NNSA largely executes its missions at eight sites that comprise the nuclear security enterprise and that are managed by seven M&O contractors. These eight sites are three national security laboratories—Lawrence Livermore National Laboratory in California, Los Alamos National Laboratory in New Mexico, and Sandia National Laboratories in New Mexico and other locations; four nuclear weapons production plants—the Pantex Plant in Texas, the Y-12 National Security Complex in Tennessee, the Kansas City National Security Complex in Missouri, and tritium operations at DOE’s Savannah River Site in South Carolina; and the Nevada National Security Site, formerly known as the Nevada Test Site. As shown in figure 1, each of NNSA’s eight sites has specific responsibilities within the nuclear security enterprise. NNSA also executes portions of its missions across several other DOE sites, such as the Pacific Northwest National Laboratory in Washington and the Oak Ridge National Laboratory in Tennessee. At this time, NNSA’s common financial reporting efforts are focused on the eight sites, as required by the National Defense Authorization Act for Fiscal Year 2017. NNSA’s sites are owned by the federal government but managed and operated by M&O contractors. According to DOE, the use of M&O contracts is supported by an underlying principle: the federal government employs highly capable companies and educational institutions to manage and operate government-owned or -controlled scientific, engineering, and production facilities because these companies and educational institutions have greater flexibility than the government in bringing scientific and technical skills to bear. As we previously found, an M&O contract is characterized by, among other things, a close relationship between the government and the contractor for conducting work of a long-term and continuing nature. To support its missions, NNSA is organized into program offices that oversee the agency’s numerous programs. For example, the Office of Defense Programs oversees the B61-12 Life Extension Program, and the Office of Defense Nuclear Nonproliferation oversees the Nuclear Smuggling Detection and Deterrence Program. NNSA’s program offices are Defense Nuclear Nonproliferation; Safety, Infrastructure, and Operations; Defense Nuclear Security; Counterterrorism and Counterproliferation; and Naval Reactors. Mission-related activities are primarily overseen by these program offices, which are responsible for integrating the activities across the multiple sites performing work. NNSA field offices, co-located at the sites, oversee the day-to-day activities of the contractors as well as mission support functions such as safety. NNSA is subject to different cost accounting requirements than its seven M&O contractors. NNSA is required to follow Managerial Cost Accounting Standards. The principal purpose of Managerial Cost Accounting Standards is to determine the full cost of delivering a program or output to allow an organization to assess the reasonableness of this cost or to establish a baseline for comparison. The standards state that federal agencies should accumulate and report the costs of their activities on a regular basis for management information purposes. The standards also state that agencies should allow flexibility for agency managers to develop costing methods that are best suited to their operational environment. Such information is important to Congress and to NNSA managers as they make decisions about allocating federal resources, authorizing and modifying programs, and evaluating program performance. Separate standards—referred to as federal Cost Accounting Standards—govern how NNSA’s M&O contractors structure and account for their costs. Federal Cost Accounting Standards provide direction for the consistent and equitable distribution of a contractor’s costs to help federal agencies more accurately determine the actual costs of their contracts and the contractor’s costs associated with specific projects and programs. To comply with federal Cost Accounting Standards, M&O contractors classify costs as either direct or indirect when they allocate these costs to programs. Direct costs are assigned to the benefitting program or programs. Indirect costs—costs that cannot be assigned to a particular program, such as costs for administration and site support—are to be accumulated, or grouped, into indirect cost pools. The contractor is to estimate the amount of indirect costs to distribute to each program (accumulated into indirect cost pools) and make adjustments by the end of the fiscal year to reflect actual costs. The contractor is then to distribute these costs proportionally across all programs based on a rate in accordance with the contractor’s cost allocation model. The final program cost is the sum of the total direct costs plus the indirect costs distributed to the program. In implementing these allocation methods, federal Cost Accounting Standards provide contractors with flexibility regarding the extent to which they identify incurred costs directly with a specific program and how they collect similar costs into indirect cost pools and allocate them among programs. Therefore, different contractors may allocate similar costs differently because the contractors’ cost allocation models differ—that is, a cost classified as an indirect cost at one site may be classified as a direct cost at another. Because each contractor can allocate similar indirect costs differently and contractors may change the way they allocate indirect costs over time, it is difficult to compare contractors’ costs among sites and accurately calculate total program costs when work for a program is conducted at multiple sites. The seven NNSA M&O contractors and NNSA’s program offices account for and track costs differently. We previously found that NNSA’s M&O contractors have historically developed their own processes to manage and track costs for work at each site even when their work contributes to the same program. These processes have generally differed from the ones NNSA program offices have developed to describe the scope of its programs. This makes it difficult for NNSA and others to track and compare costs for analogous activities across programs, contractors, and sites. For example, in May 2018, we found that NNSA’s work breakdown structure for the B61-12 Life Extension Program and its $7.6 billion cost estimate (at that time) did not include $648 million in activities that were undertaken by other NNSA programs, such as research and development, test and evaluation activities, and infrastructure elements. Leading practices for developing work breakdown structures state that a work breakdown structure should include all activities that contribute to a program’s end product, and should not treat contributing activities separately. DOE’s and NNSA’s financial management and accounting system—the Standard Accounting and Reporting System (STARS)—provides budget execution, financial accounting, and financial reporting capabilities for the department. STARS is also integrated with other