[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 REVIEW OF THE UNIVERSITY OF CALIFORNIA'S MANAGEMENT CONTRACT FOR LOS 
                       ALAMOS NATIONAL LABORATORY

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 1, 2003

                               __________

                           Serial No. 108-14

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________

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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                      Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio                RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania     RICK BOUCHER, Virginia
CHRISTOPHER COX, California          EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina         SHERROD BROWN, Ohio
  Vice Chairman                      BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia             BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho

                   Dan R. Brouillette, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

              Subcommittee on Oversight and Investigations

               JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida           PETER DEUTSCH, Florida
CLIFF STEARNS, Florida                 Ranking Member
RICHARD BURR, North Carolina         DIANA DeGETTE, Colorado
CHARLES F. BASS, New Hampshire       JIM DAVIS, Florida
GREG WALDEN, Oregon                  JAN SCHAKOWSKY, Illinois
  Vice Chairman                      HENRY A. WAXMAN, California
MIKE FERGUSON, New Jersey            BOBBY L. RUSH, Illinois
MIKE ROGERS, Michigan                JOHN D. DINGELL, Michigan,
W.J. ``BILLY'' TAUZIN, Louisiana       (Ex Officio)
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Atkinson, Richard C., President, University of California....    60
    Brooks, Hon. Linton F., Under Secretary for Nuclear Security 
      and Acting Administrator for Nuclear Security, National 
      Nuclear Security Administration, U.S. Department of Energy.     9
    Darling, Bruce B., Senior Vice President, University Affairs, 
      Interim Vice President for Laboratory Management, 
      University of California; Accompanied by Anne Broome, Vice 
      President for Financial Management, University of 
      California; and Patrick Reed, University Auditor, 
      University of California...................................    64
    Friedman, Gregory H., Inspector General, U.S. Department of 
      Energy.....................................................    43
    McSlarrow, Hon. Kyle E., Deputy Secretary of Energy, U.S. 
      Department of Energy.......................................     8

                                 (iii)

  

 
 REVIEW OF THE UNIVERSITY OF CALIFORNIA'S MANAGEMENT CONTRACT FOR LOS 
                       ALAMOS NATIONAL LABORATORY

                              ----------                              


                         THURSDAY, MAY 1, 2003

                  House of Representatives,
                  Committee on Energy and Commerce,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:40 a.m., in 
room 2123, Rayburn House Office Building, Hon. James C. 
Greenwood (chairman) presiding.
    Members present: Representatives Greenwood, Walden, Tauzin 
(ex officio), Deutsch, and Schakowsky.
    Also present: Representatives Radanovich, Markey, Eshoo, 
Stupak, and Udall.
    Staff present: Ann Washington, majority counsel; Michael 
Geffroy, majority counsel; Yong Choe, legislative clerk; and 
Edith Holleman, minority counsel.
    Mr. Greenwood. Good morning. This hearing of the Oversight 
and Investigations Subcommittee of the House Energy and 
Commerce Committee will come to order. We welcome our witnesses 
and our guests, and the Chair recognizes himself for the 
purpose of an opening statement.
    The subcommittee meets today for the third time this year 
to hear testimony related to the management situation at Los 
Alamos National Laboratory. Currently operated by the 
University of California, the lab is one of the Nation's 
premiere research facilities on matters critical to our safety 
and security. Yet, as we have learned in the course of our 
investigation, the lab has also been a premiere site of serious 
property mismanagement and even theft.
    Our February and March hearings concentrated on concerns 
raised by current and former lab employees about lab 
procurement and property management systems. I believe the 
issues identified at those hearings as well as the continued 
diligence of this committee prompted the unprecedented 
Department of Energy announcement yesterday that forms the 
backdrop to this hearing. The DOE announced its decision to put 
the Los Alamos contract up for competition for the first time 
in the lab's 60-year history. This decision is long overdue and 
one that members of this committee on a bipartisan basis have 
been calling for for many years.
    The University of California has operated Los Alamos under 
contract with DOE since 1943. At no time during its long reign 
as operator of the facility has UC ever been faced with the 
possibility of having to compete for this privilege. Given the 
length of time UC operated without the threat of competition, 
it appears that it has been lulled into a state of 
irresponsible complacency.
    Let me add that progress has been made to improve the 
situation. The university has become much more involved in the 
daily operations of the lab in the past 6 months, and I am 
pleased with some of its efforts to get lab management back on 
track by replacing much of the senior staff, but it remains to 
be seen if those efforts will effect any meaningful change at 
the lab.
    We heard at our last hearing from Joe Salgado, the former 
principal deputy director of the lab, who said that Federal 
money was treated like monopoly money, which is hardly a 
description of the kind of fiduciary responsibility expected 
and required of DOE contractors.
    The lab argues that the amount of identified abuse of 
Federal money is just a drop in the bucket when compared to the 
lab's budget as a whole, and that perhaps is why the abuses 
have not garnered the required attention. I appreciate the 
point, but this multibillion dollar facility is operated on 
taxpayers' money, and as a steward of that money for the 
American public I am not comfortable with that explanation. As 
I have said before, when this same lab is responsible for 
safeguarding not only taxpayer money but the Nation's most 
sensitive nuclear secrets there is little room for error.
    So I salute the Department's decision to compete this 
contract, to identify the best administrator for the lab. These 
are steps that the prior administration and prior secretaries 
have been too afraid to take, even in the face of repeated 
scandal and repeated promises of reform. In the testimony today 
we will hear from both the Department and the university on 
factors associated with this decision and exactly what will be 
sought in the competitive process.
    On our first panel we will hear from Deputy Secretary of 
Energy Kyle McSlarrow and Ambassador Linton Brooks of the 
National Nuclear Security Administration. These gentlemen have 
been involved in the decision to compete the contract, and they 
will explain their rationale for their decision. I look forward 
to their testimony and to learning how DOE will improve its own 
oversight of UC or its successor.
    Next we will hear from the DOE Inspector General, the 
Honorable Greg Friedman. Inspector General Friedman's office 
has audited various aspects of Los Alamos management, ranging 
from nuclear safety to procurement problems. Recently, his 
office released an audit questioning over $14 million in costs 
charged by the lab to DOE and controls on classified and 
unclassified computers. I am particularly interested in his 
views regarding what standards the Department should set when 
competing this contract.
    Finally, we are joined by a panel of senior officials from 
the University of California: current University President Dr. 
Richard Atkinson; Vice President for Financial Management Ms. 
Anne Broome; University Auditor Mr. Patrick Reed; and, 
reappearing for the third time before us in this investigation, 
Mr. Bruce Darling, Interim Vice President for Laboratory 
Management.
    The university faces some tough questions if it intends to 
put itself in the competition for the LANO contract. What would 
UC do to banish what appears to be a lax attitude within the 
current lab culture? I trust our witnesses today will be able 
to shed some light on these and similar areas of inquiry. Let 
me thank all of the witnesses for attending this very important 
hearing today.
    I now recognize the ranking member, Mr. Deutsch, for his 
opening statement.
    Mr. Deutsch. Thank you, Mr. Chairman.
    This is a historic occasion, one that I know Mr. Dingell 
has looked forward to for many years. He apologizes for not 
being here but will submit a statement for the record.
    For 60 years the Department of Energy's contract to operate 
the Los Alamos National Laboratory has been awarded to the 
University of California without any competition to see if 
another entity could better run the lab. Despite numerous 
congressional and other investigations over the years that have 
found serious security, safety environmental management 
problems at the laboratory, there has not been a single attempt 
by the Federal Government to compete that contract until now. 
It is my hope that these hearings will ultimately result in 
finding the best contract to carefully use the taxpayer's money 
and run a laboratory that produces excellent science while 
being run like a business.
    Like all institutions which are seldom challenged about how 
they operate, the university and the laboratory's management 
became arrogant and defiant over the years. When problems were 
uncovered, they made promises to Congress and others about how 
they were going to fix them, promises that the university took 
few steps to fulfill, that the Department of Energy did not 
enforce.
    Whistleblowers who tried to bring problems to management 
attention were punished and, even if they won decisions, 
finding retaliation, establishing remedies, were hounded by the 
university's full legal forces until many of them were ruined 
financially and emotionally. Some had been employees for 
decades. One person who contacted us recently managed to keep 
his job but had been without a work assignment for 7 years.
    What happened most recently to Glen Wobb and Steven Dorn, 
two former police officers who were hired to professionalize 
criminal and security investigations and then fired when they 
actually attempted to do so, is only the most recent example in 
a long chain of unsuitable behavior by the university and the 
laboratory.
    Three years ago, UC promised to fix their security 
management weaknesses. One of those commitments was to 
implement best business practices. Yet today the Inspector 
General of the Department of Energy will testify he does not 
believe that Los Alamos can provide adequate assurances that 
classified, sensitive or proprietary information is 
appropriately protected because of poor controls over laptop 
computers containing classified information.
    In the committee's own investigation we have found missing 
hard drives and other classified electronic media for which 
there are no acceptable explanations. In addition, the entire 
business financial system by which the laboratory is supposed 
to document and control how it spends Federal money is in 
shambles, as is its internal auditing system.
    These systems are so bad that the Inspector General 
concluded in a recent report that DOE has less than adequate 
assurances that costs claimed by the university for operation 
of the laboratory are allowable under the contract. Mr. 
Chairman, what that means is that DOE can't have any confidence 
in the course claimed under this entire billion dollar 
contract.
    This is the third year in a row that the IG has come to 
this conclusion. That is how you get the thefts like we have 
heard about at previous hearings and the careless use of 
taxpayer funds by workers who think the Federal Government owes 
them top-of-the-line shoes, coats, shirts and gloves. One 
employee bought 13 pairs of allegedly work-related shoes in 18 
months, 12 of which were running and sports shoes.
    Joseph Salgado, the former deputy director of their 
laboratory, testified that taxpayers' money often was treated 
like monopoly money.
    And what has been the response to procurement problems, 
poor property management and lack of effective business 
controls? There have been many well-publicized investigations. 
But while these investigations were ongoing, the Department and 
the university were quietly negotiating new fiscal year 2003 
performance standards for Los Alamos standards drafted by the 
university that put science and technological goals at the 
forefront and pay little attention to inadequate business 
systems and controls that have brought down the top management 
at the laboratory.
    There is one sentence, ``Implement effective controls and 
business systems by assisting existing controls were needed. 
Strengthen controls to insure effective stewardship of public 
assets.'' DOE cannot even tell us what percentage of the 
performance fee will be allocated to this objective, which was 
only one of 40.
    Mr. Chairman, we must ask whether any of the problems that 
we have been discussing for the last several months are going 
to get fixed when it doesn't appear that they would even 
seriously affect the performance fee. Despite anything said 
today, despite any promises made today by either the Department 
of Energy and the University of California, this is the only 
document that deserves our attention because it is where the 
money is.
    I look forward to the testimony.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes the chairman of the full committee, the gentleman 
from Louisiana, Mr. Tauzin.
    Chairman Tauzin. Thank you, Chairman Greenwood.
    The hearing this morning marks a milestone of sorts because 
this morning we will talk about the University of California 
management contract for Los Alamos not only in terms of what 
should happen but in terms of now what will happen, putting the 
lab's management contract out for bid for the first time in its 
60-year history. The subcommittee's exposure of the management 
problems of Los Alamos is truly shaking things up, Mr. 
Chairman; and you deserve extreme amounts of credit for 
doggedly pursuing this matter on behalf of the full committee 
and, by the way, the American public which relies, as we do, on 
the sensitive work of the lab to make our lives safer and more 
secure.
    We should also recognize the decisive actions taken by 
Secretary Abraham and his management team at DOE for 
confronting the problems at the lab and doing something 
meaningful about them. The Secretary's announcement yesterday 
to compete the lab's management contract is the equivalent of a 
political earthquake. It shouldn't be. Periodic competition 
should be normal. It should be the necessary procedure for such 
an important contract. But it is a big deal precisely because 
it has never been done before, ever; and, as a result, the 
pressure of competitive bidding, one of the most powerful 
cleansers of management problems, has never really bore down on 
those responsible for the lab's contract.
    We should commend Secretary Abraham for his aggressive 
action to fix Los Alamos, especially because the current 5-year 
contract was literally dumped in his lap by the previous 
administration just days before they left office. And they knew 
better. Remember, it was the prior administration that talked 
tough after the last round of lab scandals involving Los Alamos 
and the University of California.
    Yet not only didn't they follow through on the tough talk, 
Secretary Abraham's predecessor took the remarkable step of 
ordering this flawed contract be extended for a new 5-year term 
without competition literally 2 days before President Bush and 
Secretary Abraham took office; and he did so even though that 
prior contract was not due to expire for nearly 2 years, when 
there was ample time for the new administration and the 
Congress to review and to conduct a thorough examination of any 
potential contract extensions.
    It may be ironic, but one of the very first acts as 
chairman of the Commerce Committee in January, 2002, that I 
conducted was to call on DOE and request that any action on the 
current UC contract be delayed until the new administration 
committee had an opportunity to review it. And that simple 
request was rejected. I have with me the letter of January 22, 
2001, to the Department making that case. Our concerns, of 
course, sadly were borne out, and it hasn't been easy to deal 
with.
    The Secretary has had additional challenges thrust upon him 
when he was trying to sort them out. He had to deal with a new 
entity, the National Nuclear Security Administration, also 
created over this committee's objections. NNSA produced a new 
layer of bureaucracy between the Secretary and the managers at 
the nuclear weapons labs that was supposed to improve 
accountability and oversight. And he had to deal with the long 
delay in the confirmation of Kyle McSlarrow, his Deputy 
Secretary, who would be his right-hand man on these matters. 
Because of that delay, the crucial position in the Department 
of the officer in charge of DOE operations was vacant during 
much of the lead-up time leading to the recent controversy at 
Los Alamos.
    Despite all this, the Secretary and his new Deputy 
Secretary have stepped up to the plate to address the situation 
aggressively, even before the latest announcement, by 
pressuring UC to make sweeping changes in the lab's management 
and UC's oversight of the lab.
    An NNSA colleague, Ambassador Linton Brooks, also has 
provided able leadership in this crisis, which is an 
encouraging sign that we're finally on the right course. I want 
to agree with Ambassador Brooks' own comments yesterday that 
NNSA and its oversight of the lab over the past several years 
has not been up to par, not what Congress was promised when we 
took this gamble by further insulating the nuclear weapons lab 
from central DOE management.
    I look forward to hearing from both of you on this morning.
    Mr. Chairman, let me welcome the witnesses today, with 
three excellent and knowledgeable panels, to discuss these 
important developments to provide some answers about the future 
of Los Alamos and of the University of California's contract 
with it and to provide, perhaps, some sense that when we're 
finally closing a very sad chapter in the history of the lab so 
that we finally open a new one.
    In a conversation I had with Senator Domenici yesterday I 
congratulated him on reaching the same conclusion that 
Secretary Abraham had, that it's time to bid this contract out, 
that it's time to give Los Alamos a credible platform upon 
which it can proceed, instead of having this specter of poor 
management and the questions always being asked about what's 
being done about it and what's being done to correct it 
constantly on the shoulders of the managers of that most 
important lab for this Nation's safety and security.
    Mr. Chairman, again, my very deep thanks on behalf of the 
full committee for your subcommittee's actions and doggedly 
pursuing this matter and leading to this conclusion by the 
Department; and hopefully this wrap up hearing where we can 
look forward now to a new chapter, as I said, in the history of 
this extraordinarily important asset to America.
    I yield back the balance of my time.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes for an opening statement the gentleman from 
Michigan, Mr. Stupak.
    Mr. Stupak. I'll waive my opening statement, Mr. Chairman.
    Mr. Greenwood. The Chair recognizes the vice chairman of 
the subcommittee, Mr. Walden of Oregon.
    Mr. Walden. Thank you, Mr. Chairman. I, too, will waive my 
opening statement so we can proceed with the hearing.
    Mr. Greenwood. Very well. We appreciate that.
    [Additional statement submitted for the record follows:]

    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan

    Thank you, Mr. Chairman, for holding this hearing to discuss the 
very significant decision by the Department of Energy (DOE) to 
competitively bid the contract to operate the Los Alamos National 
Laboratory. Although we do not have details about how the competition 
is going to be run, I applaud Secretary Abraham for this decision. 
Prior Energy Secretaries tried, but failed, to force needed changes 
short of this step. They did not realize that the University of 
California was too obstinate, arrogant, and entrenched to make needed 
changes.
    The most recent failed DOE effort was Appendix O, which was added 
to the contract by the University after the Wen Ho Lee and the lost 
hard drive incidents, and the cost overruns and schedule delays of the 
National Ignition Facility. These were just the latest in two decades 
of ``chronic security and other management-related problems.'' On 
October 26, 2000, then Committee Chairman Tom Bliley and I wrote a 
letter to then-DOE Secretary Bill Richardson after he had decided to 
extend the UC contract for another three years. We knew then that the 
promises made by the University in Appendix O, which included a new 
vice president for laboratory management, would not work, and we asked 
the Secretary to compete or renegotiate the contract. As we stated:
        ``As the briefing the Members last week amply demonstrated, 
        these five action items [in Appendix O] fall far short of the 
        fundamental restructuring necessary to bring new management 
        expertise and accountability into the operations of these labs. 
        Indeed, these actions are, for all practical purposes, either 
        meaningless or already provided for in the current contract. 
        When pressed about the details of these five actions, or how 
        they would be implemented, neither DOE nor UC was able to offer 
        any substantive explanations--saying only that the specifics 
        would be worked out during contract negotiations.''
(October 26, 2000, letter from Reps. Tom Bliley and John Dingell to 
Secretary Bill Richardson, p. 2. (emphasis added))
    In July of 2000, Dr. John McTague, who became the University's vice 
president for laboratory management, had written to Secretary 
Richardson proposing this position for a person who would ``assess and 
assure the performance of the laboratory directors, as well as 
technical excellence of programs, major project management, personnel 
systems, safety, security, and business practices.'' Dr. McTague said 
the UC oversight role of the laboratories was ``poorly defined and 
inadequately manned.'' (July 16, 2000, letter from Dr. John McTague to 
Secretary Bill Richardson, p. 2.)
    Dr. McTague got that job, but promptly used it to negotiate FY 2003 
performance standards for the laboratory that elevated scientific tasks 
and denigrated even further the value placed on adequate security, 
safety, environment, financial controls, and business practices. These 
standards were adopted lock, stock, and barrel by the Department barely 
a month ago--after the procurement scandal had broken, after the broken 
property management system was identified, after Messrs. Walp and Doran 
were fired in just the latest maltreatment of whistleblowers and 
problem-raisers, after the lab director and more than a dozen other 
people were removed from their jobs, and after the audit function at 
Los Alamos was taken over by the University's auditor. Yesterday, 
Ambassador Brooks claimed that these standards were negotiated before 
any of this happened--although the University did not sign off on the 
implementation plan until April 13--and that perhaps they would have to 
be renegotiated to reflect current events.
    There is a great deal of blame to spread around, but most of it 
belongs on the backs of the University of California, which never 
integrated the laboratories into its financial and management control 
structures, and the Department of Energy, which failed to hold the 
University accountable. Los Alamos must make real change--a change in 
which employees who in good faith bring problems to management's 
attention and openly discuss them without paying for it with their 
careers and their financial and emotional well-being. Until this 
happens, there will not be a free and open discussion of problem areas, 
nor will there be proper remedies. But the University's recent 
responses on questions Rep. Markey and others have raised about 
specific whistleblower cases are not particularly encouraging. As this 
competition goes forward, the issue of openness and responsiveness 
should be a critical factor in assessing bids.

    Mr. Greenwood. In that case, the Chair welcomes our guests. 
Our first witnesses are the Honorable Kyle E. McSlarrow, Deputy 
Secretary of Energy at the Department of Energy, and Ambassador 
Linton F. Brooks, Under Secretary for Nuclear Security and 
Acting Administrator for Nuclear Security at the National 
Nuclear Security Administration within the Department.
    We welcome both of you gentlemen. Thank you for being here.
    I think you're aware that this is an investigative hearing, 
and it is the practice of the subcommittee when holding 
investigative hearings to take testimony under oath. Do either 
of you object to giving your testimony under oath this morning?
    Mr. McSlarrow. No, Mr. Chairman.
    Mr. Brooks. No, sir.
    Mr. Greenwood. Okay. Pursuant to the rules of the committee 
and the House, you are entitled to be represented by counsel. 
Do either of you wish to be represented by counsel this 
morning?
    Mr. McSlarrow. No.
    Mr. Brooks. No.
    Mr. Greenwood. In that case, if you would stand and raise 
your right hand, I'll give you the oath.
    [Witnesses sworn.]
    Mr. Greenwood. You're under oath.
    We will start with you, Secretary McSlarrow. You're 
recognized for your opening statement.

   TESTIMONY OF HON. KYLE E. MCSLARROW, DEPUTY SECRETARY OF 
 ENERGY, U.S. DEPARTMENT OF ENERGY; AND HON. LINTON F. BROOKS, 
 UNDER SECRETARY FOR NUCLEAR SECURITY AND ACTING ADMINISTRATOR 
FOR NUCLEAR SECURITY, NATIONAL NUCLEAR SECURITY ADMINISTRATION, 
                   U.S. DEPARTMENT OF ENERGY

    Mr. McSlarrow. Mr. Chairman, distinguished members of the 
committee, thank you for the opportunity to discuss with the 
committee our review of the University of California's 
management of Los Alamos National Laboratory, the 
recommendations we have made to the Secretary and his 
decisions.
    The starting place for our inquiry is our national 
security. Secretary Abraham has said repeatedly that he has no 
more important responsibility than his obligation, together 
with the Secretary of Defense, to certify to the President the 
safety and reliability of the nuclear weapons stockpile. The 
basis for our security is in obvious and important ways 
dependent on the credibility of our nuclear deterrent, and 
those laboratories and facilities and the people who manage and 
work in them are rightly considered national treasures. Thus, 
when the problems of last fall surfaced, Secretary Abraham 
viewed the various investigations, whether ones directed by the 
Inspector General or Congress, whether civil or criminal, as 
necessary but additional to his responsibilities. He therefore 
directed us to conduct a review and make recommendations with 
the goal of ensuring that the management of the lab was one in 
which he, Congress and the public could have total confidence.
    Ambassador Brooks will provide more detail on our report in 
a moment, but let me highlight a few conclusions.
    First, the problems identified, while unacceptable, are 
primarily related to management of business systems. There is 
no indication that the science performed by the lab and the 
university is anything other than world class.
    Second, the University of California, under the personal 
direction of its President, Dick Atkinson, has responded 
forcefully and effectively. This is in no small measure also 
due to the leadership of the university Senior Vice President, 
Bruce Darling, and the lab's Interim Director, Admiral Pete 
Nanos.
    Third, both the fact that the university contributes 
enormous value to the science that underpins the national 
security mission of the lab and the great strides they have 
made over the last 5 or 6 months lead us to conclude that 
termination is not in the interest of our country.
    Fourth, though this is a much more complex issue than is 
present in even very large government procurements normally, 
our conclusion is that our administration's presumption of 
competition is not overcome in circumstances where business 
systems have fallen so short of an acceptable level; and we 
therefore recommended and the Secretary approve a decision to 
announce yesterday our intent to compete the LANL contract 
which expires in September, 2005.
    Finally, Mr. Chairman, we recognized that this issue is 
part of a larger set of issues about competition of the so-
called federally funded research and development centers, our 
national laboratories. The Secretary recognized last year that 
there is some fundamental policy issues that need to be 
explored.
    On the one hand for example, long-term, enduring 
relationships are likely to be extremely valuable in accruing 
the intellectual capital in which this country has invested. On 
the other hand, lack of competition can lead to complacency, as 
you mentioned.
    Because these are issues that the Secretary needed to be 
confronted, he established a blue ribbon commission which is 
due to report to him in the late summer on its recommendations 
on how we should approach performance oversight and competition 
in the context of bidding on national laboratories. Thus, how 
we compete this contract with regard to Los Alamos will be 
informed by the results of that commission as well.
    Mr. Chairman, I will conclude there and let Ambassador 
Brooks provide you more detail on the decisions made by the 
Secretary. Thank you.
    Mr. Greenwood. Thank you, Mr. Secretary.
    Mr. Brooks. Ambassador Brooks.

