Los Alamos National Laboratory are Honeywell Federal Manufacturing & Technologies, LLC (Honeywell) and Triad National Security, LLC (Triad), respectively. Both Honeywell and Triad utilize subcontracts to achieve their mission. The combined value of firm-fixed-price (FFP) subcontracts issued by Honeywell and Triad from December 2023 through January 2025 was over $1.6 billion.

We initiated this audit to determine if NNSA’s M&O contractors were classifying subcontracts in accordance with the Federal Acquisition Regulation.

We found that NNSA’s M&O contractors, Honeywell and Triad, generally classified subcontracts in accordance with the Federal Acquisition Regulation and had procurement policies for FFP subcontracts consistent with the Federal Acquisition Regulation. During our audit, we requested the universe of subcontracts from Honeywell. While compiling the universe of 14,006 subcontracts, Honeywell initially identified and disclosed 35 subcontracts that were classified as FFP but should have been classified as cost-plus-fixed-fee, and an additional misclassified subcontract was later identified. According to Honeywell officials, the subcontracts were misclassified due to human error, and it took corrective actions to prevent subcontract misclassification in the future. We reviewed a judgmental sample of 65 FFP subcontracts and did not identify any additional subcontracts that were improperly classified. At Triad, we reviewed a judgmental sample of 30 FFP subcontracts and found 1 subcontract that was improperly classified. In addition, a Triad internal audit identified an inconsistent subcontract classification within its procurement system.

A fundamental component of the procurement process is the selection of the appropriate subcontract type. Subcontracts that are incorrectly or inconsistently classified could lead to inaccurate reporting and insufficient oversight.

Because the sites took corrective actions, we are not making any recommendations. Going forward, M&O contractors should ensure subcontracts follow policies related to subcontract classification.

This audit was performed by the Defense Contract Audit Agency (DCAA) on behalf of the Department of Energy’s Office of Inspector General and examined the Regents of the University of California’s (UC Regents) costs incurred and claimed for fiscal year ending September 30, 2021, at the Lawrence Berkeley National Laboratory under management and operating contract No. DE-AC02-05CH11231.

The audit’s objective was to determine if cost charged to Department Contract No. DE-AC02-05CH11231 for fiscal year 2021 were allowable, allocable, and reasonable in accordance with applicable laws, regulations, and contract terms.

The DCAA performed the audit in accordance with generally accepted government auditing standards.

The DCAA identified two audit findings and questioned approximately $6.4 million in the management fee in the total cost rate pool. The DCAA questioned the management fee, which represented a contractual incentive paid by the Department of Energy, because the UC Regents included the fee as a cost in the total cost rate pool. The DCAA reconciled the proposed fee amount to the general ledger, and the Department determined that the contractor was entitled to the earned fee. In addition, the DCAA increased the UC Regents’ proposed allocation bases for three indirect cost pools because of the UC Regents’ error in the treatment of several purchase orders that resulted in understated allocation bases.  

If the issues identified by the DCAA are fully addressed, it should help ensure that costs charged to the Department are allowable, allocable, and reasonable in accordance with contract terms. We recommend that the contractor coordinate with the contracting officer to resolve the questioned and adjusted base costs identified in this report.

Why We Did This Report

The U.S. Environmental Protection Agency Office of Inspector General conducted this evaluation to determine whether the EPA implemented effective controls during the selection of Track I grant awardees through the Community Change Grants Program within the EPA Office of Environmental Justice and External Civil Rights.
 

Summary of Findings

The EPA implemented effective controls during its review and selection of Track I Community Change Grants Program applications. The EPA adhered to its Policy for Competition of Assistance Agreements and other applicable requirements during the application review process. Additionally, the EPA ensured that Track I grant awardees met the eligibility requirements stated in the Inflation Reduction Act.

The audit objectives were to determine whether program funds were managed in accordance with the ARC and Federal grant requirements.

The Office of Inspector General engaged the independent public accounting firm of KPMG LLP (KPMG) to conduct the fiscal year 2025 financial statements audit of the Western Area Power Administration (WAPA), subject to our review. As part of this audit, KPMG considered WAPA’s internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing its opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of WAPA’s internal control.

KPMG performed the audit in accordance with generally accepted government auditing standards.

During the audit, KPMG identified certain deficiencies in WAPA’s internal control related to the recording of operation and maintenance expenses, purchased power expense, and accounts payable that are included in the management letter. 

The management letter contains two findings and five recommendations that were issued to WAPA during The Western Area Power Administration’s Fiscal Year 2025 Financial Statements Audit. Management concurred with the findings and recommendations and had taken or planned to take corrective actions. Management’s responses are included with each finding.