Alissa Tabirian
NS&D Monitor
9/18/2015
The Department of Energy (DOE) is questioning millions of dollars in “unresolved costs” at Sandia Corp. in fiscal 2013 and several years prior, according to a DOE Inspector General’s Office (IG) report released this week. Sandia Corp., a Lockheed Martin Corp. (LMC) subsidiary that has managed and operated Sandia National Laboratories (SNL) since 1993, is required to audit the allowability of its annual incurred costs through a strategy that relies on “contractors’ internal audit functions,” the Sept. 9 report says. As a result of Sandia’s internal and contract audits, the DOE is now questioning $212,120 in unresolved costs in fiscal 2013 and $2,357,131 in home office expenses – LMC expenses associated with Sandia – in the same year that are pending audit by the Defense Contract Audit Agency.
The DOE is also questioning $7,225,275 in unresolved costs prior to fiscal 2013, “including $6,952,490 in potential overpayments of New Mexico gross receipts tax [in fiscal 2010],” $19,367,568 in home office expenses from fiscal 2003 to 2012, and $55,737 in unallowable bad debt expenses in fiscal 2010 and 2011, the report says.
DOE IG spokeswoman Felicia Jones said by email that “a cost may be questioned because it was not properly approved, exceeded established limits, was not supported by required documentation, and for a variety of other reasons,” while a cost might be unresolved if “it did not receive required audit coverage.” She also noted that home office expenses “include activities such as analysis and monitoring of employee benefits, internal audit support, union negotiations and personnel support, and the conduct of Board of Directors meetings."
LMC’s Sandia-related home office expenses that are “directly attributable to contract performance are allowable if they meet certain criteria,” according to SNL spokeswoman Sue Holmes. “Until the Defense Contract Audit Agency audits [LMC] for those years, the costs will remain questioned costs,” she added. Allowable costs are those that fall within the limitations of the contract. The almost $7 million in potential overpayments to the state of New Mexico, paid as tax on the corporation’s total gross revenues, are the result of Sandia’s “balanced approach in determining its tax liability,” Holmes said. “That was to avoid underpayment and then having to pay penalties and interest as well as more taxes.”
Holmes said “Sandia’s corporate tax department has adopted new methods to determine deductibility” and that it “hired two tax experts and an independent accounting firm to review the new methods and see how it applied the law.” If overpayments are identified, the company “can request a refund for the particular years or year” from the state, she added.
The report recommends that management determine the allowability of questioned costs and recover unallowable amounts. Management agreed and said in response, “Due to the complexity of the issues involved in resolving these costs, including coordination with other agencies, NNSA estimates the resolution date could extend to December 2017.” SNL’s management and operation contract runs until April 2016 and features the option to extend for an additional year.