               TESTIMONY OF HON. LINTON F. BROOKS

    Mr. Brooks. Mr. Chairman, members of the subcommittee, 
thank you for the opportunity to appear on this important 
issue.
    The Deputy Secretary has addressed the Department's 
approach to competition and the immense importance Secretary 
Abraham and all of us place on maintaining the highest 
standards for our nuclear facilities. I'd like to turn to the 
conclusions that we've reached and the actions we are taking 
with respect to the future relationship between the University 
of California and Los Alamos National Laboratory.
    These conclusions and recommendations are set forth in our 
joint report to the Secretary of Energy which was released 
yesterday, and with your permission I would like to formally 
submit that report and the Secretary' response for the record.
    I want to state also for the record that we have received 
superb cooperation from both the University of California and 
the Los Alamos National Laboratory in conducting our review. 
Our report covers the details of the problems uncovered at Los 
Alamos and the university's response. The problems are well-
known to this committee, and Dr. Darling has outlined the 
university action in great detail in previous testimony, so I 
am not going to cover those here.
    As the Secretary of Energy has made clear, the problems 
represent a systemic management failure. I would only note the 
conclusions of the report, that the university's actions were 
broad, forceful and effective and that, ``It is difficult to 
see how any organization could have done more to deal with the 
problem than the University of California has since December, 
2002.''
    Our review suggests that there are multiple causes of the 
failure of business systems at Los Alamos.
    First, prior to November of last year, the university's 
supervision of Los Alamos was ineffective in the area of 
business process. The university focus was almost entirely on 
other areas, including science, security, environment and 
project management.
    Second, the National Nuclear Security Administration's 
direct Federal oversight was narrowly focused on specific 
performance measures called out in the contract, rather than on 
overall effectiveness and the interface between different 
areas; and I will say more about this in a moment.
    Third, in hindsight, warning signs appear to have been 
ignored. Following the problems of several years ago involving 
Wen Ho Lee and the hard drives, neither the university, the 
laboratory, the National Nuclear Security Administration, nor 
the Department examined in sufficient detail whether these were 
symptomatic of broader management problems.
    Finally, cultural problems beyond the control of the 
university or the Department played an important role. The Los 
Alamos culture exalted science and devalued business practices; 
and changing this culture will be the most difficult long-term 
challenge facing the laboratory, no matter who runs it.
    As Deputy Secretary McSlarrow indicated, our review also 
confirmed that the university brings substantial value to the 
mission of Los Alamos. Los Alamos' mission depends on 
attracting and retaining world-class scientific talent, and the 
academic prestige of association with a world-class university 
is a clear benefit in both recruiting and retention.
    In addition, there are formal agreements for scientific 
cooperation with four of the component campuses of the 
university. These areas of cooperative research directly 
advance the national security mission of the laboratory.
    And, finally, an important and often overlooked benefit of 
the university is to foster a culture of scientific skepticism 
and peer review. That attitude within the laboratory and 
between Los Alamos and Livermore National Laboratories is, in 
my view, absolutely crucial to the success of the stockpile 
stewardship program and to the ability to certify the safety 
and reliability of the nuclear weapons stockpile.
    Our report recommends and the Secretary has approved a 
series of actions.
    The most important of these are, first, that the university 
continue to manage Los Alamos through the end of the current 
contract in September, 2005. The vigorous action the university 
is taking to correct the problems, the significant value the 
university brings in the area of science and the disruption to 
the mission of the laboratory and morale from early termination 
all make retaining the university through the end of the 
current contract the most appropriate course. Termination of 
the contract would not improve the management of Los Alamos in 
the near term, because the university is fully engaged in an 
effective and comprehensive program.
    Second, we recommended and the Secretary approved that the 
Department announce its intent to compete the Los Alamos 
contract when it expires in September, 2005. Given the 
Department and the administration's strong preference for 
competition and the widespread nature of the problems 
uncovered, it's difficult to argue for any other course.
    Third, however, we urged that the University of California 
compete for the contract in 2005 perhaps in association with 
another entity with business and project management experience. 
The university has brought immense benefits to the laboratory 
and the country over the past 60 years, and it is important to 
note that a decision to compete is not a repudiation of the 
university but simply a recognition that its performance in the 
area of business management did not rise to the exceptionally 
high standards required to overcome the presumption of 
competition in the Department's policy.
    Next, we begin now to develop the appropriate criteria for 
evaluating the future competition. Normally, those criteria 
would not be developed until next year, but the results of the 
competition are going to have to preserve the many advantages 
offered by the current association with the university, while 
also ensuring continuation of the reforms now being initiated; 
and finding the proper criteria to achieve these results will 
be complicated and should begin at once.
    Further, we recommend that the Secretary reject in advance 
any notion of split responsibility for the laboratory in which 
different contractors perform the science and business 
operation functions. Some have argued that having the science 
and business portions of the laboratory managed by separate 
contractors would let us have the best of both worlds. I do not 
believe that the laboratory director should report to two 
entities. Indeed, a major part of the problem at Los Alamos is 
fragmentation between the science and the business communities; 
and a dual reporting approach would make the problem worse, not 
better.
    We also recommend, finally, that if we devise a mechanism 
to insure that if the university does not continue to operate 
Los Alamos following 2005 the pension benefits of current Los 
Alamos employees are fully protected. Failing to do this could 
lead to a significant challenge to morale and potentially to a 
devastating exodus of the most experienced employees. It is 
important to note that the vast majority of Los Alamos 
employees have done nothing wrong and are continuing to perform 
in an exceptional manner.
    Let me turn now to the Federal role of discovering and 
correcting problems of this type.
    One element of the Federal responsibility, of course, is to 
insure the university lives up to its own obligations. But, as 
the report makes clear, the National Nuclear Security 
Administration shares responsibility for allowing these 
problems to develop.
    Prior to November of last year, the Federal oversight role 
was limited to a stove-piped review of performance set forth in 
specific elements of the contract, when in fact what was called 
for was a broader, more cross-cutting and more aggressive role. 
Our reviews focused on performance in individual areas, rather 
than in the intersection and relationship among those areas. 
The report, recognizing this weakness, recommends that all 
current and future DOE contracts be reviewed in order to insure 
that performance reviews capture the cross-cutting information 
necessary to form a complete picture of performance.
    The National Nuclear Security Administration has begun this 
process through our revised approach to evaluating Los Alamos 
and Livermore National Laboratories. Under Appendix F of the 
contract, we review broad cross-cutting areas and involve the 
laboratory directors, the senior leadership of the university 
and the senior leadership of my organization, including myself 
personally, in these reviews.
    In your opening statement, Mr. Chairman, you noted that we 
had not established a weights for the criteria within those 
reviews. That's by design. We believe that one should look at 
cross-cutting areas in order to gauge overall performance and 
that we run the risk of falling into the trap that got us here 
if we start looking mechanically at business services as some 
specific percentage, and so we believe that this overall 
approach to review and most particularly the engagement of the 
senior leadership will let us focus on the relationship of all 
the performance elements.
    Federal oversight in the past was also hampered by 
fragmentation and lack of clarity in roles and responsibilities 
within the National Nuclear Security Administration. For 
example, before December of last year, the Albuquerque 
operations office assessed business practices performance of 
Los Alamos, while the Los Alamos site office assessed other 
practices. This fragmentation has long been recognized, 
including by Congress.
    As a result and unrelated to the specific problems of Los 
Alamos, in December of last year I implemented a major 
reorganization of the National Nuclear Security Administration, 
abolishing a layer of management and placing authority and 
responsibility for Federal oversight in site office managers--
in the case of Los Alamos, Ralph Erickson, who has appeared 
before this committee, who will now report directly, without 
any intervening layers of management, to my Principal Deputy.
    I expect that, in the aggregate, these changes will 
significantly improve the quality of Federal oversight.
    Mr. Chairman, let me conclude with two points.
    First, it is important to recognize that the overwhelming 
majority of Los Alamos employees in all areas, including 
business services, are honest, dedicated, competent and hard-
working. Ultimately, the value of this laboratory does not lie 
in expensive technology, it lies in people. And the failures of 
Los Alamos were real, but they are the failures of a few, and 
as we move to correct these failures it is important to keep 
that fact in mind.
    Second, I want to reiterate Secretary McSlarrow's emphasis 
on the overriding importance of national security in all of the 
decisions we've made. In approving our report, Secretary 
Abraham said, ``The management of the nuclear weapons complex 
is my most important responsibility as Secretary of Energy. 
Under the university's stewardship, the science of Los Alamos 
has consistently been of the highest caliber. But it is 
important that business services be as good as the science. In 
approving your recommendations it is my intention to make it 
clear that, in dealing with nuclear weapons, only the highest 
standards of performance are acceptable.'' All of us in the 
Department remain committed to that goal.
    Thank you for your attention, sir; and I look forward to 
your questions.
    [The prepared statement of Hon. Linton F. Brooks follows:]

Prepared Statement of Hon. Linton F. Brooks, Acting Under Secretary of 
Energy for Nuclear Security and Acting Administrator, National Nuclear 
                        Security Administration

    Mr. Chairman, members of the subcommittee. Thank you for the 
opportunity to appear before you on this important issue. Deputy 
Secretary McSlarrow has addressed the Department's approach to 
competition and the immense importance Secretary Abraham and all of us 
place on maintaining the highest standards at our nuclear facilities. I 
would like to turn to the conclusions we have reached and the actions 
we are taking with respect to the future relationship between the 
University of California and Los Alamos. Theses conclusions and 
recommendations are set forth in our joint report to the Secretary of 
Energy which was released yesterday. With your permission, I would like 
to submit that report and the Secretary's response for the record. 
Before I do, I want to formally state for the record that we have had 
superb cooperation from both the University of California and the Los 
Alamos National Laboratory in conducting our review.
    Our report covers the details of the problems uncovered at Los 
Alamos and the University's response. The problems are well known to 
this Committee and Dr. Darling has outlined the University actions in 
great detail, so I will not cover them here. As the Secretary of Energy 
has made clear, they represent a ``systemic management failure.'' I 
would only note the conclusion of the report that the University's 
actions were ``actions were broad, forceful, and effective'' and that 
``It is difficult to see how any organization could have done more to 
deal with the problem than the University of California has since 
December 2002.''
    Our review suggests that there are multiple causes of the failure 
of business systems at Los Alamos:

 Prior to November 2002, the University's supervision of Los 
        Alamos was ineffective in the area of business processes. 
        University supervision was almost entirely focused on other 
        areas including science, security, environment, and project 
        management.
 The Department of Energy and the NNSA's direct Federal 
        oversight was narrowly focused on specific performance measures 
        called out in the contract, rather than on overall 
        effectiveness. I will say more about this in a moment.
 In hindsight, warning signs may have been ignored. Following 
        the Dr. Wen Ho Lee and hard drive incidents, neither the 
        Laboratory, the University, NNSA, nor the Department examined 
        whether broader problems existed at Los Alamos.
 Finally, cultural problems beyond the control of the 
        University or the Department played an important role. The Los 
        Alamos culture exalted science and devalued business practices. 
        Changing this culture will be the most difficult long-term 
        challenge facing the Laboratory no matter who manages it.
    As Deputy Secretary McSlarrow indicated, our review also confirmed 
that the University brings substantial value to the mission of Los 
Alamos. Los Alamos missions depend on attracting and retaining world-
class scientific talent. The academic prestige of association with a 
world-class university is of clear benefit in both recruiting and 
retention. In addition, there are formal agreements for scientific 
cooperation with four of the component campuses of the University of 
California. These areas of cooperative research directly advance the 
scientific mission of the Laboratory. Finally, an important, little-
noted benefit of the University is to foster a culture of scientific 
skepticism and peer review. This attitude, both within the Laboratory 
and between Los Alamos and Lawrence Livermore National Laboratories, is 
absolutely crucial to the success of the Stockpile Stewardship Program 
and to the ability to certify the stockpile.
    Our report recommends, and the Secretary has approved, as series of 
actions. The most important include:

 That the University of California continue to manage Los 
        Alamos through the end of the current contract in September 
        2005. The vigorous action the University is taking to correct 
        the problems uncovered at Los Alamos, the significant value the 
        University brings in the area of science, and the significant 
        disruption to the mission of the Laboratory and the morale of 
        the employees from early termination all make retaining the 
        University through the end of the current contract the most 
        appropriate course. Termination of the contract would not 
        improve the management of Los Alamos in the near-term; the 
        University appears to be fully engaged in an effective and 
        comprehensive program.
 That the Department announce its intent to compete the Los 
        Alamos contract when it expires in September 2005. Given the 
        Department's and the Administration's strong preference for 
        competition, and the widespread nature of the problems 
        uncovered at Los Alamos, it is difficult to argue for any other 
        course of action.
 That we urge the University of California to compete for the 
        contract in 2005, perhaps in association with another entity 
        with business and project management experience. The University 
        has brought immense benefits to the Laboratory and the country 
        over the past 60 years. It is important to note that a decision 
        to compete is not a repudiation of the University, but simply a 
        recognition that the University's performance in the area of 
        business management did not rise to the exceptionally high 
        standards required to override the presumption of competition 
        in Department orders.
 That we begin now to develop appropriate criteria for 
        evaluating a future competition. The results of the competition 
        in 2005 should preserve the many advantages offered by the 
        current association with the University while also ensuring 
        continuation of the reforms now being initiated and 
        strengthening business functions. Devising the proper criteria 
        to achieve these results while avoiding unforeseen consequences 
        will be complicated and should begin at once.
 That we reject in advance any notion of split responsibility 
        for Laboratory operations in which different contractors would 
        perform the science and business operations functions. Some 
        have argued for having the science and business portions of the 
        Laboratory supervised by different contractors. The Laboratory 
        Director should not report to two entities. A major part of the 
        problem at Los Alamos is fragmentation between the science and 
        business communities within the Laboratory. A dual reporting 
        approach would make this problem worse, not better.
 That we devise a mechanism to ensure that, if the University 
        does not continue to operate Los Alamos following the 2005 
        competition, that the pension benefits of current Los Alamos 
        employees are fully protected. Failing to do this could lead to 
        a significant challenge to morale and, potentially, a 
        devastating exodus of the most experienced employees. It is 
        important to note that the vast majority of Los Alamos 
        employees have done nothing wrong and continue to perform in an 
        exceptional manner.
    Let me turn briefly to the Federal role in discovering and 
correcting problems of this type. One element of our Federal 
responsibility, or course, was to ensure that the University lives up 
to its own obligations. But as the report makes clear, National Nuclear 
Security Administration shares responsibility for allowing these 
problems to develop. Prior to November 2002, the Federal oversight role 
was limited to a mechanistic review of performance as set forth in the 
contract when in fact a broader, more aggressive role was called for. 
Our reviews focused on performance in individual areas rather than the 
intersection between those areas. The report, recognizing this 
weakness, recommends that all current and future DOE contracts be 
reviewed in order to ensure that performance reviews capture the 
crosscutting information necessary to form a complete picture of 
performance. NNSA has begun this process through our revised approach 
to evaluation of Los Alamos and Livermore National Laboratories under 
Appendix F of the contract. We review broad, crosscutting areas and 
involve the Laboratory Directors, the senior leadership of the 
University, and the senior leadership of NNSA, including myself, 
personally in these reviews.
    Federal oversight was also hampered by fragmentation and lack of 
clarity in roles and responsibilities within the National Nuclear 
Security Administration. For example, before December of 2002, the 
Albuquerque Operations Office assessed business practices at Los 
Alamos, while the Los Alamos Site Office assessed other performance 
areas. This fragmentation problem has long been recognized, including 
by the Congress. As a result, on December 20, 2002 I implemented a 
major reorganization within NNSA, abolishing a layer of management and 
placing authority and responsibility for Federal oversight in the site 
office managers, who will now report directly to my Principal Deputy. I 
expect that these changes will significantly improve the quality of 
Federal oversight.
    Mr. Chairman, let me conclude with two points. First, it is 
important to recognize that the overwhelming majority of Los Alamos 
employees--in all areas, including business services--are honest, 
dedicated, competent, and hard working. Ultimately, the value of the 
Laboratory lies not in expensive technology, but in people. The 
failures at Los Alamos are real, but they are the failures of a few. As 
we move to correct these failures, it is important to keep this fact in 
mind.
    Second, I want to reiterate Secretary McSlarrow's emphasis on the 
overriding importance of national security in all of the decisions we 
have made. In approving our report, Secretary Abraham said
          The management of the nuclear weapons complex is my most 
        important responsibility as Secretary of Energy. Under the 
        University's stewardship, the science at Los Alamos has 
        consistently been of the highest caliber. But it is important 
        that business services be as good as the science. In approving 
        your recommendations, it is my intention to make it clear that, 
        in dealing with nuclear weapons, only the highest standards of 
        performance are acceptable.
    All of us remain committed to that goal.
    Thank you for your attention and I look forward to your questions.
                                 ______
                                 
                               Department of Energy
                                       Washington, DC 20585
                                                     April 26, 2003
MEMORANDUM FOR THE SECRETARY

FROM:
  Kyle McSlarrow, Deputy Secretary
  Linton F. Brooks, Acting Administrator,
    National Nuclear Security Administration

SUBJECT: Los Alamos National Laboratory

    On December 24, 2002, you concluded that events at Los Alamos 
National Laboratory reflected a ``systemic management failure.'' 
Although this conclusion was primarily aimed at the management at Los 
Alamos itself, you also directed us to conduct an examination of the 
relationship between the University of California, as the responsible 
contractor, and the Los Alamos National Laboratory. We have also 
explored the relationship among the University of California, Los 
Alamos, and the National Nuclear Security Administration, Department of 
Energy.
    The University and the National Nuclear Security Administration 
share responsibility for allowing these problems to develop. Prior to 
November 2002, the University's supervision of Los Alamos was 
ineffective in the area of business processes. The Federal oversight 
role was limited to a mechanistic review of performance as set forth in 
the contract when, in fact, a broader, more aggressive role was called 
for, particularly in light of the problems that developed at Los Alamos 
in the late 1990s.
    Although the University was slow to take action to correct these 
failures, once it became engaged its actions were broad, forceful, and 
effective. It is difficult to see how any organization could have done 
more to deal with the problem than the University of California has 
since December 2002. Further, the University brings substantial value 
to the mission of Los Alamos, in science, recruiting, retention and 
fostering a culture of scientific skepticism and peer review. 
Therefore, given the extraordinary disruption that would flow from an 
immediate termination, we do not believe contract termination is in the 
best interests of the national security missions conducted at Los 
Alamos.
    We recommend:
 That the University of California continue to manage Los 
        Alamos through the end of the current contract in September 
        2005.
 That you direct the NNSA Administrator to examine the utility 
        of a contract modification institutionalizing some of the 
        reforms made by the University over the last few months.
 That the Department announce its intent to compete the Los 
        Alamos contract when it expires in September 2005.
 That we urge the University of California to compete for the 
        contract in 2005, perhaps in association with another entity 
        with business and project management experience.
 That you direct the NNSA Administrator to begin now to develop 
        appropriate criteria for evaluating a future competition, 
        taking into account the results of the Blue Ribbon Panel when 
        available.
 That you further direct the NNSA Administrator to ensure that 
        any future competition includes provisions for retaining the 
        current Los Alamos workforce following September 2005.
 That you reject in advance any notion of split responsibility 
        for Laboratory operations in which different contractors would 
        perform the science and business operations functions.
 That you direct the NNSA Administrator to devise a mechanism 
        to ensure that, if the University does not continue to operate 
        Los Alamos following the 2005 competition, the pension benefits 
        of all Los Alamos employees on the rolls as of September 30, 
        2005, or previously retired, are fully protected.
 That in dealing with future competitions, the Department 
        explore ways in which to not only take into account truly 
        outstanding performance but also to encourage contractors who 
        might fall short during a contract term to strive to develop 
        plans to correct problems so that they may compete and succeed.
 That you direct that all current and future contracts be 
        reviewed in order to ensure that performance reviews capture 
        the crosscutting information necessary to form a complete 
        picture of performance.
 That you direct us to continue to monitor progress and 
        subsequent information from either internal or external reviews 
        in order to provide additional recommendations as facts and 
        circumstances develop that warrant additional action.
Attachment: Complete report

 Report by the Deputy Secretary of Energy and the Acting Administrator 
     of the National Nuclear Security Administration on the Ruture 
Relationship between Los Alamos National Laboratory and the University 
                             of California
                             April 26, 2003

    Introduction. In accordance with your direction in your letter of 
December 24, 2002, we have conducted an examination of the relationship 
between the University of California and the Los Alamos National 
Laboratory. Our examination included the following:

 Review of briefings to the University Regents, internal 
        University of California reports, and similar documents between 
        2001 and the time of the relief of the Los Alamos National 
        Laboratory Director in 2003.
 Review of all relevant Inspector General and Office of 
        Independent Assessment and Oversight reports covering Los 
        Alamos. We paid particular attention to those Inspector General 
        reports covering the period since the problems at Los Alamos 
        surfaced; a list is attached.
 Review of the Appendix O process and material (Appendix O was 
        put in place during contract renewal in 2001 to correct 
        perceived security problems; it is further discussed below).
 Review of testimony given by witnesses to the Subcommittee on 
        Oversight and Investigations of the House Energy and Commerce 
        Committee.
 Interviews with former Vice President for Laboratory 
        Management, John McTague, former National Nuclear Security 
        Administration (NNSA) Administrator, General John A. Gordon, 
        and the Los Alamos Site Manager, Ralph Erickson.
 A daylong meeting with senior Los Alamos and University 
        officials at Los Alamos, including a separate meeting with 
        Federal site office management officials who have contract 
        oversight responsibilities.
 A number of meetings with Senior Vice President for University 
        Affairs Dr. Bruce Darling, who also serves as Interim Vice 
        President for Laboratory Management, along with phone calls 
        with Dr. Darling several times a week.
 A similar set of meetings and phone calls with Interim 
        Laboratory Director, Dr. George ``Pete'' Nanos, and his senior 
        staff.
 Conversations with various Regents of the University of 
        California to review our conclusions.
    This memorandum reports the results of our assessment and our 
recommendations for the future Los Alamos--University of California 
relationship.

    Background. The University of California has operated the Los 
Alamos National Laboratory since 1943 under contract with the 
Department of Energy and its predecessors. The contract has routinely 
been extended without competition, most recently in January 2001 just 2 
days before the Bush Administration took office. The University also 
operates Lawrence Livermore National Laboratory under an identical, but 
separate contract, as well as the Lawrence Berkeley National 
Laboratory. The University has traditionally regarded its management of 
the laboratories as a public service to the nation. As one indication 
of this, the University has taken the position that its operation of 
the laboratories should be revenue neutral. That is, the University 
retains no fee for operating the laboratories and seeks to use no 
University of California funding to do so. The fee paid by the 
Government is returned to the laboratories for additional laboratory-
directed research and development, after deducting the costs of that 
portion of the University Office of the President involved with 
overseeing the laboratories, paying expenses not otherwise 
reimbursable, and establishing a reserve to cover significant losses.
    During the late 1990's two major concerns arose with Los Alamos 
National Laboratory, both involving security. The first was the case of 
Dr. Wen Ho Lee, a Los Alamos scientist who was ultimately convicted of 
mishandling classified material. This case raised extensive questions 
about the adequacy of security at the Laboratory. These concerns were 
reinforced in May 2000 when two hard drives containing Restricted Data 
could not be located for an extended period of time. The hard drives 
were ultimately located in a secure area within Los Alamos, but the 
Laboratory's inability to locate them, coming on top of the concern 
raised by the Wen Ho Lee case, further exacerbated security concerns.
    Security concerns were among the reasons that Congress created the 
National Nuclear Security Administration. Despite this, no senior Los 
Alamos manager was terminated, reassigned, or demoted as a result of 
either of these incidents, although some formal reprimands were issued 
and two lower-level employees were reassigned.
    Notwithstanding these security concerns, the University's contract 
to manage Los Alamos was extended non-competitively in January 2001. 
The current contract expires on September 30, 2005. In extending the 
contract, the Department imposed a number of requirements to correct 
the perceived problems with the management of Los Alamos. The new 
requirements were codified in a separate appendix to the Los Alamos 
contract called Appendix O. An identical appendix was included in the 
contract for Lawrence Livermore National Laboratory.
    Appendix O committed the University to establish a position of Vice 
President for Laboratory Management and made the first incumbent of 
that position subject to departmental approval. It also committed the 
University to take a series of discrete steps to improve management. To 
enforce these commitments, Appendix O established a series of quarterly 
reviews between the Department, the University, Los Alamos, and 
Livermore. By its own terms, Appendix O expired on September 30, 2002. 
At that time, the NNSA, on behalf of the Department, concluded that all 
the requirements of the Appendix had been met. None of these 
requirements related to business services.
    The precipitating incidents. Beginning in the summer of 2002, a 
series of problems with business services at Los Alamos came to light. 
The problems themselves originated several months earlier, but were not 
widely recognized outside the Laboratory until the summer of 2002. 
These problems included:

 Questions concerning the effectiveness of controls over 
        Government purchase cards (credit cards). Several laboratory 
        employees (all now terminated except one, where disciplinary 
        action is pending) used a laboratory-issued purchase card to 
        make fraudulent purchases, including an attempt to purchase an 
        automobile. Actual loss to the Government was only about $3000, 
        but the massive audit conducted by the University in response 
        to the issue revealed an additional $195,246 worth of purchases 
        where documentation was inadequate or missing (some 
        documentation was destroyed in the Cerro Grande fire) along 
        with $125,000 in employee recognition awards that exceed the 
        approved DOE threshold. Although no additional cases of fraud 
        were uncovered, the University chose to reimburse the 
        Government the entire sum of both questionable items for a 
        total of about $320,000.
 A scheme by two employees (both now terminated) apparently 
        used doctored purchase orders to order material for their 
        personal use. The incident is still under investigation by the 
        FBI. The amount of the apparent theft exceeded $300,000, but 
        all but about $50,000 has been recovered. The University has 
        reimbursed the Government for the loss.
 Questions concerning the adequacy of property controls. 
        Newspaper revelations indicated that the laboratory was unable 
        to account for $1.3 million worth of controlled property, 
        including such pilferable items as computers. Although the most 
        spectacular allegations (a missing fork lift, for example) were 
        ultimately resolved, substantial amounts of property remained 
        un-located.
 The Laboratory's action in firing two investigators within a 
        few days of those same investigators raising concerns with the 
        Inspector General. You, the University and the Inspector 
        General have all stated that the Laboratory's action in firing 
        the inspectors was ``incomprehensible.'' We share that 
        assessment. While the Inspector General's investigation did not 
        substantiate the allegation that Laboratory management 
        deliberately hid criminal activity, this incident (in which the 
        University played no role) demonstrated the degree to which the 
        Laboratory's management was out of touch and ineffective.
    Taken individually, it is possible that none of these incidents 
would call into question the adequacy of Laboratory management. Taken 
in the aggregate, however, they revealed systemic weaknesses in 
business practices at Los Alamos. These weaknesses were further 
confirmed by additional Inspector General audits in unrelated areas, 
including:

 An audit of firearms control that revealed significant 
        weaknesses in procedures and accountability, although all 
        firearms were ultimately located.
 An interim audit that determined that control over laptop 
        computers was inadequate. Computers were not properly 
        controlled, not adequately safeguarded against theft, and not 
        always acquired in accordance with approved procedures. 
        Computers that could not be located were written off without a 
        formal inquiry and theft of laptop computers was not always 
        reported to the appropriate office.
 An audit of the allowability of incurred costs that assessed 
        that just over $14 million (about 0.3 percent out of the total 
        of $5.4 billion examined) was improperly charged to the 
        government under existing rules. The three areas of concern 
        were travel and conference costs not adequately documented, 
        provision of business meals, and an audit function evaluated as 
        inadequate.1
---------------------------------------------------------------------------
    \1\  Although the Laboratory has generally agreed with all the 
findings of outside audits, it disagrees with this specific audit, 
contending that virtually all the costs should be allowable. Final 
determination of allowability will be made by the Contracting Officer 
in accordance with established DOE procedures.
---------------------------------------------------------------------------
    The fact that there was not greater fraud and theft at Los Alamos 
is a tribute to the character of the vast majority of men and women 
working there, and not to the efficacy of the management systems in 
place. The actual loss to the Government could have been far greater 
and the business practices in place in 2002 would not have been able to 
identify and therefore prevent such a loss.
    There is no evidence that the lax approach to business processes 
and business issues extended to science or security. The fear that such 
practices might spread, however, was--justifiably--a primary motivation 
for insisting that the University of California move promptly to 
correct the problems.
    University of California response. The University was relatively 
slow to respond to the public allegations of business practices 
problems. University response was initially limited to providing 
assistance as requested by the Laboratory Director and did not include 
any action to ensure that the Laboratory Director was taking sufficient 
steps to examine the problem. The University engagement began in 
earnest in mid-November following the commissioning of an Inspector 
General investigation (requested by the Laboratory) and a series of 
increasingly embarrassing press accounts. University engagement 
increased still further following the intervention of the Secretary of 
Energy in November and December 2002.
    Once the University became engaged its actions were broad, 
forceful, and effective. The University made significant personnel 
changes in Laboratory management, including accepting the resignation 
of the Laboratory Director, terminating the Principal Deputy Director, 
and transferring, downgrading, or terminating 16 other officials 
including the Chief Financial Officer, Laboratory Auditor, Security 
Office Director, and the heads of the procurement and purchase card 
programs. Given the size of the Los Alamos management team, these 
represent sweeping changes.
    The University mobilized substantial auditing resources to examine 
issues in depth. It used teams of extremely senior officials to 
investigate the issues. University senior officials (for example the 
University Auditor) essentially devoted full time to Los Alamos issues. 
The University permanently subordinated the Laboratory auditor to the 
University Auditor and temporarily subordinated all Laboratory business 
functions to the University Vice President for Financial Management. It 
directed a series of external reviews by Ernst and Young, 
PriceWaterhouseCoopers, and a team headed by a former DOE Inspector 
General. These were major reviews; the Ernst and Young review, for 
example, involved 20 people at the Laboratory. It is difficult to see 
how any organization could have done more to deal with the problem than 
the University of California did after about mid-December 2002. In 
particular, we have been impressed with the performance to date of both 
the Interim Vice President for Laboratory Management, Dr. Bruce 
Darling, and the Interim Los Alamos Director, Dr. George ``Pete'' 
Nanos.
    The University's steps were not limited to Los Alamos. Although we 
did not investigate actions at other laboratories, the University 
appears to have been vigorous in taking the lessons from Los Alamos and 
applying them to the Lawrence Livermore and Lawrence Berkeley National 
Laboratories. The University required these Laboratories, as well as 
the University auditor, to examine their own internal procedures to 
ensure similar problems did not arise elsewhere. The University also 
used senior officials at these Laboratories to assist at Los Alamos.
    The University and the new Laboratory leadership are viewing the 
necessary improvements broadly, not narrowly. Although the specific 
issues that came to light in late 2002 dealt with business practices, 
the University and the Interim Laboratory Director are taking the 
opportunity to look at Laboratory practices in all areas, including 
project, program, environmental, procurement, and nuclear facilities 
management. While the responsibility for implementing this broad 
approach belongs to the Interim Director, the University selected that 
Director and has been strongly supportive of examining all areas of Los 
Alamos management. This increases the chance that the changes being 
made will endure.
    Finally, the University is in the process of putting in place a new 
governance model involving strengthened internal management and 
oversight and a strong external governing Board with members having 
strong backgrounds in industry, defense and science. The new Board will 
have some of the responsibilities of the Regents and will be able to 
hold both the University administration and Laboratory Management 
accountable. We are not yet able to evaluate the efficacy of this new 
governance model, but it is a clear indication that the University sees 
its task not simply as implementation of a temporary ``get well'' 
program but as a transformation of its model of oversight.
    The cause of the problems. Our review suggests that there are 
multiple causes of the failure of business systems at Los Alamos:

