The Department of Energy’s Office of Inspector General underestimated the resources needed to audit incurred costs for billion-dollar contracts across the agency, according to a new Government Accountability Office report published Thursday.
Findings From GAO’s Review of ICAD
The congressional watchdog said that when the Energy Department established the Incurred Cost Audits Division, known as ICAD, in 2021, the OIG assumed that it would use agency auditors to audit incurred costs. The OIG also developed a cost estimate for 23 management and operating, or M&O, contracts without taking into account that the volume of such deals would evolve over time.
In 2021, the OIG estimated $18.7 million per year rough order of magnitude to audit incurred costs. The initial estimate is far lower than the $43.7 million per year the OIG said it would need to conduct incurred cost audits based on DOE’s fiscal year 2025 budget justification.
While a rough order of magnitude estimate can be helpful, GAO warned that it is not precise.
The Energy Department, one of the largest civilian contracting agencies in government, spent about $36.7 billion in M&O contracts in fiscal 2023. M&O contracts, according to GAO, have inherent financial risks because the contractor can withdraw funds without an invoice.
The congressional watchdog urged the DOE’s inspector general to evaluate all relevant alternatives for conducting incurred cost audits. The move would give agency decision-makers a better understanding of long-term program costs.
The Energy Department’s OIG concurred with the recommendation.
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