agency systems for procurement, funds distribution, travel, and human resources. The M&O contractors’ financial systems must be able to directly provide cost reports to NNSA’s financial management system. The primary source of cost data contained in STARS comes from summary-level cost reports provided by M&O contractors, which they report for NNSA’s appropriations at the budget and reporting code level. Program offices access STARS financial data through the DOE Office of the Chief Financial Officer’s integrated data warehouse. While financial data collected through STARS represent DOE’s official financial data, the data are not detailed and therefore may not satisfy the information needs of NNSA’s program offices. For example, STARS financial data do not differentiate labor costs from other programmatic costs, nor do they provide detailed information about the costs of activities that contribute to program costs. In addition, according to M&O contractor representatives, if one M&O contractor provides funding to another contractor, such as to conduct testing, NNSA does not have the ability in STARS to identify that funding was transferred. In the absence of an automated managerial cost accounting system that collects data from financial systems and relevant operating systems to consistently and uniformly produce useful cost information, NNSA’s program offices developed various systems, tools, and spreadsheets to track relevant cost information. Specifically, NNSA’s program offices separately collect cost information from M&O contractors that is more detailed than costs reported through STARS. Collecting these data requires M&O contractors to map, or “crosswalk,” their cost data to the work breakdown structures of one or more of NNSA’s program offices. Some program offices collect financial data through ad hoc data calls, rather than regular data calls. Some tools the program offices use include program management systems or spreadsheets designed to meet each program office’s programmatic, budgetary, and project requirements. For example, the Office of Defense Programs built the Enterprise Portfolio Analysis Tool in 2007 to capture financial data from the M&O contractors for its programs. Also, in 2007, officials from the Office of Defense Nuclear Nonproliferation developed a program management system designed to integrate and manage data such as scope, schedule, budget, and cost at the program level with greater detail than the data in STARS. The Office of Safety, Infrastructure, and Operations later adopted this system and called it the G2 program management system. M&O contractors use the G2 system to upload crosswalks of financial data for those program offices’ work breakdown structures after the costs were incurred. This process allows M&O contractors to report detailed financial data to the respective program offices every month. The process to track cost information is different for each program office and depends on the tool used and the information collected. However, for all program offices the process to track cost information is in addition to the financial reporting that M&O contractors provide for STARS (see fig. 2). To implement common financial reporting and standardize financial reporting by the M&O contractors across programs and sites, NNSA is pursuing an approach in which the agency collects M&O contractors’ financial data in a common reporting framework using an NNSA-wide data reporting and analysis tool. M&O contractors produce crosswalks of their financial data and submit the data to NNSA using a data reporting and analysis tool called CostEX. NNSA then stores the reported financial data in the DOE Office of the Chief Financial Officer’s integrated data warehouse. The Office of Defense Programs has used this process to collect financial data from the M&O contractors for its programs since fiscal year 2017. NNSA implemented this process for the broader common financial reporting effort in fiscal year 2018. Figure 3 illustrates NNSA’s data management process for common financial reporting. To implement common financial reporting, NNSA established a common reporting framework using agreed-upon work breakdown structures and common cost elements and definitions. However, in January 2019, we found that NNSA did not establish a common work breakdown structure for all of the participating program offices, although the agency had established 22 common cost elements and definitions. Specifically, the Offices of Defense Programs, Emergency Operations, Defense Nuclear Security, and Counterterrorism and Counterproliferation used NNSA’s common work breakdown structure, while the Offices of Safety, Infrastructure, and Operations and Defense Nuclear Nonproliferation used their own programmatic work breakdown structures. The M&O contractors crosswalk their internal financial data into a work breakdown structure for each of the participating program offices (either NNSA’s common work breakdown structure or a programmatic work breakdown structure) using common cost elements and definitions. The M&O contractors’ business systems capture their financial data at a more detailed level than is needed for common financial reporting. Each M&O contractor tracks financial data for its site based on how it manages the work using projects, tasks, and expenditure types. For example, M&O contractors collect time and attendance data from their employees based on the number of hours spent working on a project for the pay period. The M&O contractors aggregate this information across multiple employees to report on labor costs for a project. When the M&O contractors prepare their data for common financial reporting, site managers identify the component(s) of the applicable work breakdown structure and cost elements with which the project aligns and crosswalk their financial data to the NNSA structure using professional judgment. Figure 4 shows an example of how an M&O contractor crosswalks its financial data into an NNSA work breakdown structure in CostEX. After the M&O contractors submit their financial data in CostEX, NNSA performs data quality and accuracy checks of the M&O contractors’ data, referred to as “data validation” and “data reconciliation.” NNSA performs data validation using CostEX, which automatically checks each row for data quality—such as confirming that the correct contractor is entering data for the site—and formatting based on 45 validation checks. CostEX identifies data that do not pass the validation check as errors and rejects them, and the M&O contractor corrects and resubmits the data until it passes the validation check. NNSA performs data reconciliation with STARS using CostEX at the budget and reporting code level. CostEX extracts STARS data for selected budget and reporting codes and compares it with the data the M&O contractors submitted for common financial reporting. CostEX identifies data that differ from the STARS data by more than $1 as an error and rejects the data, and the M&O contractor corrects and resubmits the data until it passes the reconciliation check. According to NNSA officials, it