 Prior to November 2002, the University's supervision of Los 
        Alamos was ineffective in the area of business processes. 
        University supervision was almost entirely focused on other 
        areas including science, security, environment, and project 
        management. Briefings to the Regents never discussed business 
        practices nor was the subject a focus of the former Vice 
        President for Laboratory Management. Internal documentation 
        relating to University oversight in this period is silent on 
        business practices.
 The Department of Energy and the NNSA's direct Federal 
        oversight was narrowly focused on specific performance measures 
        called out in the contract, rather than on overall 
        effectiveness. Appendix O was focused on issues other than 
        business services. Most discussions were in areas of safety or 
        of having Los Alamos and Livermore work together. NNSA's own 
        supervision focused on areas such as safety and security, 
        rather than business services and tended to assess performance 
        within ``stovepipes,'' while many of the actual problems were 
        failures of appropriate connections between stovepipes. A 
        division of responsibility between the Los Alamos Site Office 
        and the former Albuquerque Operations Office further weakened 
        NNSA oversight, with oversight of business practices coming 
        almost exclusively from Albuquerque.2
---------------------------------------------------------------------------
    \2\ The NNSA reorganization implemented in December 2002 is 
designed to centralize responsibility to the Site Manager and thus 
avoid this fragmentary oversight in the future.
---------------------------------------------------------------------------
 In hindsight, warning signs may have been ignored. Following 
        the Dr. Wen Ho Lee and hard drive incidents, neither the 
        Laboratory, the University, NNSA, nor the Department examined 
        whether broader problems existed at Los Alamos. For years, 
        there has been general acknowledgement of a ``Los Alamos way'' 
        that was unique and that devalued business practices. 
        Evaluations of Los Alamos in recent years always showed it 
        slightly inferior in overall performance to the other two 
        weapons laboratories, but never by enough to cause strong 
        concern. Because there was no precipitating event, no one at 
        any level acted on these indicators.
 Cultural problems beyond the control of the University or the 
        Department played an important role. The Los Alamos culture 
        exalted science and devalued business practices. Changing this 
        culture will be the most difficult long-term challenge facing 
        the Laboratory no matter who manages it.
    The value of the University. In evaluating our options, it is 
important to recognize that the University brings substantial value to 
the mission of Los Alamos, in both obvious and less obvious ways. 
Stockpile Stewardship and other Los Alamos missions depend on 
attracting and retaining world-class scientific talent. The academic 
prestige of association with a world-class university is of clear 
benefit in both recruiting and retention.3 In addition, 
there are formal agreements for scientific cooperation with four of the 
component campuses of the University of California. These areas of 
cooperative research directly advance the scientific mission of the 
Laboratory.
---------------------------------------------------------------------------
    \3\ At least some prospective employees at both Los Alamos and 
Livermore in recent months have stated that they were uninterested in 
affiliating with a national laboratory that is not connected with the 
University. We lack data on how extensive this belief is.
---------------------------------------------------------------------------
    Finally, an important, little-noted benefit of the University is to 
foster a culture of scientific skepticism and peer review. This 
attitude, both within the Laboratory and between Los Alamos and 
Lawrence Livermore National Laboratories, is absolutely crucial to the 
success of the Stockpile Stewardship Program and to the ability to 
certify the stockpile. A senior laboratory official at Los Alamos has 
told us, for example, that the culture of peer review is the only thing 
that allowed the successful dual revalidation of the W76 warhead 
conducted a few years ago.
    In addition to the actual value that the University brings, an 
important consideration is the widespread perception among Laboratory 
employees at both Los Alamos and Lawrence Livermore National 
Laboratories that the University association is critical to the mission 
of the Laboratory. Examples of this perception abound and have been a 
constant theme of our discussions with laboratory employees. We 
received petitions from 2,500 Los Alamos employees and 3,000 Livermore 
employees stressing the value of the University association. We 
received a similar, separate communication from the Los Alamos Fellows, 
those senior scientists at Los Alamos not part of management. We have 
reviewed public statements by distinguished figures such as Edward 
Teller, arguably the most famous living nuclear weapons designer. Even 
if we disagreed with these assertions of the University's value (which 
we do not), we need to take account of the widespread perception among 
the people who actually carry out the important national security 
mission of the Laboratory that the University association is critical 
to that mission.
    At the same time, the national security missions carried out at Los 
Alamos require the total confidence of Congress and the public as well 
as of Los Alamos employees. An erosion of that public trust undermines 
not only the University but our national security as well. Our 
recommendations are, therefore, premised on a view that ensuring public 
confidence is merited is crucial for our country, the University and 
Los Alamos.
    Problems with immediate termination. We are aware of forceful calls 
that the University contract with Los Alamos be terminated immediately. 
While the University can be faulted for having allowed the problems to 
develop, we believe that immediate termination would undermine the 
national security mission at the lab without measurably addressing the 
problems that Los Alamos faces today. Further, the Department, and 
since its creation, the NNSA, share responsibility for lax oversight of 
business practices. In our view, immediate termination is undesirable 
for several reasons. Such a step would be highly disruptive to the 
things that are going well at Los Alamos, especially science. It would 
also hamper the implementation of the internal reforms the University 
has put in place. Immediate termination would lose the very real 
benefits of the University association and, because of this, would be 
devastating to morale.4 Finally, any decision for immediate 
termination would almost certainly have a counterproductive effect on 
other contractors facing similar problems in the future. If this 
vigorous get well program put in place by the University leads only to 
termination, no future contractor will have any incentive to put this 
much of an effort into remediation of major problems.
---------------------------------------------------------------------------
    \4\ The prospect of termination may already have had an adverse 
effect. As of April 8, 266 Los Alamos employees (68 with critical 
skills) have applied for retirement. In contrast, there were only 177 
retirements during all of 2002. Retirement requests at Livermore are 
currently running at roughly twice the 2002 rate.
---------------------------------------------------------------------------
    Recommendations. Based on the above, we recommend:

 That the University of California continue to manage Los 
        Alamos through the end of the current contract in September 
        2005. The vigorous action the University is taking to correct 
        the problems uncovered at Los Alamos, the significant value the 
        University brings in the area of science, and the significant 
        disruption to the mission of the Laboratory and the morale of 
        the employees from early termination all make retaining the 
        University through the end of the current contract the most 
        appropriate course. Termination of the contract would not 
        improve the management of Los Alamos in the near-term; the 
        University appears to be fully engaged in an effective and 
        comprehensive program.
 That you direct the NNSA Administrator to examine the utility 
        of a contract modification institutionalizing some of the 
        reforms made by the University. If the University continues to 
        operate Los Alamos through 2005, it will be important to ensure 
        that the current momentum for improvement continues. Some 
        institutionalization of the reforms may assist in this area. We 
        believe that discussions between Los Alamos, the NNSA, Los 
        Alamos Site Office, and the University are necessary before 
        determining exactly what changes require codification.
 That the Department announce its intent to compete the Los 
        Alamos contract when it expires in September 2005. Given the 
        Department's and the Administration's strong preference for 
        competition, and the widespread nature of the problems 
        uncovered at Los Alamos, it is difficult to argue for any other 
        course of action. Because the question of competition for 
        National Laboratories is the subject of your recently chartered 
        Blue Ribbon Panel, the mechanics of implementing this decision 
        should take into account the results of the Panel's 
        report.5
---------------------------------------------------------------------------
    \5\ The Blue Ribbon Panel, formally the ``Blue Ribbon Commission on 
Use of Competitive Procedures at the Department of Energy 
Laboratories,'' was established on January 3, 2003 as a subsidiary body 
to the Secretary of Energy Advisory Board. It is tasked with examining 
the Department's policy on competition for management of national 
laboratories and is expected to make its report by July 2003.
---------------------------------------------------------------------------
 That we urge the University of California to compete for the 
        contract in 2005, perhaps in association with another entity 
        with business and project management experience. The University 
        has brought immense benefits to the Laboratory and the country 
        over the past 60 years. It is important to note that a decision 
        to compete is not a repudiation of the University, but simply a 
        recognition that the University's performance in the area of 
        business management did not rise to the exceptionally high 
        standards required to override the presumption of competition 
        in Department orders.
 That you direct the NNSA Administrator to begin now to develop 
        appropriate criteria for evaluating a future competition, 
        taking into account the results of the Blue Ribbon Panel when 
        available. The results of the competition in 2005 should 
        preserve the many advantages offered by a world-class academic 
        institution while also ensuring continuation of the reforms now 
        being initiated and strengthening business functions. Devising 
        the proper criteria to achieve these results while avoiding 
        unforeseen consequences will be complicated and should begin at 
        once.
 That you further direct the NNSA Administrator to ensure that 
        any future competition includes provisions for retaining the 
        current Los Alamos workforce following September 2005. The 
        staff of Los Alamos is a national treasure that must be 
        preserved. It is important to establish now that a competition 
        in 2005 will not result in a changed workforce. Otherwise we 
        will face both a serious morale problem and the prospects of a 
        significant exodus of staff in the mistaken belief that their 
        jobs are at risk.
 That you reject in advance any notion of split responsibility 
        for Laboratory operations in which different contractors would 
        perform the science and business operations functions. Some 
        have argued for having the science and business portions of the 
        Laboratory supervised by different contractors. We urge you to 
        reject this approach. While the University might well benefit 
        from a partnership with industry, the Laboratory Director 
        should not report to two entities. Further, the Interim 
        Laboratory Director believes that a major part of the problem 
        at Los Alamos is fragmentation between the science and business 
        communities within the Laboratory. A dual reporting approach 
        would make this problem worse, not better.
 That you direct the NNSA Administrator to devise a mechanism 
        to ensure that, if the University does not continue to operate 
        Los Alamos following the 2005 competition, that the pension 
        benefits of all Los Alamos employees on the rolls as of 
        September 30, 2005, or previously retired, are fully protected. 
        While the Los Alamos employees who have contacted us are 
        generally concerned about the impact on science and mission of 
        losing the association with the University of California, many 
        are also concerned with their benefits under the University's 
        pension system. It is important to reassure employees, that, 
        regardless of the outcome of the future competition, those 
        benefits will be protected. Otherwise, we could face a 
        significant challenge to morale and, potentially, a devastating 
        exodus of the most experienced employees.
 That you direct us to continue to monitor progress and 
        subsequent information from either internal or external reviews 
        in order to provide additional recommendations as facts and 
        circumstances develop that warrant additional action.
    Lawrence Livermore National Laboratory. The University of 
California also manages the Lawrence Livermore National Laboratory 
under a separate, but essentially identical, contract as the contract 
with Los Alamos. Our review did not explicitly cover Lawrence Livermore 
National Laboratory and we believe that there is no need to make even a 
preliminary decision on whether to extend or compete the Lawrence 
Livermore contract when it expires in September 2005. Such a decision 
can clearly be deferred and can await, among other things, the results 
of the recently established Blue Ribbon Panel. There is no legal reason 
why the Department could not choose to compete the Los Alamos contract 
and extend the Lawrence Livermore contract, and the Secretary should 
continue to hold that option open.
    Additional issues. An important aspect of the problems of Los 
Alamos has been the potential loss of Congressional and public trust 
resulting from the revelations of the serious management deficiencies 
at the Laboratory. This problem was exacerbated by two factors:

 The current Government rules on property accountability 
        significantly overstate the value of the unaccounted for 
        property. Government rules require that property be carried at 
        its original cost. Thus, for example, an obsolete computer that 
        would not fetch $50 at a yard sale is carried at its original 
        purchase value of several thousand dollars. A 35 year-old 
        forklift, which any business would have written off as an asset 
        through depreciation years ago, is carried at its original 
        cost. As a result, the apparent dollar value of un-located 
        property overstated the actual magnitude of the problem and 
        diverted the attention from the more systemic problems. The 
        Secretary should direct that the Department seek authority to 
        revise government property accounting rules to be more 
        consistent with those used in the private sector.
 The grading system at Los Alamos, adapted from other 
        Government systems, is based on a scale of Outstanding, 
        Excellent, Good, Satisfactory, and Unsatisfactory. This scale 
        suffers from what might be called ``rhetorical grade 
        inflation.'' Thus, a mark of ``Excellent'' conveys a sense of 
        exceptional performance, when, in fact, it is used for routine 
        performance. The Secretary should direct that in future 
        contracts the NNSA Administrator use a descriptive system that 
        will more accurately reflect the intent of a particular grade.
    The grading problem is simply one example of a broader set of 
concerns raised over the issues relating to competition of Federally 
Funded Research and Development Centers such as Los Alamos. Although it 
was not specifically established with any one facility in mind, the 
Blue Ribbon Panel discussed above was created in part because it became 
clear that any decision to compete was increasingly perceived as a 
repudiation of an incumbent contractor. This is a view that has 
undoubtedly grown over many decades, but it has had unfortunate 
consequences. Incumbent contractors view their choices as being either 
a series of contract extensions, or loss of the contract. As a result, 
incumbent contractors often assert that they will be unwilling to 
participate in a competition.6 We recommend that the 
Department explore ways in which to not only take into account truly 
outstanding performance but also to encourage contractors who might 
fall short during a contract term to strive to develop plans to correct 
problems so that they may compete and succeed.
---------------------------------------------------------------------------
    \6\ The wide spread perception that no incumbent DOE contractor has 
ever prevailed in a competition is one manifestation of this attitude. 
The perception is wrong. There are at least four instances where 
incumbents have retained contracts following competition, including one 
Federally Funded Research and Development Center (National Renewable 
Energy Laboratory). Still, the perception exists and needs to be 
dispelled.
---------------------------------------------------------------------------
    An equally important concern is the overall ``stove piped'' nature 
of the NNSA evaluation system in place at Los Alamos (and elsewhere). 
The contract entered into in January 2001 established a performance 
review process that considered individual areas in isolation. By 
failing to consider relationships between different processes, it 
failed to detect overall systemic problems and thus failed to capture 
the type of management failures that we are addressing in this 
memorandum. As a result, the performance review process assigned an 
``Excellent'' rating to the Laboratory management almost simultaneously 
with the Secretary of Energy stating publicly that there was a 
``systemic management failure.'' We therefore recommend that all 
current and future contracts be reviewed in order to ensure that 
performance reviews capture the crosscutting information necessary to 
form a complete picture of performance.7
---------------------------------------------------------------------------
    \7\ Recent changes in NNSA evaluation procedures are designed to 
ensure a focus on broad management issues. It is important that these 
changes be pursued vigorously.
---------------------------------------------------------------------------
    Concluding observation. We believe it is important to recognize 
that the overwhelming majority of Los Alamos employees--in all areas, 
including business services--are honest, dedicated, competent, and hard 
working. Ultimately, the value of the Laboratory lies not in expensive 
technology, but in people. The failures at Los Alamos are real, but 
they are the failures of a few. As we implement changes, we urge that 
all levels of the Department emphasize this fact at every opportunity.
                  Inspector General Reports consulted
Completed reports

------------------------------------------------------------------------
           Report Number                      Title          Date Issued
------------------------------------------------------------------------
L-03-06............................  Recruitment and          11/27/2002
                                      Retention at the Los
                                      Alamos and Lawrence
                                      Livermore National
                                      Laboratories.
S02IS013...........................  Inspection of 2001       01/12/2003
                                      Safeguards and
                                      Security Survey of
                                      Los Alamos National
                                      Laboratory.
IG-0584............................  Special Inquiry:         01/28/2003
                                      Operations at Los
                                      Alamos National
                                      Laboratory.
IG-0587............................  Inspection of Firearms   02/21/2003
                                      Internal Controls at
                                      Los Alamos National
                                      Laboratory.
IG-0591............................  Allegations Concerning   03/20/2003
                                      the Reporting of a
                                      Radiological Incident
                                      at LANL.
IG-0596............................  University of            04/16/2003
                                      California's Costs
                                      Claimed And Related
                                      Internal Controls for
                                      Operation of Los
                                      Alamos National
                                      Laboratory.
IG-0597............................  Inspection of Internal   04/24/2003
                                      Controls Over
                                      Personal Computers at
                                      Los Alamos National
                                      Laboratory (Interim
                                      Report).
------------------------------------------------------------------------

Reports not yet made public but where we have reviewed draft findings
    The Dual Axis Radiographic Hydrodynamic Test Facility (Draft 
Report)
Ongoing reports to which we have not yet had access 8
---------------------------------------------------------------------------
    \8\ We have no reason to believe that any of the ongoing 
investigations and audits would change the recommendations of this 
report.
---------------------------------------------------------------------------
    LANL's Nuclear Materials Stabilization Program
    Various Law Enforcement Sensitive reports on criminal activity

