Summary

In fiscal year 1991, the Lawrence Livermore Laboratory, a government research and development facility, incurred about $436 million in indirect costs--outlays that are not directly linked to a particular program, such as costs for facility maintenance or accounting services. In response to congressional concerns that indirect costs were not being adequately managed or controlled, GAO examined the adequacy of (1) financial management controls over indirect costs at the Livermore Laboratory and (2) Energy Department oversight of the laboratory's indirect costs. GAO makes recommendations intended to stop direct costs from being included in the Laboratory's overhead pool and to develop adequate internal controls that will ensure the reliability of the laboratory's financial information.

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.