is important for the agency to perform these data validation and reconciliation checks prior to accepting the M&O contractors’ financial data to ensure data quality. NNSA has made progress toward implementing common financial reporting across the nuclear security enterprise since our last report in January 2019, but it faces challenges in fully implementing the effort. We identified seven steps related to NNSA’s efforts to implement common financial reporting in our January 2019 report: (1) identifying an approach and developing a tool to implement common financial reporting, (2) developing a policy, (3) establishing common cost elements and definitions, (4) identifying and reporting costs for programs of record and base capabilities, (5) implementing a common work breakdown structure, (6) collecting financial data from the M&O contractors, and (7) publishing and analyzing data. To date, the agency has completed three steps but has not yet completed four others, as shown in table 1. As required by the National Defense Authorization Act for Fiscal Year 2017, NNSA is to implement common financial reporting by December 23, 2020, to the extent practicable. NNSA’s progress to implement common financial reporting in these seven steps since our January 2019 report is described below: Identify an approach and develop a tool to implement common financial reporting. NNSA identified an approach and developed a tool to implement common financial reporting prior to our January 2019 report. NNSA continues to use CostEX to collect financial data from the M&O contractors and stores the data in DOE’s integrated data warehouse. Develop a policy. NNSA developed a policy for common financial reporting. NNSA began developing the policy in October 2016 and approved it in February 2019. Establish common cost elements and definitions. NNSA established common cost elements and definitions prior to our January 2019 report. An NNSA official said NNSA established the cost elements and definitions based on data that the M&O contractors could readily provide from their business systems. In fiscal year 2019, NNSA used the established cost elements to collect the M&O contractors’ data and added a requirement for the contractors to report data on unpaid commitments. NNSA officials are considering adding cost elements in the future, such as additional details on labor categories. NNSA is working with the M&O contractors to ensure they can provide the additional data. Identify and report costs for programs of record and base capabilities. NNSA has not yet identified and reported costs for all programs of record or costs for base capabilities. The National Defense Authorization Act for Fiscal Year 2017 required NNSA to establish definitions and methodologies for identifying and reporting costs for programs of record and base capabilities as part of its efforts to implement common financial reporting. According to the program director for financial integration, NNSA establishes its programs of record in its congressional budget justification and other documents to align with agency appropriations, which include Weapons Activities, Defense Nuclear Nonproliferation, and Federal Salaries and Expenses. Through common financial reporting in fiscal year 2018, NNSA collected financial data from the M&O contractors for $8.9 billion of $13 billion from these appropriations. In May 2018, NNSA issued guidance that identified 25 base capabilities that the M&O contractors used to develop their site strategic plans. We reviewed the M&O contractors’ site strategic plans for 2018 and found that the contractors identified base capabilities for their sites, but did not include information about the costs to maintain each sites’ base capabilities. NNSA is working to determine whether or how to collect information on the cost of base capabilities through the M&O contractor site strategic planning process in coordination with the common financial reporting effort. We will continue to monitor NNSA’s progress in addressing this requirement. Implement a common work breakdown structure. NNSA has not yet implemented a common work breakdown structure across the program offices in the nuclear security enterprise, but plans to assess the feasibility of implementing a common structure in fiscal year 2020. The National Defense Authorization Act for Fiscal Year 2017 requires NNSA to develop a common work breakdown structure as part of its efforts to implement common financial reporting. In January 2019, we found that NNSA decided not to pursue a common work breakdown structure. Rather, NNSA collected financial data from the M&O contractors using a common work breakdown structure for four program offices and used different, programmatic work breakdown structures for two other program offices. As we found in January 2019, these two offices did not want to change their work breakdown structures to the common structure. For example, the Office of Safety, Infrastructure, and Operations did not want to change its work breakdown structure because it uses the structure for scope, schedule, and risk management, in addition to budget and cost. We recommended that NNSA implement a common work breakdown structure across its participating program offices because without doing so, NNSA could not ensure that its efforts would result in the collection of reliable, enterprise-wide financial data that satisfies the needs of Congress and enables NNSA to report the total costs of its programs. At the time of that report, NNSA neither agreed nor disagreed with the recommendation. The agency stated that it would continue to use its current approach, while focusing on enhancing analysis and reporting to provide comparative data across the enterprise. Once this was completed, NNSA planned to assess the effectiveness of the approach and evaluate what changes, if any, were necessary to the work breakdown structures to meet the overarching objectives of common financial reporting. In May 2019, in response to our recommendation, NNSA changed its approach and decided to conduct an assessment in fiscal year 2020 of the feasibility of implementing a common work breakdown structure across all participating program offices. To do so, NNSA plans to collect M&O contractors’ financial data in fiscal year 2020 using both the common work breakdown structure for all program offices and— specifically for the Offices of Safety, Infrastructure, and Operations and Defense Nuclear Nonproliferation—the programmatic work breakdown structures while it assesses the feasibility of a common work breakdown structure. NNSA decided to take this approach to assess the potential benefits while mitigating potential risks to the program offices that use the data collected through the programmatic work breakdown structures to oversee their programs. NNSA officials said that reporting the same data using two different work breakdown structures will require additional resources for the M&O contractors to prepare their data submissions, which NNSA does not view as a long-term solution for common financial reporting. NNSA planned to collect