    Mr. Greenwood. Thank you, Ambassador.
    The Chair recognizes himself for 10 minutes for the purpose 
of inquiry.
    From the Wen Ho Lee situation in 1999 to the missing hard 
drive management failures at Los Alamos, consistent gender and 
minority employment discrimination lawsuits, billion dollar 
cost overruns and the most recent allegations of 
counterintelligence and business operations problems, the 
University of California has faced a variety of challenges in 
its management of its national laboratories over the past 5 
years. A question for both of you gentlemen is what caused DOE 
and NNSA to finally decide to compete the Los Alamos contract? 
What was the proverbial straw that broke the camel's back? What 
was the most important consideration in the decision to pursue 
competition?
    Mr. McSlarrow. There were a number of factors, but in terms 
of isolating the central precipitating factor I would say it 
was a recognition that the management itself at Los Alamos was 
not on top of the problems and a recognition that, if that were 
true, it required the university to step up to the plate and 
insure that it was fixed; and we didn't see that. That's 
something that took place over a period of meetings and 
discussions last fall.
    This country made a decision fundamentally a long time ago 
that this kind of big-time science and national security work 
is going to be done with contractor-operated facilities, and 
that places an enormous burden on the actual management of any 
facility and the contractor who's responsible for oversight. So 
it's hard to isolate a particular incident, but I think that 
would be the central point.
    Mr. Brooks. I would add, Mr. Chairman, that in some ways 
the focus on particular incidents is what got us into this 
problem, that the incident standing alone can be looked at and 
there are reasons for each of them. The problem has been that 
the aggregate revealed a broad pattern of management problems, 
and I think that probably was the most important recognition 
and that's what in my statement I alluded to, trying to focus 
our future oversight more on interrelations and broad issues 
rather than dealing on an incident-by-incident event. So I 
think it was the interrelationship of everything, rather than 
any specific incident that, at least in my mind, led to this 
conclusion.
    Mr. Greenwood. Mr. Ambassador, you, in your opening 
statement, referred to the culture at the lab and said that 
that is the most difficult thing--the most difficult challenge 
is to change that culture. A culture like that does not develop 
in a vacuum. It develops fundamentally, it seems to me--I think 
it's human nature for cultures to develop when there are no 
consequences either in sufficient oversight or no consequences 
to actions. We hold the management at the lab responsible for 
that. We hold the university responsible for that. We also have 
to hold the Department responsible for that.
    Now I know that the top management of the Department 
changes with elections. But who were the folks who have been 
consistently at the Department whose job it was to provide this 
oversight? And what consequences do they face?
    Mr. Brooks. Mr. Chairman, I believe that the problem with 
the Department oversight was not primarily failure of 
individuals but failure of structure.
    Mr. Greenwood. Well, somebody has a responsibility to 
create that structure. An individual has the responsibility to 
create that structure.
    Mr. Brooks. Yes, sir, I do; and that's what I'm doing. And 
that's what my predecessor had determined to do. So we had a 
structure in NNSA which Secretary Abraham and Deputy Secretary 
McSlarrow inherited and my predecessor inherited when he 
started to stand up NNSA in which there was confused roles and 
responsibilities between headquarters and the field and 
multiple layers of organization within the field; and, 
therefore, it is not possible to point with certainty to the 
single individual. We're changing that. We're right now looking 
forward.
    You point to two people. You can point to me, and I can 
point to my site manager, and everybody else in my organization 
is supposed to support one or the other of us. So I have not 
attempted to go back and identify specific individuals in the 
past, because I think the problems in the past were 
organizational and structural and that's the reason we are in 
the process of implementing this major reorganization that we 
announced in December.
    Mr. Greenwood. I think you said that there was not a focus 
on business management. Did you mean to say that the University 
of California was not focusing on business management or the 
Department was not focusing on business management?
    Mr. Brooks. The university was not focused on business 
management. And, to be fair, in looking back at our 
interactions with the university since this administration came 
in, I don't think we were encouraging them to focus on business 
management. We were----
    Mr. Greenwood. Well, in fact, they were rated on business 
management; and I think they were given an excellent rating.
    Mr. Brooks. They were.
    Mr. Greenwood. So I guess what I'm trying to figure out, is 
it that no one was focusing on it? Is it that a review that 
granted them an excellent rating, was that--in retrospect, was 
that a cursory and superficial review? How can you rate--how 
can you rate--decide to rate business management, rate it 
excellent and then our committee staff over a short period of 
time takes a cursory look and finds the kinds of things that we 
found.
    Mr. Brooks. Because we were using a mechanistic approach 
which set up criteria; and if you met those criteria, didn't 
look at whether they tracked with other criteria and didn't 
look back to say are you doing a sensible result. So that our 
problem with the former rating system was that it was narrow 
and stove-piped.
    Mr. Greenwood. Let me ask you this question. How many labs 
does the Department oversee?
    Mr. Brooks. The Department oversees 10; the National 
Nuclear Security Administration oversees three of those.
    Mr. Greenwood. Okay. Is what's true--just in talking about 
the way reviews are conducted, whether they're mechanistic, 
whether they can be described otherwise and whether they are 
adequate or not, does that apply to the other labs for which 
the Department has responsibility? Are their things done 
differently?
    Mr. Brooks. I can only speak for the two other labs which I 
have responsibility for, and I'll let the Deputy speak for the 
rest of the Department.
    The system at Livermore is essentially identical to Los 
Alamos both in its past and in its future. The system at 
Sandia, because that's a separate contract, is comparable; and 
in all of those cases we are moving to a broader new method of 
oversight.
    Evaluation, in my opinion, always walks between two 
dangers. One is, if you try to be very, very objective, 
quantifiable, X percent of that, Y percent of this, you can 
lead to a result where you're not looking at the connections 
between areas. That's the problem we're in now. The other thing 
is, if you use broad, subjective judgment, you run the risk of 
that judgment being influenced by external factors. What we are 
trying to do now is apply broad subjective judgment but in 
areas where we can actually tell.
    I believe that the system that we have put in place with 
Appendix F with the University of California, the new model of 
oversight that we are putting in place with the Federal 
employees is going to be substantially better. But we'll know 
that better in a year. We'll know that really well in 2.
    So I think we are moving in the right direction, but I 
don't want to assert that I can prove that all the problems are 
solved because I can't prove that yet.
    Mr. Greenwood. Well, to make it very simple, we in the 
Congress are responsible to make sure, and particularly this 
committee, that taxpayers get the most bang for the buck.
    Mr. Brooks. Yes, sir.
    Mr. Greenwood. I think what everybody said is the bang is 
pretty good. Okay. The science, the work that's done there has 
been excellent. But its stewardship of the taxpayers' dollar 
has not. And I think what we're looking for not only at Los 
Alamos about across the board is that the Department of Energy 
has in place individuals who get up in the morning and think 
about whether or not the taxpayers dollars are being well 
protected there and not used like monopoly money but used like 
the hard-earned dollars that the taxpayers provide to the 
project.
    Mr. Brooks. At the three labs that I supervise I'm 
confident I have people like that because I picked them.
    Mr. Greenwood. Okay. Let me just let the Deputy Secretary 
respond with regard to the supervision of the other labs.
    Mr. McSlarrow. Like the Ambassador, I'm confident that we 
have the right people who get what you just said. The Secretary 
has made very clear to me and I've made very clear to everybody 
else one of the things that we were not happy with when we came 
into office was a lack of line management control.
    We've made a number of organizational changes. Obviously, 
the most difficult was NNSA, standing up that organization, but 
we've made great strides. But it's been true on the other side 
of the Energy Department as well; and I know exactly who to go 
to and who's responsible for these kinds of decisions. The 
President, through his management agenda and what we've done in 
terms of contract management, have made a number of changes 
that lead me to be very confident. That's not to say we're not 
going to have any problems. But if you're going to have 
problems, you've got to identify them early, and you have to 
fix them. You've got to know who's responsible, and I think 
we're well on our way to achieving that.
    Mr. Greenwood. The Chair recognizes the gentleman from 
Florida for 10 minutes.
    Mr. Deutsch. Thank you, Mr. Chairman.
    Thank you, Ambassador Brooks, and thank you for your 
personal work and your staffs' work on the enriched uranium 
issue. I appreciate your help.
    Ambassador Brooks, it appears that you and Mr. McSlarrow 
think that most of these problems were of relatively recent 
origin, even though the DOE Inspector General has been bringing 
business control problems to DOE's attention for years. For 
example, the Inspector General said in 2000 and 2001 that it 
could not sign off on the allowability of costs for Los Alamos. 
Where was DOE, where was NNSA at that point in time?
    Mr. Brooks. I tried to say in my statement that, in 
hindsight, there were a number of warning signs where the 
reaction was to deal with the specific problem and not look to 
see if it was systemic. And the answer is that, in failing to 
look and see if we had systemic problems, we were not where we 
should have been.
    On the other hand, with the greatest respect, 2001 was a 
different leadership team, and so I wasn't there, and I don't 
want to try and characterize why people made particular 
decisions that they made.
    We have been trying to look at this broadly. We have looked 
at the past Inspector General reports, and that's one of the 
things we discovered, was this pattern.
    Mr. Deutsch. Right. I guess the question, though, is that 
the IG--this is not the first year that the IG has not signed 
off and, you know, acknowledged these problems. And I guess the 
question in 2000 and 2001 also is why should we believe that 
this year is going to be any different than the prior 2 years?
    Mr. Brooks. I don't think you should. I don't think there 
is any reason for you to. I think you should wait for a year 
and see because you're going to be able to tell by then.
    As I attempted to make clear in my opening statement and as 
the university has made clear in its discussion, we are 
beginning a process. None of the witnesses you hear today will 
suggest that we have, ``solved the problems at Los Alamos.'' 
What we will suggest, I believe, is that we are on the right 
direction to solve them with the right management attention and 
the right sense of urgency. But as both you and the chairman 
commented in your opening statement, it took us a long time to 
get here and I think it is going to take us a while to get off. 
So I can't speak for failures before I got here. All I can tell 
you is that Secretary Abraham has made it very clear to me, Mr. 
McSlarrow has made it very clear to me that he doesn't expect 
us to fail this time. And I spent a long time in the military. 
I understand direct orders very well.
    Mr. Deutsch. Right. Appendix O agreed to in 2000 which was 
supposed to fix all problems included a provision that the Vice 
President of Management was supposed to implement best business 
practices in support of core mission requirements. We didn't 
find any evidence that Dr. McTague made any attempt to do this, 
nor do we find any evidence that DOE followed up on this 
requirement. Can you explain the response--your response of 
allowing the university's activity or no follow-up on this 
issue?
    Mr. Brooks. I think you've just quoted my statement, sir. 
That's exactly the problem, that neither the university nor we 
followed up on that part. And I can't explain it. I mean, in 
hindsight, knowing where we are now, we should have been more 
vigorous on that. We were focused--in our minds, on the 
problems that led to Appendix O were primarily in other areas, 
and that's where we focused.
    I think the lesson that you get out of this is that high-
level attention tends to fix problems. We focused on problems 
of security, and largely those problems have improved. We 
didn't focus on business services.
    The idea of the new model of oversight is to make sure we 
focus on everything. One of the things we have to do that we 
have not yet done that is alluded to in our report is look to 
see whether we need to change the contract, including Appendix 
F, to make sure we don't fall into that trap again.
    Mr. Deutsch. Okay. I think this is a really different 
question, and I'm just trying to get to the same failures that 
occurred. Can you explain to us why DOE didn't seem to care 
about the lack of independence of the lab's auditors and its 
failure to complete literally hundreds of audits on time?
    Mr. Brooks. No, I can't explain that, sir. And let me tell 
you what I can say. As you know, while it's a matter of some 
dispute in terms of cost allowability terms, the Inspector 
General has consistently found that the audit function at the 
lab was ineffective. The university has found that. I cannot 
explain now, of my own knowledge, why we didn't stumble on that 
fact earlier. I mean, in hindsight, it's glaringly obvious; and 
I can't explain why my oversight didn't find that.
    Mr. Deutsch. All right. Thank you.
    Mr. Greenwood. The Chair recognizes the gentleman from 
Oregon for 10 minutes for questioning.
    Mr. Walden. Thank you very much, Mr. Chairman.
    Ambassador, you've recommended that Los Alamos contract not 
shift between science and--not be split, I mean, between 
science and management. My understanding is that there are 
other national labs like Oak Ridge and even Hanford out in the 
Northwest, for example, that have managed to sever significant 
portions of their management responsibilities among different 
contractors. Why is it that you've rejected that concept out of 
hand at the beginning? Or Mr. Secretary.
    Mr. McSlarrow. If I could just--because I'm much more 
familiar than the Ambassador with those other sites. I would 
say while the site may actually have some different 
contractors, when you look at a lab and the facility that's 
doing the science there they do have a contractor who has 
integrated business and science. So what's different about Los 
Alamos, for example, is it's the same contractor at the same 
site and all the missions are all there. As you well know, at 
Hanford and sites like that, you've got a lot of different 
things going on. At least for the Los Alamos lab it is 
integrated.
    Mr. Walden. But you don't think that could happen. You 
don't think it makes any sense to look at----
    Mr. Brooks. No, because the mission is so integrated at the 
lab, I don't. And I do believe, as I tried to say in my opening 
statement, that if the problem is that science and business 
services are not connected, you don't solve that problem by 
having them report to different people. You solve that problem 
by having the people they report to value both of them as the 
interim laboratory director does now and then by having the 
overall management be somebody who has expertise in both of 
them.
    Now our report, in urging the university to compete for the 
contract, acknowledges that it may want to bring in some kind 
of partner. But that's a decision for the future. So I don't 
mean to reject drawing on outside expertise, but these are at 
the macro level single mission laboratories, and I think they 
need to be run by a single person.
    Mr. Walden. All right. In your statement, apparently to 
committee staff, you said you were trying to work around the 
problems related to the costs of bidding on a project the size 
of Los Alamos and that you wanted all the entities who bid to 
be on a level playing field. I've heard estimates that it may 
cost as much as $25 million to simply bid on this contract. Is 
that an accurate number, a ball park number and how would you 
work around that?
    Mr. Brooks. That is a higher figure but not dramatically 
higher than estimates I have heard. I've heard numbers more 
like 10. But large procurements are very expensive. We believe 
that it is possible to find the mechanism which would allow the 
university to compete without--the university's operation of 
the lab financially has all been on a cost-neutral basis.
    Mr. Walden. I understand.
    Mr. Brooks. The State doesn't make any money off of it. The 
State doesn't spend any money. The current rules on what the 
university can use retained earnings for were drafted in an era 
when, as several of your colleagues stated, there was a de 
facto assumption that this was going to go on noncompetitively 
forever.
    We believe that it is quite possible to modify those rules, 
but when you're dealing with things that involve procurement 
regulations and law, I really am reluctant to get into any kind 
of detail in an area in which I lack expertise.
    One of the reasons I want to start now is to make sure 
that, on the one hand, I'm positive I can do this. But I can do 
it in a way that is both seen and actually is fair to both the 
incumbent contractor and somebody else who wants to do it. A 
level playing field means just that to us.
    Mr. Walden. I guess as I read some of the information here 
today from--I think it was the Secretary, perhaps, and the 
documentations or the memorandum from the Deputy that I just 
wondered, if I'm a university taking a look at this or some 
other group taking a look at this contract, do you think what's 
written here basically says that the University of California 
has done a great job or a good job, has addressed the 
management problems--I mean, I read that in here--and should be 
encouraged to reapply? Would those be words of discouragement 
to anybody else taking a look at it if, in fact, they have got 
to also roll the dice on maybe $10 million or more? I mean, is 
it a----
    Mr. Brooks. Well, they're not intended to be.
    Mr. Walden. But if you were an outside person looking at 
this and read that----
    Mr. Brooks. But it is true, sir, that while we need someone 
who can run--as the Chairman said, and can make sure the 
taxpayers' money is being spent efficiently, this is big 
science. This is enormously complex science. We are dealing 
with conditions in the nuclear world that don't exist in nature 
except on the sun, and so you need someone to understand how to 
run big science. That doesn't mean it has to be the University 
of California. It doesn't even mean it has to be a university. 
But it does mean that people who don't understand how to run 
big science are not likely to be appropriate competitors.
    We intended those words to make it clear that the deck is 
not stacked in either direction. But we also intend them to say 
that we'd like very much to have the university in the mix 
because, if the university prevails, that's good. If the 
university doesn't prevail, it will be because somebody is even 
better at mixing, running big science and running as a wise 
stewardship the taxpayers' money; and then that's good for the 
country, too.
    Mr. Walden. Is it your view then that the university system 
has done the job on the science side?
    Mr. Brooks. Yes, sir.
    Mr. Walden. Has had some management issues that they need 
to address and maybe have addressed now?
    Mr. Brooks. Well just as with me, the jury is still out on 
the permanence and efficacy of the reforms. I don't think, and 
I'm pretty sure that my university colleagues will say this, 
nobody should believe that when we walk out of this hearing 
today, the effort to put Los Alamos back on the management 
footing it should be on is over. We need to be vigilant. The 
university has given every indication that they intend to be 
vigilant. But I do believe--for the very reason that we didn't 
recommend termination, the university has certainly shown that 
it has the capability and the assets and the desire to deal 
with these problems, and I do not want to preemptively cut the 
Nation off from having that in the mix in 2005.
    Mr. Walden. As you prepare the Los Alamos bid, how far down 
the management structure at the lab do you expect potential 
bidders to go?
    Mr. Brooks. I don't have the foggiest idea, and I don't 
mean to be flip about that. In the normal course, we would be 
having the discussion of whether to compete next year, and then 
we would be working on the details. And so what we have decided 
is to move that decision forward by a full year, decide how we 
are going to compete so that we have plenty of time to work out 
the details.
    Mr. Walden. You have 30 months before the next contract 
expires. I am sure you don't want a lapse in the science and 
activities at the lab?
    Mr. Brooks. No, sir.
    Mr. Walden. How far down do you go, and when do you 
contract out?
    Mr. Brooks. We have only a single example, and if you look 
at Sandia Laboratory, when the contractor there changed, there 
were replacements sort of at the senior manager level, but at 
Sandia, like at Los Alamos, like at Livermore, people rise up 
primarily in the science, and for that matter in the business 
area, and so most of the people were retained. It is a 
customary thing in large procurements in this Department and in 
others that the overwhelming majority of the workforce would be 
retained, and particularly important in the nuclear weapons 
area because there aren't any substitutes. But I can't answer 
that, but if you look at 8,000 employees at Los Alamos, the 
percentage is going to be--who I would expect to change--
regardless would be small.
    Mr. Walden. When do you think the contract would be ready 
to put out for bid?
    Mr. Brooks. Well, based on history, you would expect that 
late in 2004 right near the end of the year, you would issue an 
RFP. You would expect that you would receive bids in the spring 
of 2005. You would expect that you would then, you know, make--
the Secretary would make a decision so that you had time for an 
orderly transition.
    Mr. Walden. That gives you time for that orderly 
transition?
    Mr. Brooks. That is historical evidence. At the moment I 
have no reason to assume that this will be anything other than 
on a comparable schedule. But I don't want to misstate the 
amount of thought we have given to those details. We focused on 
the question of whether, and we recognize we need to get 
started to get the criteria right. But in terms of the 
mechanical process in preparing an RFP, that is a year from now 
at least.
    Mr. Walden. I have overrun the clock. Thank you very much, 
Mr. Chairman.
    Mr. Greenwood. Chair thanks the gentleman, and the Chair 
recognizes the gentleman from Michigan Mr. Stupak for 10 
minutes.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Brooks, you talked about the big science, and I agree 
they do wonderful work down there and brilliant work, but what 
is it in big science that prevents us from properly handling 
computers with classified information on? Why would big science 
prevent us from--just lose them, we can't find them?
    Mr. Brooks. It wouldn't, and it shouldn't, but it has. It 
is not that the science prevents it. It is a focus exclusively 
on science as what is important.
    Mr. Stupak. Then why not split it? If we want to focus 
exclusively on science, why not have a contract for science, 
and why not have a contract then for management so we don't 
have these problems?
    Mr. Brooks. Because I believe that it is not practical to 
split it, that at some level----
    Mr. Stupak. Then how do you get big science to understand 
that, as it says in the OIG report, thefts of laptop computers 
have to be reported. How do you get science to do it, then, if 
you're not going to break it up and bring in a different type 
of management style?
    Mr. Brooks. You get science to do that by making it clear 
that there are consequences for failure. The university has 
done that at the top, and the Director is trying to implement 
that culture.
    Mr. Stupak. What are the consequences? We have been doing 
this since the late 1980's when Mr. Dingell was chairman. We 
have been on these labs to clean this up, and it is now about 
14 years later. What are the consequences of failure? What I 
heard so far today is, I can't talk about what happened in the 
past because we have a new program coming. How many new 
programs do we start and stop? It seems every hearing we have 
here, and I have been on this committee now for 10 years, we 
have a new program that is going to clean this up. That program 
fails, so when we get the witnesses come back, we can't talk 
about it, those are the past failures. Where is the 
responsibility here?
    Mr. McSlarrow. Can I respond? The responsibility resides 
with the Secretary first and foremost, and with me as the chief 
operating officer. And what's different, Congressman, is over 
the last year as these problems surfaced, first we made clear 
to the university that people had to be held accountable. They 
agreed. They made sweeping management changes at the 
laboratory, and now we have announced this decision, two things 
that never happened before. So it is now a new ballgame.
    Mr. Stupak. What sweeping changes in the laboratory 
management? You have a new Director.
    Mr. McSlarrow. New Director and new Principal Director, and 
almost every top officer out there has been replaced.
    Mr. Stupak. And we were out there in January, myself, the 
chairman, a bunch of us, and, you know, the top people say 
that, but when you talk to the people who are doing the real 
work, it's just going to be more of the same. It is more like, 
we won't let this person or--I mean, when you have things like 
computers that are stolen or missing, and it says right here 
that they're required to do it, it's all in this OIG report, 
and no one does it, it tells me that there is a culture there 
that has to be changed, and I don't see it changed.
    Mr. McSlarrow. I couldn't agree more, and people have to be 
held accountable.
    Mr. Stupak. Are you going to hold yourselves accountable?
    Mr. McSlarrow. Absolutely.
    Mr. Stupak. What are the consequences if it doesn't work?
    Mr. McSlarrow. If we fail, we leave.
    Mr. Stupak. So my impressions from your answers to Mr. 
Walden and Mr. Brooks is U.C. is going to be allowed to compete 
on this contract in 2005?
    Mr. Brooks. Yes.
    Mr. Stupak. And to use your words, they have many 
advantages over other bidders. So they already have a leg up in 
the bidding process.
    Mr. Brooks. I did not intend to say many advantages over 
other bidders, because that's a question for the competition.
    Mr. Stupak. You said they have many advantages.
    Mr. Brooks. That have brought value to this laboratory.
    Mr. Stupak. Will that value then be in bonus points or 
extra incentive to award the contract back to U.C.?
    Mr. Brooks. I don't know that. The reason that the report 
the Secretary has directed us to start is that--that is a 
complex question that I need to work on. The reason we're going 
to start on the criteria now a year before we would is to make 
sure that we do things that are equitable and fair and----
    Mr. Stupak. I also thought you said--and again, you didn't 
submit your testimony, so I am going from what I heard--you 
said U.C. could not have done more to change things here.
    Mr. Brooks. That's a quote out of our report, and I believe 
that to be correct.
    Mr. Stupak. Well, it's been about 14 years, and they 
haven't changed anything. Why is it suddenly now going to be 
just peachy?
    Mr. Brooks. I don't know that it is. What the report says, 
and what I was quoting in my testimony, in my oral statement, 
was that since December it is difficult to see how anybody 
could have done more or acted more vigorously than the 
university has.
    Mr. Stupak. Since December of----
    Mr. Brooks. 2002.
    Mr. Stupak. So for the last 4 months they have been doing 
pretty good.
    Mr. Brooks. And our assessment is that--the university is 
fully capable of speaking for itself, but our assessment is 
that since President Atkinson realized that the problems were 
severe, he has been vigorous and has directed and thrown a lot 
of the university resources in. And in fact, it is difficult to 
see what else anybody could have done--that doesn't alter the 
fact that we shouldn't have gotten into the problem. That 
doesn't alter the fact that you make about a long time. That's 
one of the reasons the Secretary has made a decision to 
compete.
    Mr. Stupak. We have thrown a lot of resources in the last 4 
months, and things are looking pretty good. What are the 
vigorous actions that U.C. has undertaken to make sure this 
stops and it gets improved here on out? What are the vigorous 
actions?
    Mr. Brooks. I think that President Atkinson and Senior Vice 
President Darling will provide you some details, but let me 
just suggest some: The permanent subordination of the auditor 
to the university and the repeal of an internal procedure 
sometimes called the loyalty oath, which could have confused 
auditors in thinking that they were supposed to worry about 
reputation rather than fact; the near full-time presence of the 
university auditor despite his other responsibilities in Los 
Alamos to supervise the reorganization of the auditing 
function; the bringing in of Price Waterhouse to do a massive 
audit; the bringing in of an outside team headed by a former 
inspector general to do a massive audit of purchase cards; the 
20 full-time Ernst and Young employees that have been brought 
in to conduct a detailed management review.
    Mr. Stupak. That's all fine, but when we were here in 
January, they gave us the same line when we asked the simple 
question, well, can you tell us how many computers have been 
missing, and they couldn't. They couldn't say, according to our 
records so many computers were purchased in the last year, but 
where they are now, we don't really know. What good is an audit 
if you can't verify things that are supposed to be there?
    Mr. Brooks. I believe we have the first ever, certainly the 
first in a very long time, complete physical inventory of every 
piece of controlled equipment, a process which is now 90 
percent complete and has not been done, to the best of my 
knowledge, at any national lab to precisely get to the question 
of whether or not the records match the reality.
    Mr. Stupak. Do you have a timetable as to when, in your 
mind, this thing is supposed to be--we have got 4 good months 
in--is there a timetable like by the end of the year where 
things have to be improved or heads are going to roll?
    Mr. Brooks. The inspector general when he testified before 
this committee said somewhere between 6 months and a year would 
be the right time for this committee to look again and see 
whether we have been able to sustain this. That's a reasonable 
estimation.
    Mr. Stupak. If the chairman holds a committee hearing next 
January, January 2004, and things aren't going well, and we 
still have missing computers, classified computers, it's my 
understanding that you guys are going to resign?
    Mr. Brooks. Actually the way I read the Secretary's letter, 
I may not have to. The Secretary has directed me to keep him 
informed in his tasking back to me, and I didn't read that as 
bring him excuses. So I don't know whether we are going to 
resign. It depends how bad things are. But I know the Secretary 
does not take responsibilities lightly, and he has been pretty 
clear that he expects this to get better.
    Mr. Stupak. Like I said, this has been going on since the 
late 1980's. Are you talking about all these audits? We have 
had these before. You talked about this loyalty oath and all 
that. That is all fine and dandy, but I don't see any of that 
changing the problems at Los Alamos. I really don't see it. I 
don't see how it gets back anything. You have reports in here 
where two computers used to process classified information were 
missing for 1\1/2\ years, and no one even says anything about 
it.
    Mr. Brooks. In that particular report, we need to 
distinguish problems here. One of the problems with Los Alamos 
is they have multiple unconnected systems.
    Mr. Stupak. The distinguished problem to me is basically 
saying this is the reason why it happens, and we give them an 
excuse, and then we let them off the hook, and then we go on 
and we are back again in another year going through the same 
old, same old, same old since late 1980's, and it's got to stop 
or change until people are held accountable.
    Mr. Brooks. I don't disagree with that. What I was 
attempting to point out was you have to make sure you 
understand what the real problem is so you can fix that, 
otherwise we won't know if we have fixed the problem.
    Mr. Greenwood. The time of the gentleman has expired.
    The gentlelady from Chicago Ms. Schakowsky is recognized 
for 10 minutes.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    For me it is deja vu all over again, as Yogi Berra said. I 
was the ranking member on the Government Efficiency 
Subcommittee of the Government Reform Committee, and Chairman 
Steve Horn and I had a number of hearings. In this case we were 
looking into practices at the Department of Defense, and again, 
when the GAO or the IG took a look, they found persistent 
problems wherever they looked. And in fact, the inspector 
general of the Department of Defense said that the Department 
cannot accurately track--accurately track $1.2 trillion in 
transactions. That is not to say all of it's lost, we just 
don't know, can't match it up. And then we looked at purchase 
cards in various departments and branches of the government, 
and we found the same thing.
    And so when you say there's just a few people because most 
people are honest, I would agree with you. But there's just a 
few people here, a few people there, a few people there, and I 
would also posit that everywhere there are those people, and if 
a culture isn't in place and systems aren't in place, those few 
people are going to continue to take advantage of a situation. 
So I would not be sanguine about the notion that we are just 
talking about a problem at Los Alamos with a few people, and 
that we better take a look everywhere.
    But let me get down to my specific questions about the 
situation that we are facing here. My understanding is that 
there is a FY--there are new--I am looking at an fiscal year 
2003 performance standards now and that they represent a 
completely different approach to performance standards; is that 
true?
    Mr. Brooks. Right.
    Ms. Schakowsky. And that the University of California's 
performance fee is based now on attaining these objectives; is 
that correct?
    Mr. Brooks. Correct.
    Ms. Schakowsky. And that these objectives are very mission-
oriented, and the mission is defined as providing good science 
and technology; is that correct?
    Mr. Brooks. Correct.
    Ms. Schakowsky. Well, I want to ask you today then, because 
we are talking about performance standards for 2003, why only 1 
of the 40 objectives addresses all of the procurement, auditing 
and business control problems that we're discussing today? I'm 
looking at performance measure 8 under operations, and this is 
the only one that directly addresses this problem, implement 
effective controls and business systems by assessing existing 
controls and, where needed, strengthen controls to ensure 
effective stewardship of public assets.
    Mr. Brooks. I think you raise a perfectly valid point. Let 
me put it in context and tell you what I'm going to do. In the 
report that we submitted to the Secretary, we alluded to the 
fact that we might require some contractual changes now to make 
sure that these reforms that have started continue. We didn't 
specify what the changes are because we need to discuss it with 
the site, with the laboratory and with the university. One of 
those contractual changes might well be to give greater 
visibility to this in the performance objectives. At the 
moment, for obvious reasons, business services has very high 
visibility and great attention for the leadership of the 
laboratory, the university and the Department.
    The point of the performance objectives change that you 
suggest I should consider and that I had already concluded I 
needed to consider is to make sure that it doesn't once again 
fall below our radar scope. But I would not accept the view 
that the number of times something is mentioned is a necessary 
measure of the importance we place on it. One of the reasons we 
went to this system was to try and focus on the overall 
mission. But----
    Ms. Schakowsky. Let me ask you then, have you assigned a 
value to each standard?
    Mr. Brooks. We have not. And the reason we have not is 
because we fear that we will fall back into the trap that led 
to the results of an evaluation of excellent business systems 
virtually simultaneously with the Secretary's, quote, systemic 
management failure. And the trap was that we got stovepiped. 
And so what I want to do is I want to be able to focus on 
everything.
    There's a level of performance--I mean, if you assign the 
value to business systems, and you look at the old system, it's 
about 15 percent. I don't--since that's the old system, let's 
not get into a debate about whether that's the right number, 
but the old system did say that 50 percent of the score of the 
lab was based on its mission accomplishment, and that's 
stockpile, stewardship and science, and any reasonable system 
is probably going to weight that very heavily. The problem with 
systems that go to specific weighting values is they lead to 
the trap where something can be a completely unsatisfactory 
element, but it's a small weight.
    Ms. Schakowsky. Let me just say I get your point. But, 
Ambassador Brooks, I've been told that DOE can't tell us how--
I've been told that we can't know how DOE is going to evaluate 
these objectives. The university wrote the objectives. Are we 
going to let them decide which ones are important and which 
ones aren't?
    Mr. Brooks. No. We do this through a series of meetings 
between the university, the laboratory senior leadership, my 
own senior leadership, including myself, organized by the site 
office manager, who in the legal sense is the contracting 
officer. The formal responsibility for evaluation falls on the 
site office manager, with approval by me, and we're not going 
to change that. We're not arguing about who is responsible for 
the evaluation, we're arguing about how to go about evaluating 
this enormously complex enterprise.
    Ms. Schakowsky. Let me get in my final question. The 
inspector general just released a report that said that you 
can't be sure that you have control of your classified 
information because you don't have control of the classified 
laptop computers, and yet you state that security has not been 
affected by these sloppy business practices. How can you come 
to the conclusion of no problems in your report?
    Mr. Brooks. The inspector general's report looked at one 
particular system, which is a property accountability system. 
There's a separate disconnective system that's part of the 
stovepiping problem I mentioned earlier that controls 
classified material, and that has suggested to us that there is 
no compromised classified material.
    I would be happy to submit a longer answer--this is a 
somewhat complicated issue--for the record.
    [The following was received for the record:]

    The Department of Energy Inspector General (IG) report 
identified 5 laptop computers being used for classified 
processing that were not identified on the Los Alamos list of 
computers accredited for classified processing. Three of the 
identified computers are supporting another DOE organization 
and managed in accordance with the requirements of the work 
sponsor. One of the laptops was a substitute for an older 
desktop system and the procedures for updating the security 
documentation and lists were not properly followed. This error 
was corrected during the IG inspection at Los Alamos. The IG 
report did not identify the specific laptop computers and Los 
Alamos has been unable to identify any other laptop that might 
have been referenced by the IG team. The IG report identified 
one laptop computer listed as approved for classified 
processing but lacked a valid property number. This laptop 
belongs to another government organization and would not have a 
Los Alamos property number. The IG report also identified 
several laptop computers that were still identified as 
accredited for classified processing but were no longer in use. 
These laptops were all in the process of sanitization in 
preparation for declaring them as excess property. Removal of 
the laptops from the list of accredited systems is the last 
step in the retirement of a laptop and is not performed until 
the unit is removed from the security area and all information 
is sanitized from the system.

