Energy Management:

Controls Over the Livermore Laboratory's Indirect Costs Are Inadequate

RCED-94-34: Published: Nov 16, 1993. Publicly Released: Dec 16, 1993.

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Pursuant to a congressional request, GAO provided information on indirect contractor costs at the Department of Energy's (DOE) Lawrence Livermore National Laboratory, focusing on: (1) the adequacy of the laboratory's financial management controls over its indirect costs; and (2) DOE oversight of the laboratory's indirect costs.

GAO found that: (1) the laboratory's financial management controls are insufficient to ensure that costs are properly charged to the appropriate account; (2) in 1991, the laboratory improperly charged more than $10 million in defense program and construction costs to the overhead cost pool and subsequently reduced the total funding available to defense and nondefense programs; (3) until 1993, the laboratory did not comply with cost accounting standards because it lacked written policies for classifying direct or indirect costs; (4) the laboratory lacks the internal controls necessary to provide reliable accounting information and reduce the potential for waste and abuse; (5) the laboratory's decentralized management structure does not include a fully documented financial system or sufficient separation of duties; (6) although DOE has taken steps to improve its oversight of contractor indirect costs, it cannot ensure that direct program costs are accurate, accounting firms comply with established cost accounting standards, and reports do not contain errors and omissions that could result in misleading and inaccurate information; and (7) the effectiveness of current DOE oversight efforts could not be determined because of the short time the programs have been in place.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOE approved a Livermore accounting change for FY 1995 that clarified the definition of direct and indirect costs and provided further guidelines and controls for charging costs. DOE also worked with Livermore to identify and remove from the overhead pools those costs more properly charged directly to programs.

    Recommendation: To ensure compliance with the federal cost accounting standards, the Secretary of Energy should direct the Chief Financial Officer to ensure that direct costs included in the Livermore Laboratory's overhead pool are removed.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: DOE's Oakland Operations Office and Livermore Laboratory took steps to strengthen internal controls at the laboratory. Effective in fiscal year 1994, Livermore required independent review and approval in order to open new indirect cost accounts. New Livermore policy guidance was issued requiring compliance with the causal/beneficial requirement and requiring account titles adequately describing the indirect costs captured. Operations Office staff monitored laboratory activities to identify control weaknesses and worked with the laboratory to correct the problems.

    Recommendation: In order to ensure the reliability of the Livermore Laboratory's accounting information, the Secretary of Energy should require the laboratory to develop and implement adequate internal controls to ensure the reliability of its financial information, including fully documenting its account structure to identify the authorized purpose of each account and separating key duties to ensure that charges to accounts are in conformance with the authorized purposes.

    Agency Affected: Department of Energy


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