data using these two approaches in parallel starting in November 2019 and make a decision on whether to implement a common work breakdown structure across the nuclear security enterprise in March 2020. NNSA plans to assess the feasibility of implementing a common work breakdown structure using criteria such as (1) whether using a common work breakdown structure reduces burden on the M&O contractors, (2) how much it will cost NNSA to update other program management systems, (3) whether NNSA can collect financial data quickly enough to meet the needs of the program offices, and (4) whether financial data collected using the common work breakdown structure provides program offices with comparable data to support existing program analysis. Collect financial data from M&O contractors. Since our January 2019 report, the M&O contractors submitted their financial data for fiscal years 2018 and 2019 for the participating program offices using CostEX. However, NNSA and the M&O contractors faced challenges in collecting accurate and consistent financial data for common financial reporting across the nuclear security enterprise. Specifically, NNSA faced challenges in (1) fully implementing its data validation and reconciliation process, (2) collecting financial data from each M&O contractor for all of the program offices, and (3) communicating information about changes in a timely manner. First, NNSA faced challenges fully implementing its data validation and reconciliation process for fiscal year 2018. NNSA designed CostEX to automatically validate the M&O contractors’ data to check data quality and formatting and perform data reconciliation with STARS. However, according to an NNSA official, for fiscal year 2018, the agency manually reconciled the M&O contractors’ fiscal year 2018 data with STARS to identify and fix issues with the process prior to automation. For example, an NNSA support contractor manually submitted and reconciled data for one M&O contractor that manages two sites because the M&O contractor submits combined data for the two sites into STARS, but NNSA collects financial data for common financial reporting by site. For the fiscal year 2019 data collection effort, NNSA officials said they corrected the submission issue and CostEX was able to automatically reconcile the M&O contractors’ data with STARS. Another M&O contractor’s fiscal year 2018 financial data did not reconcile each month with STARS. NNSA officials and representatives from the M&O contractor said the reconciliation issue was due to timing differences between when the contractor reported data into STARS and CostEX. Specifically, M&O contractor representatives for the site said that when NNSA is delayed in collecting data for common financial reporting in CostEX, the relationships between the data reported into STARS and CostEX will have changed, which may result in reconciliation errors. During that time, the site changed how it tracked some of the data, which led to differences in how the data were provided for STARS and common financial reporting, and which caused the reconciliation errors. NNSA officials said they resolved the issue with the M&O contractor for fiscal year 2019 and completed data collection in October 2019. Second, NNSA faced challenges in collecting data from each M&O contractor for all of the participating program offices. Specifically, the Office of Defense Nuclear Nonproliferation made ongoing changes to its work breakdown structure templates throughout the fiscal year 2018 data collection effort. This resulted in challenges for the M&O contractors when reporting data for this program office. NNSA did not collect complete fiscal year 2018 financial data for this office, in part because one of the contractors had significant data validation and reconciliation errors, resulting in data that NNSA could not validate and reconcile. Third, NNSA faced challenges in communicating information about changes to the work breakdown structure in a timely manner to M&O contractors. Leading project management practices emphasize the importance of establishing and implementing change control processes, which include reviewing and approving all change requests, documenting the changes, and communicating the decisions. In fiscal years 2018 and 2019, not all NNSA programs consistently ensured that changes to the work breakdown structure were approved, documented, or communicated to the M&O contractors in a timely manner because NNSA had not established and implemented a work breakdown change control process. NNSA established aspects of such a process, in which program offices submitted changes to the work breakdown structures to the financial integration team so the team could upload the changes into CostEX and notify the M&O contractors of the changes prior to their data submissions. However, according to officials with the financial integration team, the federal program managers did not always follow the process. Officials with the financial integration team said that in some instances, the sites’ program managers contacted the M&O contractors directly to request changes to their work breakdown structures. The financial integration team identified issues with the program offices’ work breakdown structures when the M&O contractors’ data could not be validated and reconciled. In such instances, the financial integration team contacted the program managers to request the updated work breakdown structures for CostEX. Further, the existing process does not include some aspects of change control processes that are consistent with leading practices. Approving changes. Under the existing process, the financial integration team does not check whether changes that federal program managers submit to them have been reviewed and approved, at a minimum, by program office management prior to making changes to the work breakdown structures in CostEX. The program director for financial integration said that they defer to the program offices to ensure that program office management review and approve changes to the work breakdown structure before the program managers submit these changes to the financial integration team. Documenting changes. NNSA officials said that not all program offices have tracked changes to their work breakdown structures over time. NNSA’s Office of Defense Programs has a process for tracking changes to its work breakdown structure, but that process—or a similar process—was not utilized consistently by all of NNSA’s other program offices. If the program offices do not track the changes to their work breakdown structures over time, they cannot ensure the data are comparable across fiscal years. According to officials, NNSA built a tool in CostEX to track work breakdown structure changes across fiscal years. NNSA officials said the tool was tested at the end of fiscal year 2019 by the Office of Defense Programs. NNSA plans to test using the tool to track changes for the other program offices in fiscal year 2020. Communicating decisions. NNSA did not always communicate changes to the work breakdown structure to the M&O contractors in a