    Mr. Brooks. The conclusion in the report is also based on a 
series of inspections conducted both by the inspector general 
and the Office of Independent Oversight late last year. So I 
don't want to say there's never--I mean----
    Ms. Schakowsky. That's what I want you to say, that there's 
never a security problem, and that we know that there isn't, 
and because we can't identify where all this equipment is, I 
think Americans have a right to have a slightly queasy feeling 
about that.
    Mr. Brooks. Yes, ma'am. But I believe in this particular 
case there is not a problem.
    Ms. Schakowsky. Let me ask this in my remaining time. It 
appears--and I'm looking at the--on page 2, precipitating 
incidents that the problems were not widely recognized outside 
the laboratory until the summer of 2002. It seems that you 
think that they were of recent origin even though the DOE 
inspector general has been bringing business control problems 
to the DOE's attention for years. For example, the inspector 
general said in 2000 and 2001 that it could not sign off on the 
allowability of costs for Los Alamos. So where were you?
    Mr. McSlarrow. As these IG reports came in we were 
implementing the recommendations of the IG, the purchase card 
in particular, at the Department. It was not an IG 
investigation at DOE, it was one at DOD which our management 
team brought to the Secretary's attention, and he directed late 
in the spring of last year the enormous purchase card 
investigation that was complexwide. And then the whistle-
blowers came out of that, and we went to the FBI.
    When we talk about the precipitating incidents, you are 
quite right to suggest----
    Ms. Schakowsky. The whistleblowers who were fired you're 
speaking of?
    Mr. McSlarrow. No. These are different people.
    Mr. Brooks. That's part of our problem.
    Mr. McSlarrow. Part of the cultural change is that people 
believe they can't go to management and tell the truth and be 
rewarded, and that's one of the things we have to change from 
the Fed side to the contractor side.
    To go to your point about precipitating incidents, we are 
not suggesting that all of this stuff started with the 
discovery of the purchase card problem. What we're saying is 
that precipitated the crisis that culminated in the firing of 
the two whistleblowers you were just referencing. This is what 
we have to change. And I believe with the university's action 
in terms of the sweeping management changes, I don't think 
there is anybody left at Los Alamos that doesn't get that 
people are going to be held accountable today. That's 
different.
    Mr. Greenwood. The time of the lady has expired.
    The Chair recognizes the presence of the gentleman from New 
Mexico Mr. Udall, and although not a member of the committee, 
is not permitted to ask questions, but we appreciate his 
interest on behalf of his constituents.
    The Chair recognizes the gentlelady from California, Ms. 
Eshoo for 10 minutes.
    Ms. Eshoo. Good morning, Mr. Chairman, and my thanks to you 
again for the legislative courtesies that you have extended to 
me as a member of the full committee, but not a member of this 
subcommittee, to participate.
    Good morning, both of you, and welcome to the committee. 
Let me just get right to the questions. I appreciate what you 
have said so far, and I have listened carefully to the 
questions of my colleagues on the committee, which are 
excellent ones.
    The purpose, of course, today of this hearing is to discuss 
the decision of the Department that has been made about 
recompeting the management and the operation of the lab, and 
focusing in on the reasons for the decision, and what exactly 
the Department is looking for in seeking a new Administrator of 
Los Alamos. So I'm going to stick--I'm going to focus right in 
on that.
    When you spoke of big science, who is out there that is in 
the world of big science that would--in the Department's view 
would be in contention for this? Do we have many players in the 
country relative to this?
    I also want to note, it was a curiosity--excuse me for 
interrupting--that the contract with the University of 
California was signed April 14, 1943. I was 4 months old--4 
months and a day. So there's a long history here.
    At any rate, can you address that? And I know--I have a 
series of questions. I know I have 10 minutes, which is 
generous, and I want to make use of that time.
    Mr. McSlarrow. First I don't think we should be in a 
position of naming anybody in particular.
    Ms. Eshoo. Are there many contenders? Are there 5 or 10?
    Mr. McSlarrow. Every university who does big science is 
potentially somebody who could bid on this. And I would note at 
Oak Ridge National Laboratories and Brookhaven National Lab, we 
actually have a combination of a university--in Oak Ridge's 
case.
    Ms. Eshoo. So there are many?
    Mr. McSlarrow. So I think----
    Ms. Eshoo. So the Federal Government has many options.
    Mr. McSlarrow. Yes, ma'am.
    Ms. Eshoo. In setting up for competition, what are the 
rules of the road that the Department--having experienced this 
chapter with the University of California, what are the new 
things that you are looking for, that you will establish? What 
is the criteria that will change?
    Mr. Brooks. Ma'am, that's too important to shoot from the 
hip on, and that's why the Secretary directed that I start now 
a year ahead of when you would normally start to work on the 
criteria to make sure that they will lead to the result we 
want, which is the same good science that we have had, but with 
an improvement in the stewardship.
    Ms. Eshoo. Would you say that the science--the big science 
has been superb, good, mediocre, and that it is the management, 
the oversight, the business part of keeping the books and the 
management of the personnel and all that goes with that--which 
is serious, and I am not diminishing that. We wouldn't be here 
today were it not for the things that have happened that 
certainly are not defensible, and I would not seek to defend 
something that isn't defensible. But is there a bright line 
between the two?
    Mr. Brooks. Certainly I would say the science at Los Alamos 
has been world class, and there are few competitors, and most 
of the competitors are other DOE-managed national labs. And as 
the Secretary said in his tasking, what we seek is business 
that's as good as the science.
    Ms. Eshoo. So it's the business management that the 
Department is going to focus on?
    Mr. Brooks. While preserving the science.
    Ms. Eshoo. Most certainly. I assume that for the good of 
our country.
    I want to move to the two other contracts that the 
university has, Lawrence Livermore and Berkeley Labs. Are they 
part of this? Do those contracts expire in 2005? Are they 
negotiated at the same time? How are those handled?
    Mr. Brooks. The Lawrence Livermore contract expires at the 
same time, and although it's a separate contract--two contracts 
are essentially identical.
    Ms. Eshoo. Are those going to be recompeted?
    Mr. Brooks. Our report says that there's no need to make 
that decision now because we're making a decision to compete a 
year ahead of when we would normally make it because of 
problems we believe to be unique to Los Alamos. Because those 
problems do not now exist at Livermore, our report says, and 
the Secretary has agreed, that there's no need to make the 
decision with regard to Livermore at this time. And that 
decision----
    Ms. Eshoo. Let me understand this. The Secretary is 
implying or has stated that those will not be recompeted?
    Mr. Brooks. He's stating he doesn't have to make a decision 
on that today. And what our report said was there's no legal 
reason why you couldn't extend Livermore and compete Los 
Alamos. That's not saying that is a decision. They're saying 
there's no legal reason why we couldn't do that, and there's no 
policy reason why we have to make the decision now.
    Ms. Eshoo. If you're going to open something up for 
recompetition, you have to prepare for that.
    Mr. Brooks. Yes, ma'am. But normally that would all start 
next year. Remember, we're a year ahead of schedule. So that's 
a decision we haven't made because there's not a need to make 
it.
    With regard to Berkeley that's not a lab under my 
responsibility.
    Mr. McSlarrow. We're in the process of extending that 
contract right now. So it's a matter of contract negotiation, 
but that decision has already been made.
    Ms. Eshoo. What role will the Department play in the 
timeframe leading up to recompetition to make sure that the 
reforms that you have already described--and I don't need to 
reiterate that because that's already part of the record--what 
role will the Department play to make sure that these reforms 
are sustained? What are you doing?
    Mr. Brooks. Two things. First, in terms of the competition 
itself, that's the reason why I need to start on these criteria 
right now, to figure out how to get the criteria to maximize 
the chance of getting them right.
    Second, as I described earlier, we have altered the 
oversight approach used by the National Nuclear Security 
Administration, and we intend to push very vigorously to make 
sure that that approach achieves what it is expected to 
achieve, which is more effective oversight that looks at the 
entire lab.
    Ms. Eshoo. I'm not so sure I know what that description 
means in terms of having legs on it, but I accept what you're 
saying.
    Has the Department itself taken a good hard look at itself 
to see where it may have failed in its oversight?
    Mr. Brooks. Yes, we have, although not as a direct result 
of Los Alamos. As a result----
    Ms. Eshoo. I would like to suggest that that be the case. 
And I say that because this a marriage.
    Mr. Brooks. Yes, ma'am.
    Ms. Eshoo. It's a marriage. And in marriages, as we know, 
it's not just up to one person. Certainly the University of 
California bears responsibility in this, and the Congress has a 
responsibility in terms of its oversight, taxpayer money. I 
don't have to go into all of that. We have had many hearings on 
that. But I also think in the executive branch that the 
Department of Energy and those that are--if you're responsible 
for setting up the criteria and letting a contract, that you, 
too, have a responsibility in this marriage. So I think that we 
need to bring balance to this. And I think it's very important 
for the Department to weed through what it does, how well it 
does it, what the steps are that you take, and that you report 
back to the Congress in this. It's a real opportunity, I think, 
for the Department as well.
    Mr. Brooks. Yes, ma'am. I agree with that completely. What 
I meant to say was that we already knew we had that problem, 
and we were starting to try and fix it before these incidents 
surfaced.
    Ms. Eshoo. What did you identify was the problem?
    Mr. Brooks. The problem within the National Nuclear 
Security Administration was the lack of clarity on roles and 
responsibilities, duplication and too many layers of 
management. As a result, in December we eliminated a layer of 
management and centralized responsibility for oversight in site 
office managers.
    Ms. Eshoo. There's something from the inside of the 
Department just as there has been--as we have examined the 
culture that we've called it at Los Alamos, this has spanned a 
long period of time. This is not Democrats. It's not 
Republicans. This is something that has been more than an 
irritant inside of DOE and those that are responsible, and 
that's why I raise it.
    I see that the clock is ticking away, and I thank you both 
for your testimony today.
    And again, Mr. Chairman, I thank you for the courtesies 
that you have extended to me.
    Mr. Greenwood. The Chair thanks the gentlelady and 
recognizes the gentleman from Massachusetts Mr. Markey for 10 
minutes.
    Mr. Markey. Who in the DOE was responsible specifically for 
the oversight of Los Alamos?
    Mr. Brooks. When you say was----
    Mr. Markey. Or is.
    Mr. Brooks. Me.
    Mr. Markey. You are?
    Mr. Brooks. Yes, sir.
    Mr. Markey. How long have you had that job?
    Mr. Brooks. Since last summer, sir.
    Mr. Markey. Who had the job before you?
    Mr. Brooks. General John Gordon.
    Mr. Markey. Was there anyone under him who had the specific 
responsibility?
    Mr. Brooks. Specific responsibility I want to distinguish 
between now and then. Now, under my supervision, the immediate 
responsibility is Mr. Ralph Erickson, who has appeared before 
this committee, he is the site manager of the Los Alamos site. 
Before December of last year, responsibility was fragmented 
between Mr. Erickson and the manager of what was then called 
the Albuquerque Operations Office, and there was some ambiguity 
about who was responsible in headquarters.
    What we did in December was to clarify responsibilities by 
putting the authority and responsibility in the hands of the 
site manager, having him report directly without any 
intervening layers. So that's why I stress ``was,'' because the 
answer is different today than it was during the period when 
these problems were developing.
    Mr. Markey. Is anyone who was responsible before you took 
over still on the job?
    Mr. Brooks. Well, I mean--site officers.
    Mr. Markey. Who is in a position to have known what the 
problems were, did not correct them, and, subsequent to your 
taking charge, remained in place?
    Mr. Brooks. I think the answer to that is no, but I don't 
want to suggest it's because we did some kind of house 
cleaning. I mean, we abolished a layer of management, and those 
people have gone to do other things. Mr. Erickson himself was 
only assigned to the Los Alamos site last summer.
    Mr. Markey. Let me move to the case of Dee Cotler, who 
worked for Livermore until 1997 when she was fired after she 
testified that she had witnessed sexual harassment at the lab. 
The lab said she hadn't been retaliated against, but rather was 
fired for improperly using her telephone and her computer. It 
turned out that she made a whopping $4.30 worth of personal 
calls. That's what she's being persecuted for. She sued, and 
she won a million dollars. The university appealed. She then 
asked for her legal fees, about $700,000, to be paid by U.C., 
and she won that as well.
    The University of California continues to appeal. The 
university has run up at least $800,000 in legal fees fighting 
this case for 6 years, bringing the grand total to $2.5 million 
all supposedly because of a $4.30 telephone call, and so far 
that's the only charge against her. And she has to live every 
day of her life trying to explain why she was fired, and that 
makes it tough in terms of her prospective employees.
    DOE actually reimburses more than 95 percent of all legal 
fees incurred by its contractors, including those incurred in 
the case of Dee Cotler. Would you agree taking a hard look at 
procedures and standards that DOE uses to determine whether 
contractor legal fees should be reimbursed would be a good 
idea?
    Mr. Brooks. Certainly. I would be happy to take a look at 
it. I am not sufficiently familiar with the specific case, 
however, to comment on that case now. But the basic principle 
of looking at what legal fees are reimbursable, I would be 
happy to look at that.
    Mr. Markey. You have never heard of the case?
    Mr. Brooks. I have heard of the case.
    Mr. Markey. You have never reviewed this case?
    Mr. Brooks. I have not reviewed this case because I regard 
it as an issue between the university and a former university 
employee, so I have not personally reviewed the case.
    Mr. Markey. You're saying that as the person in charge, 
knowing that $2.5 million has already been expended by the 
university on a $4.30 phone call, that you haven't looked at 
that yet?
    Mr. Brooks. Yes, sir. That's what I said.
    Mr. Markey. Well, I don't think that's good. This seems 
like a pretty big expenditure, and especially if it sets 
precedent or it's just a continuation of precedent in terms of 
a disproportionate response to something which seems to me to 
be very suspicious, you know, to punish a whistle-blower.
    Mr. Brooks. Your point is well taken, and certainly the 
point about not punishing whistle-blowers, I think there's no 
question about the Secretary's or the Deputy's or my view that 
that is unacceptable. I need to look into this case.
    Mr. Markey. It is very troubling to me, to be honest with 
you, sir, that someone who basically came forward on a sexual 
harassment case is in turn, you know, punished for a $4.30 
phone call, and the bill has run up to $2.5 million, and you 
haven't looked at the case yet after a year on the job. From my 
perspective, it just seems to me that this would jump out as 
one of the 5 or 10 things you would have to look at, you know, 
to make a determination as to whether or not there is a 
systematic attempt here to squelch whistle-blowers from 
identifying problems in the management of the facility. So why 
wouldn't you have--since you say you are familiar with the 
case, why wouldn't you have spent a little more time on it 
trying to find out whether or not $2.5 million----
    Mr. Brooks. I obviously don't have as good an answer as I 
would like. I thought of it as an old case being handled in the 
legal system, and I had no evidence that it was part of a 
systemic problem at the laboratory, but you make a good point, 
and I will look at it, sir.
    Mr. Markey. You don't think it is sufficient evidence in 
and of itself that someone who makes a charge of sexual 
harassment, is basically upheld, you know, by the facts in the 
case, and then subsequently is brought under a 6-year withering 
assault that ultimately costs $2.5 million over a $4.30 
personal phone call is a big indication of mismanagement or 
cover-up at the labs?
    Mr. Brooks. Once again, you correctly point out that I 
should have looked at it, and I will, but since I haven't, I am 
not in a position to comment.
    Mr. Markey. During the Energy and Commerce markup, Chairman 
Tauzin and Chairman Greenwood and Mr. Barton and I worked out 
some language that would limit the reimbursement of legal fees 
to its contractors in cases where the contractors lose a 
whistle-blower case. The contractor would have to pick up the 
tab for future appeals unless the adverse ruling is overturned 
in the end. The point was twofold. First, it creates a 
financial incentive for contractors to settle the case. And 
second, it potentially saves the taxpayers a lot of money.
    Do you agree with those provisions as described and as 
they're now included in the energy bill that's left the House 
of Representatives?
    Mr. McSlarrow. We'd have to give you an exact answer on the 
wording, but in the spirit of what you have just described, I 
don't think we would have a problem with it at all. And we have 
made it clear to other contractors when they've done things 
wrong and they had to pay for it, we're not going to reimburse 
them for that. I don't think that's any different than what you 
described.
    Mr. Brooks. And I would point out that the university has 
preemptively--as I said, I am not familiar enough to comment on 
the case, but in the Los Alamos incidents, the university has 
said it will not seek reimbursement in several cases where 
there's no particular evidence that there's been wrong, but the 
records are sufficiently sloppy that you can't tell. But the 
principle that you established is a perfectly sound one.
    Mr. Markey. Is it your belief, Ambassador Brooks, that the 
science being done at other DOE labs such as Sandia and Oak 
Ridge is inferior to that at Los Alamos and Livermore?
    Mr. Brooks. No. I think the science at all the national 
labs is a national treasure. I am most familiar with the work 
being done at the three weapons labs, and I have steadfastly 
resisted any attempt to rank the quality of the science because 
it's all very, very good, and it's all somewhat different.
    So, no, I don't contend that only Los Alamos and Livermore 
do good science. I contend they are among the people who do the 
best.
    Mr. Markey. Do you think that scientists will leave Los 
Alamos if the contractor is changed?
    Mr. Brooks. I hope not. I am concerned with the possibility 
of large-scale retirements, but I believe that with this much 
time, we can make sure that the competition is such that 
individuals don't feel that they have to leave. If the new 
contractor or the renewed contractor both preserves the spirit 
of scientific inquiry, which is an important part of what the 
university has brought, and if, as is customary in these 
contracts, we require that the workforce--since there really 
isn't an alternative to this workforce in many areas--is 
retained, I don't think it is certain that people will leave. I 
think it is a danger, and we are working hard to make sure that 
people understand that the competition is about making Los 
Alamos better, not about changing its scientific character.
    Mr. Greenwood. The time of the gentleman has expired.
    The Chair thanks the witnesses for your testimony and your 
cooperation. We look forward to seeing you in 6 months to a 
year from now. You are excused.
    The Chair calls forward our next witness, the Honorable 
Gregory H. Friedman, inspector general at the U.S. Department 
of Energy.
    Welcome, Mr. Friedman, and thank you for being with us. 
You're aware this is an investigative hearing, and it is the 
practice of this subcommittee to take testimony under oath in 
these circumstances. Do you have any objection to testifying 
under oath?
    Pursuant to the rules of the subcommittee and the House you 
are entitled to be represented by counsel. Do you choose to be 
represented by counsel?
    Mr. Friedman. No.
    Mr. Greenwood. Raise your right hand.
    [Witness sworn.]
    Mr. Greenwood. You are under oath, and are recognized for 5 
minutes for your opening statement, sir.

   TESTIMONY OF GREGORY H. FRIEDMAN, INSPECTOR GENERAL, U.S. 
                      DEPARTMENT OF ENERGY

    Mr. Friedman. I am pleased to be here at your request to 
testify on the Office of Inspector General's reviews of 
management practices at the Los Alamos National Laboratory.
    As you are aware, yesterday the Secretary announced his 
decision to retain the University of California as the operator 
of the laboratory through the end of the current contract in 
September 2005 and to open management of Los Alamos to full 
competition when the contract expires. In reaching this 
decision, the Secretary adopted a series of recommendations 
made by the Deputy Secretary and the Acting Administrator for 
the National Nuclear Security Administration. As was noted in 
yesterday's announcement, recent reviews completed by the 
Office of Inspector General were considered as part of the 
decision process. I would like to briefly discuss two of these 
reviews this morning.
    At the request of the National Nuclear Security 
Administration, the Office of Inspector General reviewed the 
allowability of the $5.2 billion charged to the contract for 
the last 3 fiscal years, and we evaluated related internal 
controls. Based on the audit, we questioned $14.6 million in 
potential unallowable costs, including the following: $3.7 
million for working meals that were inconsistent, in our 
judgment, with acquisition regulations; $7.4 million for travel 
in excess of contract limits; and $3.5 million for an internal 
audit function that did not, in our professional judgment, meet 
Department requirements.
    Additionally, the Office of Inspector General conducted 
reviews focused on accountability of laptop computers at the 
laboratory and found inadequate internal controls over 
classified and unclassified laptops. For example, laptops 
reported as unlocated were written off the laboratory property 
inventory without a formal inquiry. Thefts of computers were 
not always reported to the appropriate laboratory security 
office. In at least two cases, laptops were being used to 
process classified information even though they were not 
accredited to do so. And some computers were accredited for 
classified processing, but were not on the laboratory master 
property inventory list.
    These Office of Inspector General reviews, as well as 
several others noted by the Deputy Secretary and the Acting 
Administrator in their report to the Secretary, disclosed 
significant internal control weaknesses in the laboratory's 
management systems. Our recent work at Los Alamos and other 
Department locations has led us to develop a list of lessons 
learned that we believe can serve as a path forward as the 
Department works to strengthen its management practices in the 
administration of its major contracts.
    Specifically, in our view, the Department needs to ensure 
that its contractors establish robust, effective and reliable 
business systems; promote contractor governance models that 
adequately protect the Department's interests; foster a culture 
where contractors fully understand and honor the special 
responsibility associated with managing taxpayer funds at 
Federal facilities; promote an environment where both Federal 
and contractor employee concerns can be raised and addressed 
without fear of retaliation; develop quantifiable, outcome-
oriented metrics and maintain a system to track critical 
aspects of contractor performance; and finally, to rate and 
reward contractors commensurate with their accomplishments.
    Given that contract administration has been a significant 
longstanding challenge to the Department of Energy, the Office 
of Inspector General will continue to evaluate the Department's 
progress as it works to address this issue.
    Mr. Chairman and members of the subcommittee, this 
concludes my statement. I will be pleased to answer any 
questions that you might have.
    [The prepared statement of Gregory H. Friedman follows:]

  Prepared Statement of Gregory H. Friedman, Inspector General, U.S. 
                          Department of Energy

    Mr. Chairman and Members of the Subcommittee, I am pleased to be 
here at your request to testify on the Office of Inspector General's 
(OIG) reviews of management practices at the Los Alamos National 
Laboratory (Laboratory).
    In February of this year, I testified before this Subcommittee 
regarding our Special Inquiry report on Operations at Los Alamos 
National Laboratory (DOE/IG-0584, January 2003). That report noted a 
series of actions taken by Laboratory officials, which obscured serious 
property and procurement management problems and weakened relevant 
internal controls. In March, I testified before the House Committee on 
Government Reform on the Department of Energy's (Department) contract 
administration activities, including the need for the Department to 
more effectively manage certain aspects of contract operations at Los 
Alamos.
    In light of criticism regarding internal control weaknesses at the 
Laboratory, the National Nuclear Security Administration (NNSA) 
requested that the OIG perform an audit of the costs incurred by the 
Laboratory for Fiscal Years 2000 through 2002. Today, I will discuss 
the results of this review, as well as our recent report on computer 
controls at the Laboratory. Based on the record developed from these 
and previous reviews, we concluded that the business operations at the 
Laboratory have not been given adequate attention. This conclusion is 
consistent with the findings of a series of reviews commissioned by the 
University of California (University), the Laboratory's operating 
contractor.

              COSTS CLAIMED AND RELATED INTERNAL CONTROLS

    Consistent with NNSA's request, my office sought to determine the 
allowability of the $5.2--billion charged to the contract for the last 
three fiscal years and to evaluate relevant controls. Our report, 
University of California's Costs Claimed and Related Internal Controls 
for Operation of Los Alamos National Laboratory (DOE/IG-0596, April 
2003), questioned the allowability of $14.6 million in costs claimed 
and identified a number of internal control weaknesses.
Questioned Costs
    We identified potentially unallowable costs incurred by the 
Laboratory between Fiscal Years 2000 and 2002. This included about $3.7 
million for working meals that were inconsistent with acquisition 
regulations, $7.4 million for travel in excess of contract limits, and 
$3.5 million for an internal audit function that did not meet 
Department requirements.
    The majority of the $3.7 million in questioned meals was provided 
by the same contractor that provides services to the Laboratory's 
cafeteria. The remainder was for meals at restaurants in Los Alamos, 
Santa Fe, and Albuquerque, New Mexico. In our judgment, the number, 
frequency, and apparent routine nature of most meals provided indicated 
that the Laboratory was not exercising care to distinguish situations 
when working meals truly were in the Government's best interest. In 
addition, the Laboratory had a more restrictive policy for using 
University funds, than for using Government funds, on meal expenses. 
When University funds were being used, the approval of the Director's 
office was required, but when Government funds were being used for 
meals at the Laboratory, Group Leader approval was sufficient.
    The University also charged $7.4 million to the contract for travel 
costs that were not in compliance with Federal Travel Regulations. 
Travelers were reimbursed for lodging that exceeded established General 
Services Administration rates, conference fees that had no accompanying 
receipts, and various other costs that were not in accordance with the 
Federal Travel Regulations. After the completion of our review, we were 
informed that the Laboratory was able to locate additional supporting 
documentation that was not available during our audit. NNSA may be able 
to use this documentation to assist in making final allowability 
determinations. However, the absence of documentation at the time of 
our review calls into question the travel claim review process used by 
the Laboratory.
    Finally, we questioned as unreasonable about $3.5 million charged 
to the contract by the University for the cost to operate a Laboratory 
audit function that did not meet the requirements of the contract. 
Specifically, the function was not organizationally independent, did 
not adequately plan and execute its internal audit work, and did not 
conduct timely follow-up reviews.
Control Weaknesses
    During our review, we noted a series of internal control weaknesses 
that contributed to an environment where questionable costs could be 
incurred and claimed. These weaknesses related to:

 The Laboratory audit function;
 Financial system reconciliations;
 Payroll and travel approval processes;
 Financial management personnel turnover; and,
 Financial system review and approval.
    Laboratory Audit Function--A quality internal audit function is 
crucial to effective program management. The University contract 
required the Laboratory to establish an audit function that was 
acceptable to the Department. We concluded that, for the period Fiscal 
Year 2000 through Fiscal Year 2002, the Los Alamos National 
Laboratory's internal audit function did not meet Department 
requirements.
    For example, the audit function did not prepare a plan to audit 
subcontracts for the three years reviewed, although subcontracting 
represented about one-half of the expenses of the Laboratory. Of 
particular concern to us was the fact that the Laboratory provided 
documentation indicating unaudited subcontract costs of over $1 billion 
at the time of our review. Further, for one of the subcontracts that 
had been audited, the results of the examination (including $12.8 
million in questioned costs) had not been reported to the Department's 
contracting officer. Given the dollar value of the subcontracts to be 
examined and weaknesses in reporting, we concluded that the subcontract 
audit function at the Laboratory needed substantial strengthening.
    Financial System Reconciliations--The review also identified 
weaknesses in reconciling cost data from the Laboratory's financial 
systems. The Laboratory has over 60 feeder systems that provide cost 
information to its Financial Management Information System (FMIS). The 
University had not established a process to periodically reconcile 
costs generated by these systems. University officials told us that 
reconciliations could be completed, but only with great difficulty. We 
were able to reconcile the payroll system to within $1.4 million of 
payroll costs in FMIS and the travel disbursements system to within 
$2.3 million of costs in FMIS. However, the absence of a process to 
periodically reconcile costs, and our inability to completely reconcile 
payroll and travel data, led us to conclude that the costs claimed by 
the University could be misstated and the universe of costs subjected 
to audit could be incomplete.
    Payroll and Travel Approval Processes--The Laboratory also 
permitted payments to be made based on electronic signatures of 
administrative personnel or, in some cases, subcontractor support 
staff. Supervisors made only 15 of the 120 electronic approvals checked 
in our sample. The written policy for approvals stated that travel 
claims and payroll time sheets required supervisory approval--Deputy 
Group Leader and above--using either online electronic signature or 
hardcopy signature prior to paying travels claims and salaries. 
Although we were able to verify in some instances that hardcopy 
signatures did exist, our primary concern was that the Laboratory's 
Business Operations Division made payments based exclusively on the 
electronic signatures without any process, test-basis or otherwise, to 
verify supervisory approval of transactions.
    Financial Management Personnel Turnover--During our review we also 
noted that there had been substantial turnover in Laboratory personnel 
responsible for financial management activities. While we recognized 
the challenge of retaining qualified personnel, the fact remained that 
excessive turnover left a void in the Accounting Department's ability 
to fully understand and execute the interfaces and capabilities of the 
Laboratory's financial management systems. In particular, Accounting 
had been severely affected, with five of seven managers (71 percent) 
having less than one year of experience in their current positions.
    Financial System Review and Approval--Finally, the University had 
not obtained Department approval for its financial systems. Although 
the University's contract required such approval, we found no evidence 
that the Department approved the Laboratory's existing financial 
systems. Further, the University had initiated a 5year, $70 million 
overhaul of its existing system without required Department approval.
Management Response and Corrective Actions
    In response to this report, NNSA indicated that corrective actions 
had been taken or were planned. Planned actions included improving 
controls and conducting a review of the allowability of the $14.6--
million in questioned costs. Although the University took strong 
exception to our characterization of questioned costs and internal 
control weaknesses, University officials informed us of several recent 
changes intended to address weaknesses in the audit function at the 
Laboratory. For example, the University reported that it had 
established an independent reporting structure for the audit function. 
If successfully implemented, the NNSA and Laboratory initiatives should 
address the identified internal control concerns.

                     CONTROLS OVER LAPTOP COMPUTERS

    The Office of Inspector General also recently issued an interim 
report focusing on accountability of laptop computers at the 
Laboratory, Inspection of Internal Controls Over Personal Computers at 
Los Alamos National Laboratory (DOE/IG-0597, April 2003). The 
Laboratory maintains approximately 30,000 desktop and 5,000 laptop 
computers for processing a broad range of classified and unclassified 
information. We determined that internal controls over classified and 
unclassified laptop computers at the Laboratory were inadequate. Laptop 
computers were not appropriately controlled or adequately safeguarded 
from loss, nor were they managed in accordance with security 
requirements.
    The Laboratory's process did not assure that required inventory 
controls were followed when new computers were acquired using purchase 
cards. During Fiscal Years 2001 and 2002, the Laboratory used purchase 
cards to acquire over 1,000 new personal computers. Laboratory policy 
identifies computers as ``sensitive items'' due in part to their 
susceptibility to theft. Sensitive items should have property numbers 
assigned to them when they are acquired, and if the item was acquired 
using a purchase card, this number should be entered into the purchase 
card database. We found that the purchase card database was incomplete, 
in this regard, for 70 percent of the computers acquired during this 
period. In addition, laptop and desktop computers were acquired using 
purchase cards even after the Laboratory limited such purchases. A 
number of other control weaknesses were identified. For example:

 Laptop computers reported as ``unlocated'' were written-off of 
        the Laboratory property inventory without a formal inquiry;
 Thefts of laptops were not always reported to the appropriate 
        Laboratory security office; and,
 Laboratory employees were not held accountable in accordance 
        with Laboratory requirements for the loss of their assigned 
        Government computers.
    The review also disclosed weaknesses in controls over classified 
computers. For example, during our review, the Laboratory provided us a 
listing of laptop computers that had been ``accredited'' for use in 
processing classified information; however, several discrepancies were 
found. Specifically, we identified instances where laptops used for 
classified processing were not on the list. In two of these cases, the 
computers were being used to process classified information even though 
they were not accredited to do so.
    Based on these and other discrepancies, we concluded that the 
Laboratory could not provide adequate assurance that classified, 
sensitive, or proprietary information was appropriately protected. We 
referred these findings to the Department's Offices of 
Counterintelligence and Independent Oversight and Performance Assurance 
and the NNSA's Office of Defense Nuclear Counterintelligence for 
further review and appropriate action.In summary, our reviews have 
disclosed significant internal control weaknesses in the Laboratory's 
management systems. In response to our recent reports and those of 
other external reviewers, the University has indicated that it has 
implemented a number of reforms.

                               CONCLUSION

    The environment described in my testimony today can--as was the 
case with many issues raised in previous reviews--be attributed in 
large measure to management decisions and policies that did not assure 
the interests of the Federal taxpayers were adequately protected. In 
this context, our recent work at Los Alamos and at other Department 
locations has led us to develop a list of lessons learned that can be 
used by the Department to strengthen its management practices. 
Specifically, the Department needs to:

 Ensure that its contractors establish robust, effective, and 
        reliable business systems;
 Promote contractor governance models that adequately protect 
        the Department's interests;
 Foster a culture where contractors fully understand and honor 
        the special responsibility associated with managing taxpayer-
        funded Federal facilities;
 Promote an environment where both Federal and contractor 
        employee concerns can be raised and addressed without fear of 
        retaliation;
 Develop quantifiable, outcome-oriented metrics and maintain a 
        system to track critical aspects of contractor performance; 
        and,
 Rate and reward contractors commensurate with their 
        accomplishments.
    To assist the Department in addressing the weaknesses discussed 
today and measure progress against these lessons learned, my office 
will continue to review the situation at Los Alamos National Laboratory 
and other contractor-operated facilities.
    Mr. Chairman and Members of the Subcommittee, this concludes my 
statement. I will be pleased to answer any questions.