timely manner. Representatives from the seven M&O contractors stated that they encountered challenges in submitting their data in CostEX on multiple occasions throughout fiscal years 2018 and 2019 because federal program managers in some offices made frequent changes to the work breakdown structures that often were not communicated to the M&O contractors in a timely manner. When work breakdown structures change, representatives from the seven M&O contractors said they have to redo the crosswalk of their financial data to the new work breakdown structures before they submit the data— this takes time and additional resources and may result in delayed data submissions. Representatives from three of the M&O contractors said the frequency of changes to the work breakdown structures decreased for the fiscal year 2019 data collection effort, but representatives from six M&O contractors said they continued to encounter challenges when changes were made to the work breakdown structures. Without establishing and systematically implementing a work breakdown structure change control process, NNSA will not be able to verify that, at a minimum, program office management has approved changes to the work breakdown structure or that these changes have been documented, potentially leading to challenges in ensuring that the data are comparable over time. Furthermore, NNSA cannot ensure that changes to the work breakdown structures are communicated to the M&O contractors in a timely manner, which results in contractors using additional time and resources to address validation or reconciliation errors. Publish and analyze data. NNSA has published the M&O contractors’ financial data for fiscal years 2018 and 2019, but NNSA has not conducted agency-wide analysis of the data. The NNSA financial integration team has a website for common financial reporting from which the program offices can download financial data. However, an NNSA official stated that agency-wide analysis of the data was not feasible for fiscal years 2018 or 2019 because NNSA did not use a common work breakdown structure for all participating program offices. In addition, an NNSA official stated that the agency needs to collect at least 3 years of data to produce useful NNSA-wide findings. Some of the NNSA program offices have started to analyze the financial data collected through the common financial reporting effort. For example, the Office of Defense Programs is using financial data collected through common financial reporting for program evaluation and to make budgetary decisions. In addition, an NNSA official from the Office of Counterterrorism and Counterproliferation stated that the office has used financial data from common financial reporting to identify and address accounting issues, such as identifying previously unidentified unspent funds carried over from prior fiscal years and redirecting these funds to support program activities in fiscal year 2019. However, some of the program offices have not used the data collected through common financial reporting for various reasons. For example, officials from the Office of Safety, Infrastructure, and Operations stated that the fiscal year 2018 data were not useful for analysis because they were not collected in a timely manner. NNSA officials said they completed data validation and reconciliation of the M&O contractors’ fiscal year 2018 financial data in February 2019—nearly halfway through the following fiscal year—making the data late and not useful for that office’s purposes. Additionally, officials from the Office of Defense Nuclear Security stated that they have not used the data collected through the common financial reporting effort because they want to ensure that the data are accurate and consistent before using it for decision-making. As discussed previously, M&O contractors crosswalk their financial data into a reporting framework using work breakdown structures and common cost elements and definitions, and they submit their data to NNSA using CostEX. To help ensure the accuracy of the data, NNSA performs data quality checks of the M&O contractors’ financial data submitted using CostEX. If NNSA cannot validate and reconcile the submitted data using the agency’s processes, it rejects and returns the data to the M&O contractor to correct the errors. NNSA also provides the M&O contractors with error reports from CostEX that they can use to identify and correct errors. Each M&O contractor has established processes to check data quality prior to submitting the data to NNSA in CostEX. For example, representatives from all of the M&O contractors said they reviewed their data for missing information and errors before submitting the data into CostEX. In addition, all of the M&O contractors performed checks to compare their data submissions for common financial reporting with their STARS submissions before submitting the data into CostEX. After the M&O contractors complete their internal data quality checks, they submit their financial data into CostEX. At most sites, M&O contractor representatives said the way their site tracks financial data does not align with how NNSA requests the data be reported in the work breakdown structure and cost elements. Officials from NNSA’s Office of Cost Estimating and Program Evaluation said that because the M&O contractors do not track their financial data using NNSA work breakdown structures, the contractors have to make decisions using professional judgment as to how to crosswalk their project costs, raising concerns that each M&O contractor may make different decisions about how to allocate costs. The officials said this may result in data that are not accurate or comparable for conducting agency- wide analysis. We identified several limitations to the approach NNSA uses to collect common financial data that could affect the accuracy and consistency of the data: NNSA’s data reconciliation process does not ensure M&O contractors’ financial data are accurate. M&O contractors identified potential issues with using STARS for reconciliation to ensure data accuracy. For example, two M&O contractors said that errors can sometimes occur in their monthly STARS reporting. Errors in STARS can be created when a number is mistyped or corrections are made to purchase card or time sheet information. Once the M&O contractor submits its data to STARS, errors cannot be corrected until at least the following month. However, because the common financial reporting data must reconcile with STARS, the M&O contractor has to submit financial data into CostEX that includes the error. The program director for financial integration said a process is in place for the M&O contractors to identify any issues with STARS reporting and correct their reported data in the future. More significantly, some M&O contractors said they make changes to their data before submitting it into CostEX to ensure that the data reconcile. Specifically, representatives from two M&O contractors said they compare their financial data for common financial reporting with their STARS data submission. If data from the two systems do not match for small dollar amounts, the contractors manually make adjustments to the data for common financial reporting rather than making the corrections in their business systems. The representatives also said they do not notify NNSA officials of the manual changes. NNSA requires that financial data for common financial reporting reconcile with STARS. Specifically, NNSA rejects M&O contractor financial data that differs from the STARS data by more than $1. According to federal standards for internal control, management should define objectives clearly to enable the identification of risks and define risks tolerances. For the fiscal year 2018 data collection effort, NNSA documentation indicated that M&O contractors reported financial data for $8.9 billion of costs and reconciled the data with their STARS cost reporting to a total difference of $5.03. According to an NNSA official, M&O contractors reported financial data for $10.2 billion of costs and reconciled the data with STARS to a total difference of $8.97 for fiscal year 2019. However, NNSA has limited assurance that the financial data provided internally reconcile as required because the agency does not know the extent of changes that M&O contractors made to ensure the data reconcile with STARS or the potential effects of those changes on the accuracy of the data. Assessing the extent to which M&O contractors make manual changes to ensure reconciliation with STARS for common financial reporting and determining the effect of these changes could provide additional assurance that the financial data collected through common financial reporting are accurately reported. M&O contractors crosswalk site projects and tasks to NNSA work breakdown structures, resulting in the potential for differences in how costs are allocated. Each M&O contractor tracks financial data for its site based on how it manages the work using projects and tasks, as allowed by federal Cost Accounting Standards. When a site’s projects and tasks do not align with NNSA’s work breakdown structure, site program managers identify the component of the NNSA work breakdown structure with which the project and tasks best align and crosswalk their financial data to the NNSA structure using professional judgment. One site program manager said it is sometimes challenging to identify which of their internal projects and tasks aligns with the NNSA work breakdown structure, especially when internal projects have similar names to describe different project scopes. Another site program manager said the site’s projects and tasks closely align with the NNSA work breakdown structure approximately 30 to 40 percent of the time, and contractor representatives use professional judgment to crosswalk the remaining 60 to 70 percent of their projects and tasks. To create the crosswalk, site program managers consider which NNSA program the project mostly supports. It can be difficult to crosswalk the site data into NNSA’s work breakdown structure, especially for work that benefits multiple weapons programs. For example, a site program manager said that the site’s project to develop inert material for NNSA’s high explosives activities supports multiple weapons programs. The site tracks that work as one project, but NNSA’s work breakdown structure requires that the costs be reported across multiple programs. When M&O contractors make decisions to crosswalk their financial data using professional judgment, the contractors do not provide information to NNSA on how the costs are allocated. By verifying this information, NNSA could ensure that allocation decisions are made consistently across the nuclear security enterprise. M&O contractors provided different financial data for the same projects. M&O contractors continue to report financial data for some program offices into multiple systems, including the G2 program management system, WebPMIS, and spreadsheets. For fiscal year 2018, NNSA compared financial data that the M&O contractors reported, for two NNSA program offices, into the G2 program management system and the CostEX tool used for common financial reporting and found differences between the data reported for the same budget and reporting codes and levels of the work breakdown. The program director for financial integration said he worked with the program offices and identified the cause of the differences in the data. NNSA cannot ensure the accuracy of the data submitted for common financial reporting because NNSA does not have an internal process to verify whether M&O contractors crosswalk their financial data accurately from their business systems to the NNSA work breakdown structure. According to federal standards for internal control, management should use quality information to achieve the agency’s objectives. Under the financial integration policy, the program director for financial integration is responsible for executing a plan for NNSA to achieve enterprise-wide financial integration to collect standardized financial management data; increase transparency of financial accountability; and improve cost analysis, comparability, and reporting consistency among programs and M&O contractors. The program director for financial integration said that verifying whether the M&O contractors properly crosswalk their data to the work breakdown structure is an area in which the agency should improve its common financial reporting effort. NNSA officials stated that the common financial reporting effort does not have a process to validate financial data that are more detailed than STARS and indicated that until the agency has assurances the reported data are accurate, NNSA should not use that more detailed data for agency decision-making. By developing an internal process for NNSA to verify the M&O contractors’ crosswalks, the agency will have better assurance that the data collected through common financial reporting will produce accurate, enterprise- wide financial data that is comparable across the M&O contractors and that satisfies the needs of Congress and other stakeholders. Further, this would help address long-term issues with NNSA’s ability to report the total costs of its programs, in accordance with Managerial Cost Accounting Standards. As part of common financial reporting, M&O contractors crosswalk their financial data to NNSA’s cost elements. Cost elements capture discrete costs of a particular activity of work and include direct costs such as labor and equipment and indirect costs such as general and administrative costs. In March 2018, NNSA established 22 cost elements and definitions—including 10 indirect cost elements—that the M&O contractors use to report financial data. As we found in our January 2019 report, NNSA officials said this was a critical step toward implementing common financial reporting because without common cost elements, the agency was limited in its ability to report lower-level costs consistently across programs and sites. In addition, having the M&O contractors report financial data across common cost elements would allow NNSA to improve its management of programs across the enterprise. NNSA