    Mr. Greenwood. Thank you, Mr. Friedman.
    As you pointed out in your opening statement, the IG has 
done considerable audit work at Los Alamos from firearms 
control, to general operations, to costs claimed. This 
committee has uncovered what we think are some questionable 
procurement practices at the lab with local vendor agreements. 
Our investigators have uncovered hundreds of thousands of 
dollars in purchases using the local vendor agreements that do 
not seem to have legitimate business purposes, in my eyes.
    For example, we identified purchases of shoes for fiscal 
year 2001 and 2002 totaling $881,488.97. Now I understand that 
there are business needs arguably for some lab employees to be 
provided with safety shoes, but this other amount seems 
excessive to me. I find this particularly irksome since on my 
way to Washington this week, I bought myself a new pair of 
shoes, and they cost me $139. I did not use my Federal credit 
card for those shoes. I used my personal credit card for those 
shoes.
    And looking at an item that our staff just pulled off of 
the data that we collected, we don't just see work boots here. 
We see a total of 7,476 pairs of shoes purchased in this 2-year 
period, including 615 pairs of New Balance sneakers, athletic 
shoes; 566 pair of Nike shoes; Rockport shoes. We even have 
nine pairs of Tevas, which are sandals. I'm not sure that 
anybody at Los Alamos is required as a part of their work to 
wear sandals to work. But the list goes on. Adidas, Asics, 
Bates, Carolina, Dexter, HH, Doc Martens, Durangos, Golden 
Retrievers, et cetera. These are all brands of shoes we 
identified, as well as in that 2-year period 517 coffeemakers. 
Now, I understand that offices have coffeemakers, but it's hard 
to imagine that you need to replace 517 of them at one 
facility. Four hundred ninety-one pair of gloves, et cetera.
    Does the--does your--have you done any work in this area? 
Have you looked at these kinds of procurements?
    Mr. Friedman. Mr. Chairman, I believe the number now is 18 
civil and criminal investigations ongoing at Los Alamos. And 
it's entirely possible, but I can't attest to that as I sit 
here this morning, but those issues are under investigation as 
we speak. But I certainly would be interested in the 
information, and if they're not under review, we will certainly 
consider that.
    Mr. Greenwood. It looked like to me both in the case of the 
footwear and the gloves is that somewhere someone in the 
laboratory decided that somebody needed to have safety boots. 
So there was some decision made that certain footwear could be 
reimbursed, and that people just went nuts, and people passed 
catalogs, I assume, and purchased shoes from these vendors, and 
nobody ever bothered to look. And that's a tiny little 
microscopic analysis that we made of the procurement at the 
lab, and we came up with these results, and it's pretty 
discouraging, as it should be.
    Given your extensive background in working with DOE 
facilities, do you think that the University of California can 
pull itself up by its business operation bootstraps and start 
running those portions of the lab effectively and efficiently?
    Mr. Friedman. Well, I think in all fairness as we tried to 
analyze the situation, Mr. Chairman, the university has taken 
fairly dramatic action, and that's certainly been bolstered by 
the actions of Secretary Abraham and the Deputy Secretary as 
announced today.
    I think the jury is out, as was said earlier, and remains 
to be seen, and we will have to look at it in the months ahead 
to see what the status of their business systems is after they 
have implemented and executed the fixes that they have 
announced.
    Mr. Greenwood. Is it customary for DOE officials to consult 
with you and your employees when they are, for instance, 
designing a system to attract new bids? Are they likely to come 
to you and say it's your role to look for, among other things, 
misspent Federal dollars, weaknesses in the system, failures to 
maintain integrity? What is your advice as to how we should 
design a contract so that we can minimize the likelihood that 
this will happen in the future? Is that likely to happen?
    Mr. Friedman. It's likely to happen, and it has happened in 
the past.
    Mr. Greenwood. I would certainly hope that if it doesn't 
happen, that you will take the initiative to remind those 
others in the Department that you have some helpful advice as 
they design this.
    The Chair relinquishes the balance of his time and 
recognizes the gentleman from Florida.
    Mr. Deutsch. Thank you, Mr. Friedman. It's good seeing you 
again.
    Mr. Greenwood. Before I do, the Chair would like to 
recognize some visitors that we have in the audience. We have 
four visitors from Kenya who are with us today, and if they 
would stand for a moment and say hello.
    Gentleman is recognized.
    Mr. Deutsch. You have been investigating and reporting on 
problems at Los Alamos for many, many years. The inspector 
general has appeared at many, many hearings held by this 
committee to report on his office works. Do you agree with 
Ambassador Brooks that the culture at Los Alamos--that business 
practices is beyond the control of DOE or the university?
    Mr. Friedman. I don't want to characterize what Ambassador 
Brooks said. I don't know precisely--I didn't catch that phrase 
precisely. What I would say is you cannot have a well-managed 
laboratory and cannot have good science unless as a corollary 
you have good business practices. So to the extent that they 
have fallen down in the area of business practice, I think it 
reflects on the entire operation at the laboratory.
    Mr. Deutsch. I think the question really is--and, again, 
for the extensive hearings that we have had and the 
investigation, I mean, I think what we have talked about is 
systemic problems, literally a culture, as I think the chairman 
alluded to as well. The phrase ``Monopoly money''--or in terms 
of--or you don't get the number of instances, 18 
investigations. It's not one bad apple. It's not one person who 
has a criminal intent. I mean, I just don't see that from 18 
examples that we're aware of in a short investigation. I think 
really the question is--is that--just the culture of the 
institution and is that part of the thing that needs to change. 
And it also reflects on the university as well in terms of its 
position, in terms of the new proposal, in terms of the bid 
process that exists.
    Mr. Friedman. Well, I think the answer to your question is 
that they are cultural issues and environmental issues at the 
laboratory. Since 19--since fiscal year audits inspections at 
Los Alamos--and 33 of those dealt with financial systems, 
business management systems, procurement and the like, as I 
indicated earlier, in the 6 or 7 points where contractors fully 
understand and honor the special responsibilities associated 
with managing taxpayer-funded Federal facilities, so it seems 
to me there is a higher standard that exists.
    Mr. Deutsch. To deal with the sort of cultural or systemic 
problems that we see or that we--I say if we all, in a sense, 
acknowledge exists at the lab.
    Mr. Friedman. Well, my responsibility, as I understand it, 
is to make sure the taxpayers have a seat at the table when the 
business decisions or the science decisions are made at the 
laboratory, No. 1; and, number 2, to raise problems as we come 
across them. We've done that aggressively, I think, over time; 
and I think it's for others, actually, to implement the 
recommendations once we've made them.
    Mr. Deutsch. You have made some fairly devastating 
conclusions about the financial controls, business systems, 
property management and the internal audit operations at Los 
Alamos. In fact, in your cost reports you have drawn the 
following conclusion, and I'm quoting: The Department, in our 
judgment, has less than adequate assurance that the costs 
claimed in the operation of the laboratory are allowable under 
the contract.
    This is from page 11 of your report. Are you saying that 
DOE cannot be assured that any of the over $1 billion spent at 
the laboratory is allowable because there is no acceptable 
method to check it?
    Mr. Friedman. What I'm saying is that there were enough 
issues that were raised in terms of the three main components 
of the costs that we have questioned as well as the fact that 
there is a substantial backlog of subcontract costs which have 
never been audited that raise enough questions that reduce our 
assurance, our level of confidence that all of the costs 
claimed were allowable.
    Mr. Deutsch. I mean, the statement that I quoted from is an 
extraordinarily broad statement. It's really the equivalent of 
a company's auditor refusing to sign off on their financials 
because they can't verify that. Is that effectively what you're 
saying is the situation at Los Alamos?
    Mr. Friedman. That's what we are saying; and, as was 
pointed out earlier in the hearing, we disclaimed an opinion on 
the 2000 and 2001 statements of cost claims submitted by the 
contractor as well.
    Mr. Deutsch. All right. So, again, you issued similar 
disclaimers on your cost audits for 2000, 2001, correct?
    Mr. Friedman. Correct.
    Mr. Deutsch. All right. Were the University of California 
and DOE aware of this?
    Mr. Friedman. Absolutely.
    Mr. Deutsch. And what was their response to these reports?
    Mr. Friedman. Lethargic is the only way I can describe it. 
I think the intensive management oversight really took place 
within the last 6 to 9 months. There has been energy expended 
by Secretary Abraham and Kyle McSlarrow and Ambassador Brooks 
and by the university as well. They've taken a real interest in 
what's gone on, it seems to me, at Los Alamos.
    Mr. Deutsch. We have been told that the financial controls 
and audit functions at Lawrence Livermore National Lab, which 
is also run by University of California, are better. Is that 
correct? And, if so, why is that?
    Mr. Friedman. That's our view, that it's run on a more 
professional basis; that they report more fully and completely; 
and it's a better quality team.
    Mr. Deutsch. I mean, could you elaborate why or speculate 
why?
    Mr. Friedman. I can't look in the, you know, frankly, in 
the minds of the people who are doing it. All I can tell you it 
is a more professional operation that is more responsive. It is 
an operation which does a more comprehensive review of costs 
that are incurred at Livermore. At least, that's been our 
finding to date.
    Mr. Deutsch. How does Los Alamos compare financial controls 
in place by other contractors? Is it the worst you've ever 
seen?
    Mr. Friedman. As far as we're concerned, it's the worst 
that we've come across in the Department of Energy complex.
    Mr. Deutsch. You've also questioned the cost of the entire 
internal audit operation because it was not independent as the 
contract required. An independent auditor doesn't report to the 
people he's auditing, is that correct?
    Mr. Friedman. That's correct.
    Mr. Deutsch. Has the audit function ever been independent?
    Mr. Friedman. There was a period of time, if I recall the 
history, in which it may have been independent, but that was 
probably 6 or 7 years ago at the earliest; and I can't really 
attest to that as I sit here today.
    Mr. Deutsch. Did the DOE staff responsible for Los Alamos 
know that many planned audits weren't being done and that the 
allowable cost audit relied on judgmental sampling techniques 
from which results could not be projected?
    Mr. Friedman. My understanding is that they were not fully 
conversant with the work that was done by the internal audit 
group.
    Mr. Deutsch. And you mentioned, you know, the issues with 
the subcontractor audits. How did the lab get so far behind in 
its audits of subcontractors?
    Mr. Friedman. Well, there has been some change in the way 
that Los Alamos has operated over time in that at this point in 
time a huge portion of the money that the Department of Energy 
spends through Los Alamos is spent through subcontractors. So 
the demand for a subcontract audit certainly has increased, or 
at least so it seems to us. There may be staffing problems, a 
lack of adequate staffing. There may be a lack of interest in 
contract audit function. But, in any case, the backlog was 
significant.
    Mr. Deutsch. What are you going to do about that, the 
subcontracting auditing problems?
    Mr. Friedman. What am I going to do about it?
    Mr. Deutsch. I mean, what are they going to do about it? I 
mean, what's your recommendation in terms of----
    Mr. Friedman. My recommendation is that, considering the 
fact that there's at least a billion dollars in unaudited 
funds--at least there was at the time of our review--that the 
university better be very, very aggressive in going after that 
money to make sure that those costs are allowable under the 
terms of the subcontracts and that the taxpayers' interests are 
properly represented.
    Mr. Deutsch. I mean, does the lab presently have the staff 
to make all of those audits?
    Mr. Friedman. I'm sorry.
    Mr. Deutsch. Does staff exist to actually do that?
    Mr. Friedman. Well, they do have staff there. I don't know 
whether it's sufficient in terms of numbers or expertise to do 
all of the work.
    Mr. Deutsch. The university told our staff recently that it 
intended to do a full overhaul of the financial systems. You 
found that this initiative was not approved by the DOE as 
required by the contract. Has DOE taken any steps to approve or 
disapprove this change in the financial system?
    Mr. Friedman. I'm not aware of any one way or the other, 
Mr. Deutsch.
    Mr. Deutsch. Would your impression be the same as ours that 
that, in fact, is required under the contract?
    Mr. Friedman. That's what we state in our report, and we 
believe that to be the case.
    Mr. Deutsch. I mean, it just seems that they're doing a 
major overhaul, I mean based on these problems; and they're not 
even interacting with you at this point about that overhaul.
    Mr. Friedman. Well, in fairness, in response to our report 
I think the university indicated there was more interaction 
than would be suggested. But the fact of the matter is that we 
believe the requirements of the contract suggest that approval 
of the Department of Energy is required, and that approval 
certainly was not obtained.
    Mr. Deutsch. Let me just ask one final question. DOE has 
given Los Alamos high marks for its protection of classified 
material. But you state that you found such weaknesses in the 
lab's control of computers used for processing classified data 
that you, I'm quoting, do not believe that Los Alamos can 
provide adequate assurance that classified, sensitive and 
proprietary information is appropriately protected. How do you 
reconcile these high marks with your failing grade?
    Mr. Friedman. Well, I can't reconcile the position that 
anybody else has taken. What I--I think the most--one of the 
most important points is that, of the laptop computers that 
were used for classified work, two of the computers were not 
accredited. And I could go through the definition, but 
accreditation seems to us to be extremely important and calls 
into question whether the environment, the approved use, the 
location was appropriate.
    Mr. Deutsch. Thank you.
    Mr. Greenwood. The gentleman from Michigan, Mr. Stupak, is 
recognized for 10 minutes.
    Mr. Stupak. Mr. Chairman, I wonder if I could just pass for 
a minute. I just got back. I just want to review a couple of 
things, and I'll come right back. Can I pass for now?
    Mr. Greenwood. Yes. The Chair failed to recognize the 
presence of the gentleman from Oregon. Mr. Walden is recognized 
for 10 minutes.
    Mr. Walden. All right. Thank you, Mr. Chairman.
    Sir, part of the impetus of this committee's work with 
regard to Los Alamos was the improper treatment of two 
whistleblowers who were terminated from their positions at the 
lab, as you know. Your office issued a report on that action in 
January of 2003, I believe, where you found the terminations to 
be unsubstantiated. Has your office looked at any other recent 
whistleblower concerns at Los Alamos? And, if so, what action 
are you recommending or taking? And do you have an opinion on 
whether or not the whistleblower protection policy of Los 
Alamos is sufficient?
    Mr. Friedman. Well, I am not aware of any other 
whistleblower reviews that we're doing at present. There may be 
one or two that I'm not aware of. But I certainly think that 
the climate at Los Alamos was unacceptable in terms of 
treatment of whistleblowers and the concerns about retaliation.
    There have been surveys done of employees there--not 
recently, but within the last year or 2--in which a 
preponderance of employees have indicated they were concerned 
about raising serious issues to management for fear of 
retaliation. So I think it's extremely important that the 
environment and the climate be one which people feel free to 
raise concerns, that concerns are addressed and that there is 
no retaliation.
    Mr. Walden. Do you think it would be prudent to do a new 
survey--given that we're being told that people have been 
fired, management is changing, the university has responded 
aggressively, would it be prudent now to do another internal 
survey, a confidential survey of employees to see if they feel 
like the climate's changed?
    Mr. Friedman. I--the survey that I referred to was not one 
that my office did. It was--someone else had done that. But I 
think it is a very interesting idea, and let me think about 
that and consider it.
    Mr. Walden. Okay. Because it just seems to me--I mean, we 
are being told things have changed. It appears they have. I 
wonder if internally the culture believes that it's changed or 
not, and so I think this would be interesting.
    I had a couple of questions, too, off of the Deputy 
Secretary's memorandum for the Secretary where they detail out 
some of these issues about equipment and purchases and 
attempted to make charges and all, some of which has been 
refunded without question.
    I guess one of them that drew my attention--this article, 
it says, questions concerning the adequacy of property 
controls. Newspaper revelations indicated the lab was unable to 
account for $1.3 million worth of controlled property, 
including such pilferable items as computers. Although the most 
spectacular allegations--a missing forklift, for example--were 
ultimately resolved, substantial amounts of property remain 
unlocated.
    Can you enlighten me as to what they're referring to and 
the size of--what the term ``substantial amounts'' may mean?
    Mr. Friedman. Well, I don't know what document you're 
referring to or what news article you're referring to. I don't 
think I could put bounds on that. I don't know for sure.
    Mr. Walden. Just for the record, it is Deputy Secretary 
Kyle McSlarrow's memorandum to the Secretary dated April 26.
    Mr. Friedman. Okay. I've seen the memo. I have not studied 
the memo, so I'm not precisely sure what he's referring to.
    But let me give you a sort of a real-time example as we 
just completed a review of laptop computers and we found that a 
number of unlocated laptop computers were simply written off 
the inventory records at the end of the year, and that seems to 
be a not uncommon methodology for handling unlocated sensitive 
property and nonsensitive property.
    Mr. Walden. And how recent is that review?
    Mr. Friedman. That review was issued last week.
    Mr. Walden. Last week?
    Mr. Friedman. Yes.
    Mr. Walden. How recent were those computers written off?
    Mr. Friedman. That was at the end of the fiscal year, so 
within the last 6 months.
    Mr. Walden. And how many were written off, do you recall?
    Mr. Friedman. I think the number was 20, if I recall 
correctly. But I'm not positive. I'd like to provide that for 
the record if I could.
    Mr. Walden. Certainly. I'd appreciate that.
    Mr. Friedman. I want to be precise with you.
    Mr. Walden. Of course. And I respect that. You can't be the 
repository of every single detail on every issue we raise, I 
recognize.
    [The following was received for the record:]

    The number of computers written off during fiscal years 
2001 and 2002 is 22.

    Mr. Walden. There's also a reference in this that says, an 
audit of firearms control that revealed significant weaknesses 
in procedures and accountability, although all firearms were 
ultimately located. Have you looked into that issue?
    Mr. Friedman. Yeah, that was a report that we issued about 
1\1/2\, 2 months ago in which we were ultimately able to 
identify all the firearms. The problem was that the master 
inventory list that Los Alamos keeps was inconsistent with the 
list that the subcontractor maintains, and the subcontractor is 
responsible for police functions at the laboratory.
    Mr. Walden. And how far apart were those lists? Were they 
significant?
    Mr. Friedman. Well, 200 out of 1,400 or something like 
that. It was a significant number, yes.
    Mr. Walden. Of various weapons.
    Mr. Friedman. Primarily side arms, protective force 
weapons.
    Mr. Walden. And can you give me some idea about--were they 
just simply in a different place than where one person thought 
they were, or had they wandered away and came back?
    Mr. Friedman. No. Simply stated, they were--it's a little 
more complex, so bear with me for a second. In general, the 
system at Los Alamos was such that the arms that were received 
from the Department of Energy or through other sources went 
directly in some cases to the subcontractor, not through Los 
Alamos itself. As a consequence, they were either delayed or 
never made it to the master inventory list; and we were 
concerned that the university and the laboratory itself ought 
to have the comprehensive, complete list of firearms that are 
available at the site.
    Mr. Walden. So am I correct then in understanding it wasn't 
that the weapons disappeared. It's just they weren't on the 
inventory list that you thought they should be on.
    Mr. Friedman. That is correct. And nobody had taken the 
time to reconcile the lists, in which case they would have 
identified the problem. It took us to come in and do it.
    Mr. Walden. According to a February 5, 2003, memo from you 
to Acting Administrator Linton Brooks of the NNSA, your office 
encountered, quote, unquote, significant dysfunction at Los 
Alamos during your review. Specifically, you note the lab 
management failed to comply with your request for information 
regarding an April 10, 2002, internal lab memo. In your recent 
report on costs claimed, there's more than one occasion stated 
where you felt that the lab was not as forthcoming in producing 
information and documents to your office as would be expected. 
Have you addressed this issue specifically, with NNSA or DOE? 
And, if so, what have they pledged to do to alleviate this 
problem in the future? Are you getting the cooperation that you 
expect and deserve?
    Mr. Friedman. Interestingly enough, we have discussed it 
with the Department of Energy at both levels. But we discussed 
it primarily with the chief auditor of the University of 
California, and within hours we received the information that 
we had requested. So the University of California stepped in 
and immediately overrode the reluctance on the part of the 
working-level people at Los Alamos to provide the information 
that we needed.
    Mr. Walden. When your auditors go in and ask these 
questions of the working level at the lab, what are you told? 
Why are you told they won't give you the information? Or do 
they just--give me the insight there. What do you run into?
    Mr. Friedman. I can't really characterize it. It probably--
there's a recognition it may be embarrassing, that it may 
reflect negatively upon the lab. I'd be speculating and I hate 
to do that because I don't know really what was going on in 
these people's minds. What I do think is important, though, was 
that we have faced this time and time again, and clearly,----
    Mr. Walden. Is it changing though?
    Mr. Friedman. Well, as I say, Patrick Reed, the auditor for 
the university, stepped in and immediately provided the 
information that we were looking for.
    Mr. Walden. But do you feel like you're going to have to go 
back to the university auditor on a regular basis? Do you feel 
like--I guess I'm trying to get at, is the culture really going 
to change at the hands-on level in the lab, or do you have to 
keep going up to some auditor somewhere above them to get the 
culture to change? Because I think that all interacts with 
who's controlling the lab and do we have problems still there? 
Do we have files disappearing? Do we have lack of cooperation?
    Because I've got to tell whoever's out there that is not 
cooperating, if they think they're embarrassed because of 
revealing information, not revealing, hiding and deceiving or 
trying to ignore your investigation is going to cause them a 
whole bunch more problems than cooperating. We know there's a 
problem. We're trying to get at it and solve it.
    Mr. Friedman. Well, I agree with your observation; and if 
the experience we've had with Mr. Reed, Vice President Darling 
and others is reflective of what's going to happen in the 
future, we have solved the problem. But if that's not the case, 
they'll be hearing from me, as will the Secretary.
    Mr. Walden. All right. Thank you Mr. Chairman.
    Thank you, sir. Appreciate your work.
    And I return the balance of my time.
    Mr. Greenwood. The Chair thanks the gentleman.
    The gentleman from Michigan--no, the--yes, the gentleman 
from Michigan, Mr. Stupak, is recognized for 5 minutes.
    Mr. Stupak. Thanks, Mr. Chairman.
    Mr. Friedman, are you familiar with the performance 
standards set for Los Alamos for fiscal year 2003?
    Mr. Friedman. I have seen them. I have not studied them. We 
are in the process of looking at them very carefully right now.
    Mr. Stupak. Well, let me ask you this, if I may. According 
to the document, there is an attachment, Appendix F. In it's an 
implementation plan carrying out the scientific mission as the 
most important objective of the laboratory; and they go on to 
say, procurement and property management, business controls, 
financial management, environmental clean-up and control, 
security and health and safety are all lumped together in 
objective No. 7 of the nine objectives. The implementation plan 
was signed by the university on April 13. Does this indicate to 
you that the university or DOE are going to give any real 
emphasis to fixing the problems that we're discussing here 
today?
    Mr. Friedman. Well, I'm concerned by the--what appears to 
be a relative imbalance in terms of the criteria that have been 
established, and I agree with your observation. I--at this 
point, though, we're studying the issue. We have not reached 
any final conclusion, so I can't give you a definitive answer.
    Mr. Stupak. Well, the--and Mr. Walden has mentioned a 
little bit about it, the culture that's there. I mean, besides 
putting out these mission statements, how do you really change 
a culture when you have classified computers missing or a 
person can order a Mustang using the credit card--Los Alamos 
credit card? How do you change that?
    Mr. Friedman. Well, I think it's a complex--it's a simple 
question, Mr. Stupak, but it requires a complex answer. But to 
put it in a word is ``accountable.'' You have to hold 
individuals accountable, and you have to hold contractors 
accountable, and you have to be prepared to take severe and 
drastic action, both in the case of individuals and in the case 
of contractors if their performance does not meet government 
standards and they do not understand that they're working for 
the taxpayers.
    Mr. Stupak. And in your reports, have you seen any 
accountability? For instance, the person who ordered the 
Mustang--we were out there in January, and that occurred in 
September. So it's 4 or 5 months later. They're still there. I 
mean, what kind of a message does that send to the rest of the 
employees about do whatever you want to do and you're not going 
to be held responsible?
    Mr. Friedman. That matter is the subject of a current 
investigation. I couldn't comment on it in public.
    Mr. Stupak. Well, I'm just more asking for a signal. But--
--
    Mr. Friedman. Well, if the environment is what you're 
referring to, there have been very significant personnel 
changes at Los Alamos. They've been described earlier today. 
Perhaps more are needed. I don't know. The director has said 
he's going to look at those issues as they come about.
    Mr. Stupak. But yet you were concerned about the 
whistleblowing going on there, that people who wanted to come 
forth with serious concerns about what's going on at Los 
Alamos, they're afraid to because they didn't feel they'd be 
backed up by whether it's the whistleblower protection plan or 
by the superiors who are in charge. Isn't that true?
    Mr. Friedman. That's correct.
    Mr. Stupak. So that--if they're concerned about not being 
backed up, whether it is a whistleblower or other serious 
concerns that they may bring forward, whose responsibility is 
that? Is that the Department's or is that the University of 
California who has the contract to manage it?
    Mr. Friedman. Well, I think it's a shared responsibility. I 
think the University of California has to make a commitment, 
which I think they have certainly verbalized over the last 
several months, that whistleblowers are--they're going to be 
treated with respect, that their concerns are going to be 
addressed. I think the Department and the Department handlers 
are responsible for ensuring that the university meets that 
commitment.
    Mr. Stupak. I'm sorry I missed the first part of your 
hearing. I had to go up to--I mean, your testimony. I had to go 
up for some meetings. But how long have you been doing audits 
at Los Alamos?
    Mr. Friedman. As an office, the Office of Inspector General 
for the last 25 years.
    Mr. Stupak. Okay. You personally.
    Mr. Friedman. Personally, for the last 20 years.
    Mr. Stupak. Have you seen any accountability of people 
there? You know, it seems like we had a problem, and no one's 
willing to accept responsibility. We've just passed it off. We 
come up with a new program every year to change the problems, 
and nothing ever gets changed.
    Mr. Friedman. Frankly, I have seen no change save what has 
transpired in the last 6 to 9 months.
    Mr. Stupak. Thank you. I'll yield back. But I can probably 
sneak another one in here, too.
    Mr. Greenwood. The time of the gentleman has expired.
    Mr. Stupak. All right.
    Mr. Greenwood. The Chair recognizes the gentlelady from 
California for 5 minutes.
    Ms. Eshoo. Thank you, Mr. Chairman.
    Welcome back, General Friedman. It's good to see you, and 
thank you for your public service.
    I have three questions. In the 20 years that you have been 
doing the work that you've done as you just stated, have you 
inspected the Department relative to the contract?
    Mr. Friedman. Yes. And----
    Ms. Eshoo. And how recently?
    Mr. Friedman. We do that regularly.
    Ms. Eshoo. And what have you discovered or recommended?
    Mr. Friedman. Every year for the past 4 or 5 years we have 
identified contract administration, which is the way we 
characterize it, contract management. As a management----
    Ms. Eshoo. And if you were to issue a report card, is it a 
passing grade? Is it a high grade? Is it a low grade?
    Mr. Friedman. No. We have treated it as one of the top 10 
management challenges facing the Department in which they have 
not done an adequate job.
    Ms. Eshoo. That they have not done an adequate job.
    Mr. Friedman. That's correct.
    Ms. Eshoo. And in what area specifically?
    Mr. Friedman. Well, every facet of contract administration, 
ensuring that you have a governance program in effect in which 
Federal managers who are ultimately responsible for the 
expenditures of funds know what's going on at the various 
contractors and are held accountable for their aspect of 
contractor operations.
    Ms. Eshoo. So there is a--there are shortcomings inside of 
the Department in the responsibility--in the role that they 
play relative to the contract.
    Mr. Friedman. In my view, yes.
    Ms. Eshoo. Thank you. Were you asked by Deputy Secretary 
McSlarrow or Ambassador Brooks to evaluate UC's reform measures 
at Los Alamos? And, if so, was your assessment reflected in 
their report to Secretary Abraham?
    Mr. Friedman. Let me be clear answering your question. 
There were aspects of the work that we've done over the past 6 
or 7 months at Los Alamos that were specifically requested by 
the Department. However, I, to the best--if I understand your 
question, we have not been asked to evaluate the specific 
components of the corrective action plan that have been 
proposed.
    Ms. Eshoo. So, am I understanding this correctly, the 
assessment that you did was not reflected in the report to 
Secretary Abraham in the report, your analysis?
    Mr. Friedman. I'm sorry.
    Ms. Eshoo. The IG's analysis.
    Mr. Friedman. We may be confusing your question. We have 
analyzed 6 or 7 different programmatic areas in the past 
several of months, several of which were specifically requested 
by the NNSA.
    Ms. Eshoo. I understand the request. But following it down 
the road----
    Mr. Friedman. I have not, on a stand-alone basis, evaluated 
the corrective action plan that the University of California 
has proposed and that the Department of Energy has discussed 
today.
    Ms. Eshoo. So it's not part of Secretary Abraham's 
assessment then. Either through your review or anyone else's.
    Mr. Friedman. Again, I want to make sure I don't give you 
any bad information here. Secretary Abraham, as his 
announcement identifies, has used the work that we've done in 
part in reaching the decision that he has reached.
    Ms. Eshoo. I think the operative phrase here is ``in 
part,'' and I just want to move on. Do you think that there's 
been adequate time for the reforms to take root at Los Alamos, 
and do you--would you suggest that they be examined again in 
the next handful of months?
    Mr. Friedman. There has not been enough time for them to 
take root, and there has not been appropriate time for us to do 
an evaluation. And I do think they ought to be--they need to be 
reviewed both by the Department and probably by the university 
itself over the next period of time.
    Ms. Eshoo. Well, I think that's very important. Because if, 
in fact, and it's legitimate, that this committee of 
investigation and oversight has been highly critical as the 
abuses and the mismanagement have been reviewed and hammered, 
if, in fact, and we know that they have been put into place, 
those reforms really need to be reviewed, both for the good of 
the contractor if there is to be--whomever the future 
contractor is, as well as the performance of the Department 
itself.
    When you testified before the committee in February, you 
said it was appropriate to evaluate the reforms that UC is 
making at Los Alamos. And it hasn't been 6 months yet, and I 
just want to set that down for the record. But since you spent 
time reviewing the operations at Los Alamos, can you give the 
subcommittee your impression so far today that you've made and, 
in your determination, are they successful? I know that you 
said earlier that they, you know, everything--it's in progress. 
But can you give us an interim report, so to speak?
    And I have to stop now. But I think that you can answer.
    Mr. Friedman. I'm reluctant to do that because we have not 
done a comprehensive review.
    I will tell you this. It's clear that the university has 
taken dramatic sweeping action to change individuals, to change 
policies, to change procedures; and we will have to see how 
effective that is. Time will tell.
    Ms. Eshoo. Thank you, Chairman Greenwood.
    Mr. Greenwood. The Chair thanks the gentlelady; and, 
General Friedman, we thank you for being with us again.
    Before I let you go, you mentioned I think 18 open 
investigations. Would you supply the subcommittee with the 
details of those investigations, please, in writing subsequent 
to today?
    Mr. Friedman. Subject to information that may be criminal 
activity sensitive, I will do so in writing. Otherwise, I'd 
rather do it in a verbal setting. But I will certainly do that 
with the assistance of staff.
    Mr. Greenwood. Work that out with our staff.
    Mr. Friedman. Certainly.
    [The following was received for the record:]

    At a briefing held for subcommittee staff on May 13, 2003, 
those details were provided by John Hartman, Assistant 
Inspector General for Investigations.