developed the cost elements and definitions in consultation with the M&O contractors based on the data they could provide because officials said it is important for the contractors to report accurate financial data using the NNSA cost elements. M&O contractors manage their sites’ financial data using expenditure types to track the costs of their projects. These expenditure types capture similar costs as the cost elements, but at a more detailed level, and are specific to each individual M&O contractor based on how the contractor manages its expenses. M&O contractors have flexibility to determine how they structure their work and the expenditures they track in their financial systems consistent with Cost Accounting Standards. Based on our review of M&O contractor documents, M&O contractors varied significantly in the number of expenditure types they tracked. For example, the M&O contractor for one of the national laboratories tracked its financial data using over 900 expenditure types, while another national laboratory used around 50 expenditure types. NNSA officials said that the number of expenditure types at the sites varies based on the nature of the work performed at each site. Most of the M&O contractors cannot crosswalk their expenditures to certain NNSA cost elements because of how they track costs in their systems. Specifically, representatives from five of the M&O contractors said they cannot accurately crosswalk their indirect expenditure types to NNSA’s indirect cost elements because their systems do not capture the data in the way that NNSA wants these data reported. M&O contractors have discretion to classify which costs are considered indirect, and costs for similar activities can be allocated differently by each contractor. In fiscal year 2018, NNSA’s M&O contractors reported spending $3.5 billion on indirect activities. Generally, in cases in which the M&O contractors could not crosswalk their indirect costs to specific NNSA cost elements, representatives from one of the M&O contractors said they allocated their indirect costs to NNSA’s cost elements using percentages, while others said they reported data that did not adhere to the NNSA cost elements. Below are examples of situations in which M&O contractors were not able to accurately report expenditures into NNSA’s indirect cost elements: Representatives from one M&O contractor said they could not accurately report financial data for the general and administrative cost element and site support from other overhead cost elements because the site did not capture its data in that way. As a result, the M&O contractor allocated its indirect costs using formulas and composite rates, rather than reporting actual cost data to NNSA. Representatives from two M&O contractors said they could not accurately report financial data across the site support and infrastructure support cost elements because the structure of their indirect cost pool did not allow them to track those expenditures separately. As a result, representatives from one of the M&O contractors said they reported all of their infrastructure expenditures to the site support cost element. NNSA officials said they were aware of the M&O contractors’ issues with reporting their expenditure types using the NNSA cost elements. Although M&O contractors are required to provide financial data using NNSA’s cost elements, the program director for financial integration said he was aware that M&O contractors report some indirect costs for separate cost elements to a single cost element in CostEX, meaning that they do not accurately report some indirect costs based on NNSA’s definitions. Additionally, the financial integration team identified differences between indirect cost data collected from the M&O contractors for common financial reporting and data reported to another group in NNSA’s Office of Management and Budget. NNSA plans to conduct a review of the data reported through the two efforts to determine the cause of the differences. Officials from the Office of Safety, Infrastructure, and Operations stated that it is important that the common financial reporting effort is able to collect accurate information on M&O contractors’ costs related to infrastructure spending. NNSA is aware of the challenges its M&O contractors have with accurately reporting their expenditure types against the NNSA cost elements. However, NNSA cannot ensure that the agency collects accurate financial data because NNSA does not have a process to verify how the M&O contractors crosswalk their expenditure types to NNSA’s cost elements, consistent with the previously described information quality standard under the federal standards for internal control and NNSA’s financial integration policy. M&O contractors reporting data based on allocated—as opposed to actual—costs is not ideal because NNSA cannot ensure that each M&O contractor is consistently applying the allocation and because the data may not be standardized and comparable across the sites, which affects the quality of the data. By developing an internal process for NNSA to verify how the M&O contractors crosswalk their expenditure types, the agency could better ensure that the data collected through common financial reporting will produce accurate financial data across the nuclear security enterprise that satisfies the needs of Congress and other stakeholders. Further, this would help address long-term issues with NNSA’s ability to report the total costs of its programs. NNSA continues to make progress toward implementing agency-wide common financial reporting. However, NNSA faces challenges in fully implementing the effort. For example, NNSA has not consistently ensured that changes to the work breakdown structure are approved, documented, and communicated to the M&O contractors in a timely manner because NNSA has not established and implemented a change control process for the changes. Without establishing and fully implementing a work breakdown structure change control process, NNSA will not be able to verify that the changes to the work breakdown structure are approved by program office management, at a minimum; documented and tracked for accurate data analysis and comparison over time; and communicated to the M&O contractors on a timely basis. NNSA’s approach to implementing common financial reporting relies on M&O contractors to crosswalk their internal financial data into a common reporting framework using a work breakdown structure and common cost elements and definitions, with certain quality checks to help ensure the accuracy of the data. However, NNSA has limited assurance that the financial data that the M&O contractors provide for common financial reporting are accurate because the agency does not know the extent of the changes the M&O contractors make to the data so that the data reconcile to the agency’s accounting system or the potential effects of these changes. By determining the extent of these changes and whether these changes affect the accuracy of the data, NNSA could have greater assurance that the financial data collected through common financial reporting are accurate. Additionally, NNSA cannot ensure that M&O contractors accurately crosswalk their financial data to either the NNSA work breakdown structure or the common cost elements because NNSA has not established processes to verify the information. By developing internal processes that would allow NNSA to verify how the M&O contractors crosswalk their data to the work breakdown structure and common cost elements, NNSA could better ensure that the data collected through common financial reporting will produce accurate enterprise-wide financial data that is comparable across the M&O contractors and that satisfies the needs of Congress and other stakeholders. Further, this would help to address long-term issues with NNSA’s ability to report the total costs of its programs. We are making four recommendations to NNSA: The Program Director for Financial Integration, with input from NNSA’s Office of Management and Budget and respective program offices, should establish and implement a work breakdown structure change control process for common financial reporting that ensures changes are approved by program office management, at a minimum; documented; and communicated to M&O contractors on a timely basis. (Recommendation 1) The Program Director for Financial Integration should assess the extent to which M&O contractors make manual changes to their financial data to reconcile with STARS and determine whether it has an effect on the accuracy of the data collected for common financial reporting. (Recommendation 2) The Program Director for Financial Integration should develop and implement an internal process for NNSA to verify how the M&O contractors crosswalk financial data from their systems to the appropriate NNSA work breakdown structure to ensure the reported data are accurate and consistent. (Recommendation 3) The Program Director for Financial Integration should develop and implement an internal process for NNSA to verify that the M&O contractors are consistently applying common cost element definitions at their sites and across the nuclear security enterprise. (Recommendation 4) We provided a draft of this report to NNSA for comment. In its written comments, which are reproduced in appendix II, NNSA agreed with the report’s four recommendations and described actions it intends to take to address them. NNSA also provided technical comments that we incorporated into the report as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Energy, the Administrator of NNSA, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or bawdena@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix III. In our January 2019 report on the National Nuclear Security Administration’s (NNSA) efforts to implement common financial reporting, we made seven recommendations. Table 2 describes NNSA’s progress to implement these recommendations, as of December 2019. In addition to the individual named above, key contributors to this report included Hilary Benedict (Assistant Director), Amanda K. Mullan (Analyst in Charge), Colette Alexander, Antoinette Capaccio, Jennifer Echard, Cindy Gilbert, Michael LaForge, Jason Lee, Holly Sasso, and Sheryl Stein.

Summary: NNSA has long faced challenges in determining and comparing the costs of its programs, which are principally performed by M&O contractors across eight sites. Congress needs this information to provide effective oversight and make budgetary decisions. The National Defense Authorization Act for Fiscal Year 2017 required NNSA to implement a common financial reporting system, to the extent practicable, across all sites by December 2020. NNSA's efforts began in 2016 and are ongoing. The Senate report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2018 includes a provision for GAO to periodically review NNSA's implementation of common financial reporting. This is GAO's second report on this issue. This report examines (1) the steps NNSA has taken to implement common financial reporting since GAO's January 2019 report, and (2) the extent to which NNSA's approach to data collection aligns with the purpose of common financial reporting, including collecting accurate and consistent data from its M&O contractors. GAO reviewed NNSA documents about implementing common financial reporting, including policy and briefing documents, and interviewed NNSA officials and M&O contractor representatives. The National Nuclear Security Administration (NNSA)—a separately organized agency within the Department of Energy (DOE)—is required to implement common financial reporting, to the extent practicable, across its sites to better understand the total costs of its programs. NNSA has taken additional steps to implement such reporting since January 2019 but faces challenges in fully implementing the effort (see table). For example, for fiscal years 2018 and 2019, NNSA used separate work breakdown structures—a method of dividing a project into successive levels of detail—to collect data for some offices. Without a common work breakdown structure, NNSA cannot ensure that it can collect reliable financial data across its sites. NNSA plans to assess the feasibility of implementing a common work breakdown structure, in response to GAO's January 2019 recommendation. In fiscal years 2018 and 2019, NNSA also faced challenges in collecting financial data from management and operating (M&O) contractors, including collecting complete data for all program offices. NNSA is working to resolve these issues. NNSA's approach to data collection provides limited assurance that the data collected for common financial reporting are accurate and consistent across the M&O contractors. At most sites, the M&O contractors track their financial data in a way that does not align with how NNSA requests the contractors report the data. M&O contractors use professional judgment to crosswalk, or map, the financial data from their business systems to the NNSA structures to report the data. NNSA's data quality checks on the M&O contractors' financial data focus on data formatting and ensuring the data match the agency's accounting system. NNSA does not have a process to verify whether the contractors accurately crosswalk their financial data. Under NNSA's financial integration policy, the program director for financial integration is to, among other things, execute a plan to improve cost analysis, comparability, and reporting consistency among programs and M&O contractors. By developing an internal process for NNSA to verify how the M&O contractors crosswalk their financial data to the work breakdown structures, NNSA will have better assurance that it is collecting accurate financial data that are comparable across the M&O contractors, that satisfy the needs of Congress and other stakeholders, and that address long-term issues with its ability to report the total costs of its programs. GAO is making four recommendations, including that NNSA implement an internal process to verify the M&O contractors' crosswalks of their financial data to NNSA's work breakdown structures for reporting information. NNSA agreed with the four recommendations.