    Mr. Greenwood. We thank you very much for being with us, 
and you are excused.
    We call forward our third panel consisting of Dr. Richard 
C. Atkinson, President, University of California; Mr. Bruce 
Darling, Senior Vice President, University Affairs, Interim 
Vice President for Laboratory Management at the University of 
California; Ms. Anne Broome, Vice President for Financial 
Management at the University of California; and Mr. Patrick 
Reed, University Auditor at the University of California.
    We welcome all of you. Thank you for your patience.
    Mr. Atkinson. Mr. Chairman, members of the committee----
    Mr. Greenwood. If I can ask you to hold for a second, are 
we waiting for Mr. Darling? Okay. I need to put you all under 
oath, and so we'll do that all at one time.
    Mr. Darling's thinking, I sat here for 2\1/2\ hours. He 
chooses the 1 minute that I leave the room.
    Mr. Darling. That seems to be my pattern, Mr. Chairman.
    Mr. Greenwood. Thank you, sir. I think all of you have 
heard me to say to the other witnesses that this is an 
investigative hearing and that it's our practice to take 
testimony under oath. So I would ask if any of you have any 
objections to giving your testimony under oath. Okay.
    I should also inform you that, pursuant to the rules of 
this committee and the House, you are entitled to be 
represented by counsel. Do any of you wish to be represented by 
counsel? Okay.
    In that case, if you would stand and raise your right hands 
please.
    [Witnesses sworn.]
    Mr. Greenwood. You are under oath.
    Dr. Atkinson, you are recognized for your opening 
statement.

  TESTIMONY OF RICHARD C. ATKINSON, PRESIDENT, UNIVERSITY OF 
CALIFORNIA; BRUCE B. DARLING, SENIOR VICE PRESIDENT, UNIVERSITY 
  AFFAIRS, INTERIM VICE PRESIDENT FOR LABORATORY MANAGEMENT, 
  UNIVERSITY OF CALIFORNIA; ACCOMPANIED BY ANNE BROOME, VICE 
 PRESIDENT FOR FINANCIAL MANAGEMENT, UNIVERSITY OF CALIFORNIA; 
 AND PATRICK REED, UNIVERSITY AUDITOR, UNIVERSITY OF CALIFORNIA

    Mr. Atkinson. Mr. Chairman and members of the committee, I 
have a formal statement which I'd like to submit for the 
record, but I think I'd rather simply summarize that statement 
in brief form, and then I will turn to Senior Vice President 
Darling to bring the committee up to date on some of the issues 
that have been raised in earlier hearings, and then we'll be 
open for questions and comments.
    Mr. Greenwood. Very well. We appreciate that, Mr. Atkinson.
    Mr. Atkinson. Let me begin by taking note that I've read 
carefully the report prepared by Deputy Secretary McSlarrow, 
and Ambassador Brooks. I am fully in accord with their analysis 
of the situation and understand very well the reasons that led 
them to the decision that has come from the Department of 
Energy, and I accept that decision. In my formal statement I 
indicate that I recognize that the university has full 
responsibility for the business and management issues at Los 
Alamos, and we are committed to dealing with those problems and 
restoring the American public's confidence in our management of 
the laboratories.
    I do want to indicate that I am very proud of the record of 
the University of California, the 60-year record of the 
university in managing these laboratories. I won't review that 
record, but just since 9/11, if one follows those events 
carefully, you will see that the work that has flowed from 
Livermore and Los Alamos has been absolutely critical to our 
response to this Nation's response to those initiatives.
    Clearly, along with those accomplishments, we have serious 
problems at Los Alamos. I will not review those problems, but 
in my testimony I am concerned with why there are such problems 
at Los Alamos. In the process of the testimony, I indicate some 
of the factors that I believe are responsible for that.
    I do want to indicate that between the Vice President, Mr. 
Darling, Vice President Broome and the auditor, Mr. Reed, and 
particularly--and also the Interim Director, Pete Nanos, that 
we are responding and I think responding aggressively to the 
issues. I won't go into the details of why I think we have 
problems or why those problems arose at Los Alamos. You can 
question me on that later if you're so interested in pursuing 
that in more detail. Let me just simply say that we are focused 
on the issues.
    At the end of my testimony I review the issue of whether 
the university will choose to compete for the contract when the 
end of the contract period occurs. I outline some of the issues 
that the university will have to grapple with in making that 
decision; and then finally, in my closing remarks, I indicate 
that the university--no matter what the decision is on the part 
of the university to compete or not compete, I assure the 
Congress that for the next 2\1/2\ years the university will be 
focused on the issues before us and will do our very best to 
resolve the issues.
    With that, I turn to the Vice President.
    [The prepared statement of Richard C. Atkinson follows:]

  Prepared Statement of Richard C. Atkinson, President, University of 
                               California

    Good morning, Mr. Chairman, Mr. Deutsch, and members of the 
Committee: This is my first opportunity to participate in this 
Committee's proceedings on the business and management practices at Los 
Alamos National Laboratory.
    Let me reiterate Senior Vice President Darling's previous testimony 
that the University of California takes full responsibility for these 
business and management problems at Los Alamos. As president of the 
University, I want to assure you that we remain committed to 
strengthening financial controls and to restoring the American public's 
confidence in Los Alamos and the University's management of it. This 
has been the charge to my senior management team, as well as to the new 
leadership at Los Alamos, and it will remain the charge for as long as 
the University is entrusted with this responsibility.
    The Committee has heard testimony from the University about the 
problems at Los Alamos and the range of corrective actions that have 
been taken. Rather than retrace those steps, I would like to provide 
you with a slightly different perspective that goes to the most 
critical question of all, which is how did this happen?
    I have been president of the University of California for eight 
years. During that time, I have been enormously proud of the 
University's continuing contributions to our nation's security through 
its management of the national labs. Building on the legacies of Ernest 
Lawrence and Robert Oppenheimer, Los Alamos and Livermore have moved 
front-and-center in the effort to bolster homeland security, especially 
in the areas of counter-terrorism, non-proliferation, and prevention 
and preparedness for nuclear, biological, and chemical attacks. These 
labs continue as the nation's leader in findings ways to use the most 
advanced scientific and computational assets to simulate nuclear 
testing and to ensure the continued viability of our nuclear weapons 
stockpile. We must never lose sight of those critical contributions to 
the nation's security.
    Along with its accomplishments, Los Alamos has had problems. It has 
been a time of considerable pain to me personally and to the University 
as an institution. It has forced us to ask hard questions about our 
management and to take strong action. The record will show that the 
University has responded quickly and that it has responded well. New 
performance provisions have been written into our contracts, and in 
every instance we have met or exceeded the new requirements.
    Still, the question remains: Why these continuing problems at Los 
Alamos? As context, let me remind you that the University is a $15 
billion enterprise, larger than many Fortune 500 companies. We employ 
160,000 faculty and staff at our ten campuses, five medical centers, 
numerous community-based health facilities, an extensive network of 
agriculture extension centers and three national laboratories. And we 
remain, undisputedly, the world's premier research institution.
    By necessity, for a University system so large and geographically 
dispersed, our management structure is decentralized. Considerable 
authority is delegated to our campus chancellors and laboratory 
directors. For the most part, this arrangement has worked well. There 
is clear accountability and sound management of our education, 
scientific, research and business and finance systems.
    So the question again--why the problems at Los Alamos?
    The last six months has been dedicated to probing that question at 
the very highest levels of the University. I appointed Senior Vice 
President Darling as interim vice president for laboratory management 
and enlisted the expertise of UC vice president for financial 
management Anne Broome and University Auditor Patrick Reed, as well as 
numerous other top University officials. They have worked seven-day 
weeks since last December, focusing almost solely on laboratory 
management issues while still performing their other University 
responsibilities. I wish to publicly thank them today for their 
invaluable service, not just to the University but also to the nation.
    Through their efforts, as well as those of Interim Director Pete 
Nanos and his new management team at Los Alamos, we have made 
considerable progress in implementing the changes necessary at the 
Laboratory. We are also beginning to understand why there was such a 
fundamental management breakdown at the Laboratory.
    I believe it comes down to two things: First, former Laboratory 
senior management did not address the problems in a timely or 
appropriate manner. And second, neither the University nor the NNSA 
provided adequate oversight to detect problems that should have been 
more readily apparent.
    Let me focus first on Los Alamos leadership. As President, I 
appoint the ten campus chancellors and three laboratory directors. All 
are accomplished scholars (among them is a Nobel Prize winner), but 
they also must be able managers who can run complex organizations that 
require a careful balance between science and research and sound 
business management. I rely on the chancellors and laboratory directors 
to alert me early to potential problems and to obtain assistance of my 
top leadership team in whatever area necessary.
    That did not occur at Los Alamos. The former managers of Los Alamos 
were slow to inform me about the procurement problems. When I became 
aware, I acted quickly, including replacing the top two managers.
    But I don't entirely fault Los Alamos management. As part of the 
last contract negotiation, we created a new Vice President for 
Laboratory Management position to provide better day-to-day management 
of the national laboratories. The first vice president was John 
McTague, whose leadership and private sector experience led to strong 
improvements in management and oversight in a number of key areas, 
including security, safety and business efficiency. Under Dr. McTague's 
leadership, for example, UC engaged industrial firms to obtain 
important expertise in security and project management to reassess and 
strengthen the labs' internal systems in these areas.
    However, an unintended consequence of the new management structure 
was to isolate laboratory management from other Office of the President 
functions. Laboratory management did not seek the necessary expertise 
of our auditors and financial management team, as it should have when 
problems arose at Los Alamos.
    For this reason, we are devising a new governance structure that 
much more fully integrates the Office of the President into laboratory 
management, much as it already is--with great effectiveness--at our 
campuses.
    There should have been other early warning systems. Among them are 
the Department of Energy and the National Nuclear Security 
Administration, which have more than 190 employees at Los Alamos and 
Livermore issuing numerous audits, reports, and assessments. The NNSA's 
steady stream of ``excellent'' ratings suggested to me that laboratory 
operations were fundamentally sound. I heartily agree with the 
recommendation by Deputy Secretary McSlarrow and Ambassador Brooks that 
this rating system be revised, but would add my own recommendation that 
it's time to reevaluate the broader DOE and NNSA management structures. 
I hope this will be a subject for further discussion.
    More change is needed, both at the University and at Los Alamos, 
and I pledge these changes will be made. These include implementing the 
recommendations from the independent reviews conducted by 
PricewaterhouseCoopers and Ernst & Young, acting on the various 
Inspector General findings, and enforcing the strong whistleblower 
policies already in place.
    But perhaps our greatest challenge is to ensure that our reforms 
are sustained over time. That said, we are gratified that the Secretary 
of Energy has recognized the extent of our efforts and has decided 
against termination of the Los Alamos contract.
    With the Secretary's announcement yesterday, we are now about to 
enter into a new chapter in our 60-year history of managing the 
national laboratories as a service to the nation for which the 
University receives no financial gain. I am concerned, as we move 
forward, that we not lose sight of the broader national security 
objectives now at stake at a particularly critical time in our nation's 
history.
    Those objectives are what drive my answer to the obvious question 
before me today--will the University now compete for the contract to 
manage Los Alamos National Laboratory? My first instinct is to respond: 
``Yes.'' We want to compete--and we want to compete hard--in order to 
continue the tradition of excellence in science and innovation that has 
characterized our 60 years of managing the national laboratories. We 
want to compete in order to maintain the world's premier nuclear design 
workforce. And we want to compete because we believe, with every fiber 
of our institutional being, that continued UC management is in the 
absolute best interests of the nation's security.
    But there is another question at stake here, and that is whether 
the University of California should compete. The answer to that is less 
clear, and it goes to the fundamental nature of these particular 
government laboratories and the historical reasons why the University 
was first asked to manage them.
    Let me hasten to add that I am in the last five months of my 
presidency. The decision whether to compete will have to be made by my 
successor and by the Board of Regents. In making their decision, they 
will have to grapple with a number of critical issues. Among them:

 First, what will be the conditions of the competition, 
        including issues of criteria, statement of work, partnership 
        and organizational structure, and how will these be impacted by 
        the recommendations to the Secretary by the Blue Ribbon 
        Commission?
 Second, is it even appropriate for the University to pursue a 
        federal business contract? It is one thing to manage the 
        national weapons laboratories at the request of the federal 
        government because of the unique scientific capabilities of the 
        University, and quite another to actively pursue what could now 
        be interpreted as a business venture. I am not sure our faculty 
        or the people of California would support such action by the 
        Board of Regents.
 Third, what will be the relationship between the Department of 
        Energy, the National Nuclear Security Administration, the 
        Federal Bureau of Investigation and the contractor? The current 
        relationship is clearly not working as effectively as it 
        should.
 And finally, our principal contribution over the last 60 years 
        has been to ensure the science and technological excellence of 
        Los Alamos. That factor should be a primary consideration in 
        the future contract, otherwise the University should not 
        compete.
    Our hope is that these questions can be answered in the months 
ahead so that the University can make an appropriate decision about 
whether or not to compete. We believe we would be a strong competitor 
and an even stronger long-term manager of Los Alamos. As the world's 
premier research university, the University of California is uniquely 
positioned to provide this service to the nation.
    In closing, I want to emphasize that the University, for the 
remaining term of the contract, will continue to perform our 
obligations to the nation even as we continue to resolve the business 
and administrative deficiencies at Los Alamos. Our goal remains to 
raise the Laboratory business practices to the same level of quality as 
the science and weapons programs. We owe this to the American people 
whose security is dependent on the Lab.
    Thank you for this opportunity to address the Committee. I would be 
pleased to answer your general questions, and my colleagues are 
available to respond to specifics. Senior Vice President Darling, who 
you all know, is overseeing day-to-day management issues at the 
Laboratories. With your permission, I would like him to briefly 
summarize actions the University has taken since the last hearing.

    Mr. Greenwood. Mr. Darling you're recognized.

                  TESTIMONY OF BRUCE B. DARLING

    Mr. Darling. Good afternoon Mr. Chairman, Mr. Deutsch.
    Mr. Greenwood. You need to push the button on your 
microphone.
    Mr. Darling. Thank you.
    Good afternoon Mr. Chairman, Mr. Deutsch and members of the 
committee. I appreciate the opportunity to appear before you 
for the third time, and I would like to inform you about 
actions taken by the University of California since your last 
hearing on March 12. These are part of our continued efforts to 
improve the business and management problems at Los Alamos 
National Laboratory.
    We have made progress on a number of fronts at Los Alamos, 
from nearing completion of the comprehensive property inventory 
to addressing the backlog of property identified as missing, 
lost or stolen. Let me focus on some of the items that have 
been of particular interest to this committee.
    In recent weeks, we released the findings from two 
independent reviews. After 2 months of work by 20 consultants 
from Ernst & Young, we've released 70 reports--excuse me, seven 
reports containing 90 recommendations that cover the full range 
of Los Alamos business practices, including property 
management. The laboratory is already implementing these 
recommendations.
    Procurement practices were the subject of a separate review 
conducted by the external review team chaired by former DOE 
Inspector General John Layton and assisted by forensic 
accountants from PricewaterhouseCoopers. The external review 
teams report identified internal control weaknesses in 
laboratory procurement and recommended a number of corrective 
actions which are being implemented. In addition, I should say 
these are in addition to corrective actions that were already 
under way at the lab in advance of receiving this report. The 
external review team identified $14,530 in potentially 
inappropriate transactions out of a total of $2.3 billion in 
procurement. This information has been brought to the attention 
of the DOE Inspector General.
    Los Alamos management is also investigating five lists of 
transactions that required additional documentation and review. 
In the last week we've responded to two Inspector General 
reports on the allowable costs audit. We believe that the 
majority of the costs claimed for business meals and travel 
reimbursement are allowable under the contract and Federal 
guidelines. However, even so, we will review our guidelines 
with the National Nuclear Security Administration and make 
appropriate policy revisions after that consultation.
    The Inspector General also criticized the performance of 
the Los Alamos Audits and Assessments Office. As you've heard 
in previous testimony, the internal audit function is one that 
we have pursued very aggressively. As a result, the 
recommendations contained in the report are already being 
implemented.
    The Inspector General's most recent interim report was on 
internal controls over personal computers. We agree that the 
administrative processes that account for classified computers 
are flawed in ways that make verification difficult. The 
laboratory is correcting those problems. But I do wish to 
emphasize one important point. Los Alamos has verified that 
every single classified computer has been properly secured and 
that at no time was classified information compromised or at 
risk as a result of these records deficiencies.
    At the last hearing, I was questioned about specific 
whistleblower cases at Los Alamos and Livermore National 
Laboratories. In response, I sent a letter to Chairman 
Greenwood addressing the university's whistleblower policies 
which we also reviewed in prior hearings as well as the cases 
in question. My letter also addresses a practice related to 
reimbursement for legal costs, and the reports that I've seen 
show no evidence to support the assertion of a culture of 
retaliation against whistleblowers. On the contrary, the 
university has redoubled its efforts to insure that employees 
know about our comprehensive whistleblower policies; and they 
are encouraged to express concerns without fear of retaliation.
    In addition, I've personally met with attorneys for a 
number of the whistleblowers whose cases were brought to my 
attention; and I've arranged for those attorneys to meet with 
the university's general counsel to discuss possible ways to 
settle the cases through alternative dispute resolution.
    We're also working to resolve a number of outstanding 
personnel matters. You will recall that on the date of the last 
hearing the university attorneys were meeting with the U.S. 
Attorneys Office in Albuquerque to obtain crucial information 
on the so-called Mustang case. We also hoped the meeting might 
provide other valuable information. However, the U.S. Attorneys 
Office did not wish to engage in substantive discussions at 
that time. The university will, however, continue to pursue 
this as soon as the U.S. Attorneys Office is willing to do so.
    Similarly, in regard to the Mustang case, the U.S. Attorney 
is not pursuing prosecution of the matter; and the FBI has 
closed its investigative file on the matter. Yesterday, the FBI 
denied our Freedom of Information Act request for the FBI 
investigative file so that we could further pursue the matter. 
Our attorneys are now reviewing the basis for that denial to 
determine what steps we should take next to bring the matter to 
a satisfactory conclusion.
    Finally, I do wish to mention that at its next meeting the 
university board of regents will approve additional audit 
procedures for the national laboratories. The purpose is to 
expand the scope of the external auditors review of the three 
UC-managed national laboratories to include a more in-depth 
review of the labs' financial controls. We want to be sure that 
the financial controls are functioning effectively going 
forward.
    Unrelated to Los Alamos but of critical concern to the 
university and already mentioned this morning are the recent 
indictments in an FBI case that revealed the association of a 
Lawrence Livermore National Laboratory employee with one of the 
individuals indicted. In response, the lab and the university 
moved quickly to deny the employee access to his offices, to 
place him on investigative leave, to relieve him of his 
laboratory badge, to deny him physical and computer access to 
the laboratory, to change the locks on his office, and seal 
those offices so that the offices, the files and the computers 
were immediately secured. In addition, we requested the 
suspension of the individual's clearance, which DOE acted on 
immediately.
    We've also initiated a classified administrative inquiry 
which is now under the direction of the National Nuclear 
Security Administration. The lab and university are providing 
full support and cooperation to that review; and, as you know, 
the employee has since resigned.
    Mr. Chairman, that concludes my remarks. Vice President 
Broome, University Auditor Reed and I will be happy to address 
these issues in greater detail or answer any other questions 
you may have.
    [The prepared statement of Bruce B. Darling follows:]

    Prepared Statement of Bruce B. Darling, Senior Vice President, 
                        University of California

    Good morning, Mr. Chairman, Mr. Deutsch, and members of the 
Committee: I appreciate the opportunity to once again report to you on 
actions the University of California has taken since the last hearing 
to address the business and management problems at Los Alamos National 
Laboratory.
    In recent weeks we have released the findings from two independent 
reviews. They include seven reports on core business practices and 
internal controls at Los Alamos by Ernst & Young. Twenty consultants 
spent two months examining the organization, business systems and 
practices, and the required skills of the Laboratory's Business 
Division. Ernst & Young provided us approximately 90 recommendations 
that cover the full range of LANL business practices, including 
property management. The Laboratory is in the process of implementing 
these recommendations.
    Laboratory procurement practices were the subject of a separate 
extensive review conducted by the External Review Team chaired by 
former DOE Inspector General John Layton and assisted by forensic 
accountants from PricewaterhouseCoopers. In their report, the team 
identified various internal control weaknesses and deficiencies that 
increased the Lab's vulnerability to fraud, waste and abuse.
    The External Review Team recommended a number of corrective 
actions, including an evaluation of staffing needs across all 
procurement functions; new controls in the Just-in-Time program; and 
safeguards to limit purchases under Local Vendor Agreements. These 
recommendations are in the process of being implemented in addition to 
a number of corrective actions that already were underway at the Lab. 
These include reducing both the number of individuals allowed to make 
Local Vendor Agreement purchases and the number of property 
distribution sites, known as ``drop points.'' All drop points are now 
secured except for 45 that will be secured or eliminated in the near 
future.
    In addition, the External Review Team identified $14,530 in 
potentially inappropriate transactions out of a total of $2.3 billion 
in procurement transactions during a two-year period. This information 
has been brought to the attention of the Inspector General. In 
addition, five lists of transactions were submitted to Los Alamos 
management for additional documentation and review. We are in the 
process of investigating these transactions and thus far we have not 
uncovered any fraudulent activity, although some may be determined to 
be unallowable due to the lack of a clear policy governing the purchase 
of required clothing items.
    In the last week we have also responded to two Inspector General 
reports. On the allowable costs audit, we believe that the majority of 
costs claimed for business meal reimbursement are allowable under the 
contract. Even so, we will review our guidelines with NNSA and make 
appropriate policy revisions. We also believe the majority of travel 
claims questioned by the Inspector General are consistent with the 
applicable Federal Travel Regulation guidelines and are allowable 
costs. Los Alamos has researched and resolved 100 percent of the sample 
items on which the Inspector General based its ``projected questioned 
costs.''
    The Inspector General also criticized the performance of the Los 
Alamos Audits and Assessments organization. As you have heard in 
previous testimony, the Internal Audit function has been one of the 
areas UC has pursued very aggressively. As a result, the IG report 
recommendations have already been implemented and are the subject of 
ongoing corrective efforts.
    In regard to the Inspector General's most recent interim report on 
internal controls over personal computers, we agree that the 
administrative processes associated with the accounting of classified 
computers are flawed in ways that made verification of accountability 
difficult. The Laboratory is correcting these procedures. But let me 
stress one very important point: Los Alamos has verified that all 
classified computers have been properly secured and at no time was 
classified information compromised or at risk as a result of these 
problems.
    At the last hearing, I was questioned about specific whistleblower 
cases at the Los Alamos and Livermore national laboratories. In 
response, I sent a letter to Chairman Greenwood addressing the 
University's whistleblower policies and the cases about which I was 
asked. My letter also addresses our practice related to reimbursement 
for legal costs and it reiterates my testimony at the last hearing that 
I have seen no evidence to support the assertion of a culture of 
retaliation against whistleblowers. On the contrary, the University has 
redoubled its efforts to ensure that employees know that comprehensive 
whistleblower policies are in place and that they are encouraged to 
step forward with concerns without fear of retaliation.
    I have met with representatives for a number of the whistleblower 
cases at the two Labs to hear their perspectives on those cases and the 
underlying causes. In addition, I have arranged for meetings with the 
University's General Counsel to discuss possible ways to settle the 
cases rather than through ongoing litigation, such as through our 
alternative dispute resolution efforts.
    We are also working to resolve a number of outstanding personnel 
matters. You will recall that on the date of the last hearing, the 
University's Deputy General Counsel and the former U.S. Attorney in San 
Diego were meeting with representatives of the U.S. Attorney's Office 
in Albuquerque. The purpose of the meeting was to obtain crucial 
information about the ``Mustang case'' from the U.S. Attorney's meeting 
with the Los Alamos Lab's Principal Deputy Director and Laboratory 
Counsel, as well as to better understand the past working 
relationship--and to improve the future working relationship--of the 
Laboratory and the U.S. Attorney's Office. We also hoped that the 
meeting might provide valuable information about a pending personnel 
action. At the meeting, however, the U.S. Attorney's Office deferred a 
substantive discussion of these issues.
    Similarly, in regard to the ``Mustang case,'' we have sent on two 
separate occasions a team of University investigators to visit the 
owner of AllMustang.com in Phoenix to obtain additional documents that 
could enable us to establish who made the attempted purchase of the 
Ford Mustang. It is our understanding that the U.S. Attorney is not 
pursuing prosecution of this matter and the FBI investigation has been 
closed. We have served a Freedom of Information Act request of the FBI 
investigative file, but we were denied a copy of the file by the FBI 
yesterday. Our attorneys are reviewing the basis for the denial in 
order to determine the next course of action. We are, however, still 
pursuing the matter vigorously and we hope to bring the matter to 
conclusion soon.
    On the TA-33 matter, the FBI case is continuing. The lab has 
inventoried all of the equipment and supplies improperly acquired, and 
has recovered all but approximately $50,000 of more than $300,000. The 
merchandise has been put into use by the Lab's major service 
subcontractor. PricewaterhouseCoopers has been engaged to assist in 
reviewing records of purchasing from the vendor from whom the TA-33 
purchases were made. The Lab intends to pursue recovery from the vendor 
for any residual amounts not otherwise recovered.
    Additionally, the Laboratory continues to work on the backlog of 
property identified as missing, lost or stolen. All open cases have 
been investigated with no findings of significant cases of theft. Those 
regarded as suspicious have been referred to the Inspector General.
    As you know, the Laboratory initiated a comprehensive property 
inventory, known as a ``wall-to-wall'' inventory. I am pleased to 
report that the Lab continues to be well ahead of schedule and to date 
has accounted for 97 percent of the total inventory value.
    Finally, I want to make you aware that at the next meeting of our 
Board of Regents on May 14 and 15, the Board will take action to 
approve additional audit procedures for the national laboratories. The 
purpose will be to expand the scope of the external auditors' review of 
the three UC-managed national laboratories to include a more in-depth 
review of the labs' financial controls to assure the leadership of the 
University that the financial controls are functioning effectively.
    Unrelated to Los Alamos, but of critical concern to the University 
is the recent indictment in an FBI case which revealed the association 
of a Lawrence Livermore National Laboratory employee, who was formerly 
a senior FBI agent, with one of the individuals indicted. In response, 
the Lab and the University moved quickly to deny the individual access 
to his offices; to place him on investigative leave; to relieve him of 
his Laboratory badge; to deny him physical and computer access to the 
Lab; to change the locks on his offices and seal them so that his 
offices, files and computers were immediately secured; and to request 
the suspension of his clearance, which DOE acted on immediately. The 
University also initiated a detailed classified ``administrative 
inquiry,'' which is now under he direction of the National Nuclear 
Security Administration with the Lab and the University providing full 
support and cooperation. The employee resigned prior to completion of 
this inquiry.
    That completes my introductory remarks. Vice President Broome, 
University Auditor Reed and I will be happy to speak to each of these 
issues in greater detail as well as to answer your questions.

    Mr. Greenwood. Thank you, Mr. Darling. You've been very 
helpful at all of our hearings, and I appreciate it.
    Let me address a question to you, Dr. Atkinson. You 
indicated that the university has not made a decision as to 
whether to compete for this contract or not. What, in your 
mind, will be the criteria that the university uses to make 
that decision?
    Mr. Atkinson. Well, Mr. Chairman, the Secretary has a blue 
ribbon panel examining the issue of what competition should 
look like, the criteria that should be included. Senator 
Domenici will be holding a series of hearings on this issue 
over the course of the summer. I will want to see just what 
their conclusions are and how those conclusions are represented 
in the document.
    Second, there is the issue that the university has never 
competed for this contract. We've always viewed it as a 
national service. We were asked by the Federal Government to do 
this. I would say that for the first 50 or 45 years of the 60 
years we had a marvelous relationship between the university 
and the Federal Government. Incredibly productive. And I think 
the results speak for themselves. The last 10 years have been 
complicated years. And I must say that when I look to the 
future, I would want to be--I would like to see a different 
kind of relationship established between the university and the 
Department of Energy.
    When I last signed the contract, I spoke to a group of 
about 30 senior members in the Department of Energy; and I said 
that if the relationships between the Department and the 
university continued as they had in the recent past--and this 
is now several years ago--that I would not be signing the 
contract.
    Mr. Greenwood. What was it that you didn't like about that 
relationship?
    Mr. Atkinson. Mr. Greenwood, that question was asked at the 
time. I don't think I want to go through all the details. I 
think one has to have a--this is a very special laboratory. 
It's a science laboratory. It's a one-of-a-kind laboratory. The 
recruitment of--you really want me to get into all the details?
    Mr. Greenwood. Well, I don't want you to take 7 hours to do 
it. But I just would like to know in general, what--I mean, we 
have to decide. The Federal Government has to decide, the 
Congress has to oversee the operation of this laboratory for 
the foreseeable future, and we want to contemplate who's likely 
to compete for this and what would motivate them to compete or 
not to compete. And since the University of California has had 
the contract for all of these years, it would be helpful for us 
to know how satisfactory it has been or it has not been for the 
contractor here to have this contract. So if you could shed 
some light on what caused you at the last signing of the 
contract to be less than thrilled with the relationship that 
you had with the Federal Government, I think it would be very 
helpful to us.
    Mr. Atkinson. And the university, when it entered into this 
arrangement entered into it with a view that it would be a 
cooperative relationship, there'd be an effort on the part of 
the Federal Government to work closely with the university to 
identify and resolve problems, and that was the relationship 
that evolved and I think was a very successful relationship. In 
the last decade, I think that relationship has changed. It's 
changed in many different ways.
    Mr. Greenwood. And let me understand what that means. Do 
you mean that the Department has been hands off? In other 
words, you said that it was--you wanted a cooperative, close 
working relationship and that has changed. Has that changed in 
that the Department has not been aggressively involved in 
identifying issues of concern and helping to resolve them? Have 
they been hands off? Have they been meddling too much? Have 
they been quarrelsome?
    Mr. Atkinson. Mr. Chairman, it's a range of issues. I'm not 
going to--I can't--again, I don't think I want to identify 
specific individuals.
    Mr. Greenwood. I'm not asking you to.
    Mr. Atkinson. What I'm saying is that we have not had a 
cooperative relationship and in many different areas, and I 
think there's been--although I have said that I thought the 
report that was delivered to the Secretary was an excellent 
report and a very fair report, I agree with that remark. On the 
other hand, there are a number of events that do disturb me.
    When I became president there were a number of issues--this 
is 8 years ago--that I focused on with regard to the 
laboratories. I must say that the business area was not one of 
them because I had thought at the time that was in good shape.
    I certainly observed with interest year by year the various 
reports from the Department of Energy that we were in--being 
ranked very highly. So I would like a view to be established 
that there is a joint responsibility for some of the problems. 
But that may be asking too much. But I think I was trying to 
respond to your question as to whether or not we would bid for 
the contract. I think I pointed out that we've done this as a 
national service.
    Mr. Greenwood. Well let me ask you about that, because 
I've--you said that a moment ago, and Mr. Darling has said 
that. When you say that, do you mean that you felt that it's 
your view that having this relationship, having this contract 
has not been a benefit to the university?
    Mr. Atkinson. Mr. Chairman, you can get any answer to that 
question from anyone one you would like.
    Mr. Greenwood. I'd just like your answer.
    Mr. Atkinson. I do not, in total, believe--first of all, I 
believe the university has lost considerable money running this 
laboratory; and I can give you specifics of that. I think that 
there's certainly been benefit for our scientists to interact 
with the scientists at Los Alamos, and I think that's been 
wonderful for the country and for the scientists at Los Alamos. 
But I think they would have had that access if someone else 
were running the laboratory. So I think we've carried a heavy 
burden in running these laboratories. We've done it as a matter 
of national service.
    Mr. Greenwood. Well, what do you think would--it would seem 
to me that if you're sitting here today saying we lose money, a 
lot of money, we have an uncooperative relationship with the 
Department of Energy, and our scientists could probably have 
this experience regardless of who managed it, I can't see any 
reason for you to want to bid on this.
    Mr. Atkinson. Well, I think that's an interesting 
conclusion you have come to.
    Mr. Greenwood. Well, is it a conclusion to which you have 
come?
    Mr. Atkinson. No, it's not. I haven't come to that 
conclusion yet. I mean, this is very important. It's important 
for the country. The future of this country is going to be very 
much dependent on what happens at those laboratories, and we're 
conscious of our responsibility. We're conscious of our 
historical commitment. And we're going to maintain a great 
concern about the future. And, you know, I'm willing to 
tolerate a great deal of problems running those laboratories if 
I think it's productive for the country; and that is the 
overriding factor. If you----
    Mr. Greenwood. It seems to me that what we should have here 
is a situation in which, whoever manages the contract, whether 
it's your university, another university or private company, 
doesn't lose money, has a cooperative relationship with the 
Department that is productive for both, on both parts and that 
the contractor feels that the contractor gets some benefit, 
that it's a good thing to have this contract.
    Mr. Atkinson. I agree with you totally.
    Mr. Greenwood. And so--because no one's going to compete 
for a contract--and I wouldn't compete for a contract in which 
it looked like it was all an unpleasant burden that I just do 
out of a need for service, and then I become embarrassed when 
things go wrong, because that's always your reputation at the 
university.
    Mr. Atkinson. Mr. Chairman, we agree totally with you.
    Mr. Greenwood. Okay, so it seems to me what we ought to be 
about and what we would certainly need your help with and 
hopefully between now and when the contract is bid that you 
would help the Department think through how it would design a 
process by which whoever bids would feel entirely differently 
about this, would not lose money, would feel happy with the 
relationship and would feel that they're getting some benefit 
out of the relationship.
    Mr. Atkinson. Mr. Chairman, in my testimony, I pledge that 
for the next 2\1/2\ years that we will do all that we possibly 
can to insure the future success of those laboratories.
    Mr. Darling. And, Mr. Greenwood, I would just add to Mr.--
to the President's remarks that I have had those discussions 
with the Department of Energy and with the National Nuclear 
Security Agency and I have begun a process of doing exactly 
that for the very reason that you outlined in your earlier 
comments.
    Mr. Greenwood. Okay. I'm interested in your comment about 
losing money. Generally, how does it happen that the university 
loses money here? Because it's been my understanding that 
essentially that the operation was one in which all costs were 
recovered.
    Mr. Atkinson. Well, I'll just give you one example. In the 
long history of this relationship, we have a policy whereby the 
sons and daughters of scientists or staff at the laboratory can 
attend the University of California as in-State residents, 
paying in-State residents fees and receiving financial aid 
which, for the University of California, is quite significant. 
We do work very hard at financial aid. We've never been 
reimbursed for that. We've never sought the reimbursement for 
that. Over the years, that's been a huge amount of money.
    Mr. Greenwood. Well, that sounds like it's probably not a 
good idea for the next contract then.
    Mr. Atkinson. Well, that's not the way I view it. I mean, 
those are the sorts of things that I don't want to have in the 
contract.
    Another example----
    Mr. Greenwood. But, I mean, the employees--it's not been my 
experience, looking at the numbers, that the employees of the 
laboratory are particularly underpaid. They're paid quite well. 
So to provide to them a benefit of free college education for 
their sons and daughters is an expensive proposition and in 
that a new contractor may not want to take that on.
    Mr. Atkinson. Well, that may well be. But part of the 
relationship here is the relationship of the university with 
the scientists of the laboratory, trying to maintain a very 
close relationship. Once someone goes to the laboratory and 
focuses their long-term career in the laboratory, they're in a 
certain sense isolated from the larger scientific community. 
Their association with the University of California is 
extremely important to them. And part of this is to really 
assure them that we want their children at the university, that 
they are indeed full members of the university. And if you look 
across the laboratory particularly of the senior scientists 
you'll see that their children often have 2 or 3 degrees from 
the University of California.
    I think it is a very important thing that we do. I am very 
proud of what we do.
    The outreach efforts in northern New Mexico. We've put a 
great deal of effort into outreach efforts in the K through 12 
schools and the like in this area. We don't--we have some mild 
reimbursement for that. But we don't have the full range of the 
reimbursement that's associated with all the efforts of the 
University of California to develop K through 12 preschool 
programs.
    So I'm not complaining. I'm not saying that we've--that I'm 
complaining about the loss of money. I'm proud of the fact that 
we've done these things. But I think they're extremely 
important. I'm proud of them. And I just want to point out that 
we've not--I mean, a number of people think we've gained from 
this financially. We surely do not gain. No one would argue 
that.
    Mr. Greenwood. I don't think any of the members of this 
committee have ever made such a statement.
    Mr. Atkinson. Well, I'm not saying you did but certainly a 
number of people think that's the case.
    Mr. Greenwood. Okay. My time has expired, and I would 
notify the witnesses that I have to leave for another 
commitment, and Mr. Radanovich will be chairing the balance of 
the hearing. Thank you for your cooperation this morning.
    The Chair recognizes the ranking member, Mr. Deutsch.
    Mr. Deutsch. Thank you, Mr. Chairman.
    I'm going to ask unanimous consent that a letter from 
attorneys representing, I guess, whistleblowers that was 
referred to in your testimony be submitted for the record and--
just so we have it available.
    Ms. Broome, in an interview with committee staff, you 
indicated that the current Los Alamos business operation staff 
was inadequate for that task and that new people have been--or 
new people would be hired. Can you tell us why new people with 
new ideas and better skills should come to Los Alamos after 
what happened to individuals including Mr. Wobb, Mr. Dorn with 
their new ideas and better skills?
    Ms. Broome. Well, that's not a simple question. I would 
hope that the opportunities at Los Alamos would be sufficient 
to attract new staff. As we've indicated, it's probably the 
most exciting area in terms of science, we feel; and I feel 
very confident that we are going to be able to improve. We have 
already improved a number of the business practices at Los 
Alamos.
    This would be a very challenging position, for instance, to 
senior financial officers to come in and to be able to make the 
improvements. So I am confident that we will be able to attract 
people.
    We've done a number of things in that connection already. 
For instance, one important thing that we have started is a 
program of internships for MBAs and for business students 
within the New Mexico area. We think it's important to grow our 
own people so that we don't have to bring people in on a 
massive scale. But we'll be able to bring people along.
    Mr. Darling. And, Mr. Deutsch, if I just might add, I think 
your question was, given the past, why should they come for the 
future. And I think if you look at the changes we've made in 
personnel, in systems, in policies and procedures, the 
commitment that we have made to the laboratory from a new 
director through the entire organization, I think that people 
should see that there's a new tone being set and I hope we can 
recruit them to be part of accomplishing what we should be 
accomplishing for the United States.
    Mr. Deutsch. You know, one of the--I guess a follow-up 
question to that is, really, how long are you going to be 
there? I mean, how long do you expect the management or the new 
systems to be in place, the new people to be in place to insure 
that there is, in fact, a new day where the main goal is not 
seeing how quickly cosmetic changes are there, can be made, so 
that, you know, that DOE auditor doesn't see anything wrong at 
the next point in time?
    Mr. Darling. Mr. Deutsch, I would urge you to remain 
skeptical. I would urge you to remain skeptical until you see 
the kind of actions that cause you to be otherwise.
    And I would just say that we have--as I have said before, 
we've changed 18 senior management at the laboratory, beginning 
with the director and others. We have committed over $5 million 
of the university's money for which we will not seek 
reimbursement for the government to carry out the kind of 
reforms and changes that admittedly should have been made 
earlier, were not but are being made now. And so I would say 
that there is a real tone change not in just individuals but in 
practices and policies, in systems.
    Mr. Deutsch. One of the questions that I raised earlier and 
I think a number of other members raised as well is, I guess 
having sat through several of these hearings we are in this 
culture at Los Alamos which says don't make waves. What's going 
to happen if these new employees make waves?
    Mr. Darling. That is a troubling issue for us. And as I 
testified at the earlier hearings, this is something we are 
focusing on to change dramatically. Since interim Director 
Nanos has arrived, since Vice President Broome took over the 
business operations, since Auditor Reed took over the audit 
operations, we have received a flood of complaints, concerns, 
and other issues that reflect that there was indeed a pent-up 
desire to speak out but a fear of doing so. I think with that 
flood of comments, e-mails, letters, personal remarks, we are 
beginning to see in the employees of the laboratory a sincere 
belief that the new management is open to those concerns and 
now it's our responsibility not to let them down and to uphold 
those changes.
    Ms. Broome. Can I add to that? In connection with the 
business process improvement work that we have done that 
hopefully I will have an opportunity to tell you about, we made 
the employees a very significant part of the improvement. In 
fact, in addition to all the external reviews, we had the 
internal financial management conduct self-assessments so that 
we could get their views and make them part of the solution to 
correct these problems. They are very much a part of this 
solution. We have a very open policy in dealing with people. I 
listen to numerous people with regard to what they think is the 
problem and how we might fix it. I'm a big believer that the 
people who do the work know a great deal more about the 
problems than somebody sitting at a higher position.
    Mr. Darling. I would also like to ask the auditor to talk 
about the new whistle-blower policies and the changes that are 
being made in that regard as well.
    Mr. Reed. Thank you for the opportunity to comment. The 
first step I think in changing the culture is giving the people 
the confidence to come forward. Then it is up to us how we 
treat them and how we treat their issues going forward.
    As you're aware, I believe in late January or early 
February, we instituted a Pinkerton hotline service to create a 
new avenue for employees to come forward with increased 
confidence of confidential treatment. We received 13 phone 
calls so far on the Pinkerton hotline, almost all of them in 
the first few weeks of that service, with the last call being 
March 17. We have received a flood of letters, e-mails, phone 
calls, that Vice President Darling alluded to. I have been 
approached in the parking lot. I have advertised my e-mails and 
telephone number. The volume of whistle-blower complaints in 
our fraud, waste, and abuse inventory that we're investigating 
in my internal audit unit has grown by sixfold since the first 
of December. I think it's a positive thing, I think it signals 
employees willing to come forward and talk to us and I think 
the fact that we have seen a continued influx of calls but less 
use of the Pinkerton hotline signals to me that people are 
willing to come forward to us. As I said, that's a start, 
getting them to feel confident to come forward.
    Now, how we treat them and how we treat their issues is 
critical. We are implementing the university's new whistle-
blower policies which create a process for managers to 
recognize when a whistle-blower complaint is being made, how to 
funnel those into a central process where they are worked and 
handed off to the right investigators, communications back to 
the whistle-blowers so they get a closed loop, and, at the same 
time, the whistle-blower retaliation policy which protects 
people from retaliation is being implemented.
    I think that there is a change being made, although I 
understand fully that it would take a long time before the 
workforce is confident that there is a change and that they can 
come forward without fear of retaliation.
    Mr. Deutsch. There's no question that the lab has done 
great things. No one has ever questioned that. And I would 
agree, Dr. Atkinson, a very unique role in American history in 
the world of science. And clearly that didn't occur without a 
culture of discussion and critique and--you know, in terms of 
science. And one of the things we talked about is clearly the 
lab at the same time, you know, there's an expectation that 
it's run within a business practice model and I guess, you 
know, can--in terms of--I don't want you to spend as much time 
running the lab as a business, as a science. That's clearly the 
higher goal.
    I think what we have talked about it becomes problematic at 
so many levels. And I guess is there anything we can do on the 
business model side to encourage some of this robust discussion 
that exists, just to get some of that from management, from 
employees to really have that? Is there anything that you can 
focus in to do that? I assume in other branches of the 
university, you are much more successful at it than you are at 
this location.
    Mr. Atkinson. Mr. Deutsch, in a certain sense you have 
already done it. The committee's investigation here has really 
focused our attention. Clearly we were not focused carefully 
enough. We should have identified these problems. There's 
reasons for our failure to identify them, but those are not 
satisfactory reasons. And there's no question we will be fully 
focused on them in the remaining 2\1/2\ years as we serve as 
the contractor.
    Mr. Darling. As we commented in prior hearings, you're 
right. We have 10 campuses. The university is a $15-billion-a-
year enterprise, larger than all but 125 companies on the 
Fortune 500 list. We have not experienced these problems at our 
10 campuses or at the other two labs. We clearly had serious 
problems at this lab and I hope we have shown you some sense of 
our desire to get on top of these issues and improve them in 
the last few months.
    Mr. Deutsch. Thank you.
    Mr. Radanovich [presiding]. Thank you, Mr. Deutsch. 
Regarding your request to submit for the record, I ask 
unanimous consent for without any objection that might be to 
include this in the record. There being no objection, so 
ordered.
    Thank you and welcome to the panel. It's good to see you 
again.
    Let me start off by asking a couple of questions. Dr. 
Atkinson, regarding I guess a more recent situation several 
weeks ago, apparently it was disclosed by auditors at Los 
Alamos that employees were selling proprietary computer 
programs and using the proceeds from the sale to purchase 
computers and equipment outside of the Los Alamos procurement 
system. And apparently there was either a division of--a 
division supervisor who knew and allowed these sales to 
continue for several years. Can you tell me the current status 
of this investigation and whether you can state with any 
confidence that these foreign sales did not contain classified 
information and how the University of California intends to 
address this situation? Apparently there was some thought that 
there was even foreign sales going on.
    Mr. Darling. I would like to make a few brief comments. 
This is a case in which a scientist at the laboratory became 
frustrated with the technology transfer mechanism in the 
laboratory which allows an individual to take an invention or 
discovery, license it to an outside company, and then use the 
proceeds to benefit the laboratory and the science and thereby 
also benefit the American economy by creating jobs and new 
companies. This individual, upon becoming frustrated, decided 
to take this matter into his own hands and basically entered 
into a licensing agreement with companies without the 
laboratory or the university's knowledge. And indeed we have 
heard there were licenses made to companies in foreign 
countries.
    I would just reiterate that it is unclassified. We are 
investigating this matter seriously. The individual is fully 
cooperating. And I would like my colleagues to give you more 
information about it.
    Mr. Reed. The issue arose in mid-February and we 
immediately engaged PricewaterhouseCoopers to assist us in the 
investigation. As Senior Vice President Darling has said, the 
software involved is unclassified software and the individuals 
are cooperating. We have disclosed the matter to the Inspector 
General's office since day one. We have communicated daily with 
them on this matter, and yesterday delivered a draft report to 
both Ralph Erickson at the contract office and the Inspector 
General's office. That draft report concludes that there was 
diversion of revenue, that there was avoidance of university 
and lab policies, that there were export control violations. 
But as was stated, the software is unclassified. In 1996, 
Commerce Department approval to license the software was 
granted. Some of the sales occurred before that date. None of 
the sales occurred to prohibited countries, but there are still 
very much policy issues and issues of export control that 
officers at the laboratory are looking at.
    Mr. Radanovich. Mr. Reed, can you tell me the status of the 
employees that were guilty of this? Are they still employed?
    Mr. Reed. The employees, because of their cooperation, have 
been left in the employ of the lab and are not on 
administrative leave, but we will be issuing a final report in 
the next several days, and lab management and the Department of 
Energy Inspector General will proceed with their own courses of 
action.
    Mr. Radanovich. Apparently in the draft report--and I don't 
know if you could illuminate what the policy is between acting 
during the time that the draft report is out to the time that 
the final report is out--but apparently the division manager 
knew about this and was already included in the draft report.
    Mr. Reed. There were a number of people at the laboratory 
who knew of this over the years. The beginning of the sale of 
the licensing occurred in the mid-1990's, so this has been an 
ongoing event for a number of years. People who knew and either 
had the same belief that the engineer--software engineer who 
developed the code knew that the technology transfer program 
did not serve them well, and this was justified in some fashion 
because they were trying to bring the money back into the labs. 
I think there was some justification. And there are others who 
knew who may not have had the specific knowledge of the 
mechanisms by which funds were flowing. It is problematic that 
a division director knew, and that's got to be dealt with as a 
separate personnel matter.
    Mr. Radanovich. You'll act on that once the final report is 
in?
    Mr. Reed. We'll refer our findings to management for their 
action.
    Mr. Radanovich. There's an issue regarding the pension fund 
that I want to ask and I'll leave it up to you, Doctor, or 
anybody else who wants to address it. There is a very generous 
pension plan for Los Alamos employees, apparently not as good 
at other national laboratories. And there's an issue as to what 
happens to that pension plan once--if this goes up to bid and 
somebody else is the bid winner. Can you--is it in your 
opinion--let me read this question: Other national laboratories 
across the Nation don't have pension plans nearly as generous 
as that as the University of California.
    Do you believe it is essential to effectively manage Los 
Alamos, that future contractors offer an equivalent pension 
plan for future Los Alamos employees?
    Mr. Atkinson. Let me just say that the laboratory's pension 
plan is the University of California's pension plan. I don't 
consider it particularly generous. It is the case that the 
regents have been remarkably effective in the investment of the 
pension plan, and as a result we have not been having to ask 
employees to pay into the pension plan for some period of time.
    In terms of the termination of the contract, there would be 
no problem of separating out the funds that are identified for 
laboratory employees and the rest of the university. So I see 
that as no obstacle to dealing with a termination of the 
university. The issue of what another contractor should do in 
terms of benefits, I don't have anything hard on that.
    Mr. Darling. Mr. Radanovich, I might just add, because no 
employee of the university nor the university, or, in this case 
the Federal Government, has had to make a payment to that 
pension plan for the last 10 years, the University of 
California saved nearly $1 billion in pension payments over 
this period of time. That is a large amount of money due to the 
outstanding investment of those funds by the university. And I 
don't know if you can say that about any another DOE 
contractor.
    Mr. Radanovich. Thank you. In the event of a change in 
contract, how does the university intend to treat the surplus 
in the pension fund for Los Alamos employees?
    Mr. Atkinson. There's absolutely no problem there. The 
legal grounds for separation are very clear. Whatever the 
proportion of the funds are that relate to the employees of Los 
Alamos, those will go to the employees. It's not an issue. As I 
understand the way the contract is written, if there's a 
deficit in the pension plan, the Department of Energy is 
obliged to make up that deficit at the time of segregation of 
the lab employees from the university. If there is a surplus, 
that surplus would travel with the laboratory employees to the 
new contractor.
    As you heard this morning, Ambassador Brooks made the 
statement that one of the conditions for the new contract 
competition will be that any new contractor would be obliged to 
provide the pension plan to new--to the employees of that new 
contractor.
    Mr. Radanovich. Can you answer--and let us move on. I am 
very concerned if a contract left U.C. And went to someone else 
that--the potential loss of talent that might be accompanied 
with that. So--and again, I'll leave it to you, Doctor, and 
anybody else who wants to respond to this, but other national 
labs, for example, Sandia or Brookhaven, have changed their 
management contractors and not suffered a loss of scientific 
talent.
    Can you explain why this is not the case with Los Alamos? I 
need to get that into the record clearly.
    Mr. Atkinson. It's a judgment as to whether they've lost 
any in their scientific work. Different people have differing 
opinions about that. And I think you would find a number of 
people who feel that the work of a number of the laboratories 
has gone down in recent years. Now, what was the question?
    Mr. Radanovich. Why is U.C. At Los Alamos different than 
other research laboratories in that if the contract were to 
change, my fear is that we are going to lose a lot of talent.
    Mr. Atkinson. I'm not sure how to answer that. Are you of 
the view you will lose talent?
    Mr. Radanovich. It's suspected if the contract were to 
leave U.C. And go to somebody else, there would be a brain 
drain of the talent in U.C., that some might retire early. 
Perhaps Mr. Darling.
    Mr. Darling. It's intriguing, while the hearings have been 
going on over the past few months, the Department of Defense 
has been facing a very serious problem. The Department of 
Defense manages a number of Department of Defense laboratories 
to serve the military needs of the Nation. Those laboratories 
are, in the judgment of the Defense Science Board, the highest 
policy adviser to the Secretary of Defense not achieving their 
mission for the United States defense. One of the reasons is 
that, because they are Federal employees, they have adopted a 
civil service employment system which is not able to recognize 
scientific talent, not able to recruit scientific talent or 
reward it. So if you read the Defense Science Board report 
which goes back over a 10-year period, the Defense Science 
Board is actually recommending that the Department of Defense 
no longer manage those laboratories but, rather, have private 
sector contractors or preferably universities take over those 
so that the missions can be better met. So that is setting the 
context about this.
    I should comment, at Los Alamos and at Livermore, the 
number of retirements in the first 4 months of this year is 
double the period in prior years and we have seen a huge spike 
upwards in the month of April as this--as the decision by the 
Secretary was looming. I cannot tell you, since the decision 
was made yesterday, whether that will continue or whether it 
will settle down. I hope indeed that it will settle down, and 
so we'll have to wait and see over the next few weeks and 
months.
    Mr. Radanovich. Can you tell me, too, Mr. Darling, most of 
the people that would qualify for what is considered an awfully 
good pension, can you tell me the difference between those who 
might want to retire, say, people that are in their fifties and 
what might be the difference between employees there in their 
fifties and, say, in their twenties.
    Mr. Darling. One of the big concerns we have, the Nation 
has a very limited number of individuals--I'll be very direct--
11 at Los Alamos, 16 at Livermore--that comprise the only 
individuals who have ever designed a nuclear weapon for this 
country--excuse me, headed a team that designed a nuclear 
weapon and then had an opportunity to test that weapon to make 
sure that it will do what is required of it should the 
President be required to use nuclear weapons. With that in 
mind, the median age of those individuals is 57 years old. Many 
of them have been at the laboratory for their entire careers. 
And under the university's pension system they could retire 
today with their retirement very close to their current 
salaries. They have indicated--many of them have said they are 
not prepared to go through a change in contractor. I hope, and 
deeply and personally hope that that is not the case, and we 
will do everything we can to assure them so that that does not 
take place, but that is a very serious risk to this country.
    Mr. Radanovich. Thanks, Mr. Darling. My time is up. I would 
like to ask a couple more questions, though. I would like to 
recognize Mr. Stupak.
    Mr. Stupak. Thank you. Dr. Atkinson, in your statement 
here, I am looking at the first page, paragraph number 5.
    Mr. Atkinson. I will need to get a copy of the statement.
    Mr. Stupak. You say: Ask hard questions about our 
management and take strong action. Record will show that the 
university has responded quickly and has responded well. New 
performance provisions have been written into our contracts, 
and in every instance we have met or exceeded the new 
requirements.
    How do you know you have met or exceeded the new 
requirements?
    Mr. Darling. President Atkinson also makes the point a 
little later on in his opening remarks that the Department of 
Energy has the responsibility to evaluate that. And one of the 
troublesome aspects of this whole episode, Mr. Stupak is that 
the laboratory was receiving excellent ratings in all of these 
areas. We did not--let me back up and say--first of all, we are 
not making any excuses.
    Mr. Stupak. I just want to know, have you done something, 
evaluations or audits or something to back up these words? 
Everyone is saying all these things are going great. I haven't 
heard anyone say we had this audit and we passed this and did 
that. That's what I am trying to ask.
    Ms. Broome. Would you like me to address the audits?
    Mr. Stupak. I just want someone to answer my question. We 
have had earlier testimony that the last 4 to 6 months, things 
have been better there. How do you know it? How do you know 
it's better?
    Ms. Broome. I think by the controls we're putting in and 
the testing of these controls. As an example, the largest 
problems we had were in the area of procurement, and we 
developed a whole procurement quality assurance function and we 
instituted audit procedures to be--to ensure that procurement 
procedures are being followed. The initial results of those 
audit procedures show that the appropriate procurement 
techniques are being followed.
    Mr. Stupak. Who did that review to make sure things were 
being followed?
    Ms. Broome. That is being done by the staff at Los Alamos, 
under my direction.
    Mr. Stupak. Let me ask then, and go Mr. Darling, to the 
computers. You were talking about the computers and I believe 
you said computer problems have been corrected and they're all 
secured. Is that basically what you said?
    Mr. Darling. If I may, there are 164 classified laptop 
computers at Los Alamos National Laboratory. The DOE Inspector 
General's interim report raised question about four of those 
classified computers. We have located all of them.
    Mr. Stupak. You located those four?
    Mr. Darling. We have those four. They have been secured and 
in a proper place at all times. This is a further reflection of 
the improper administrative procedures at the laboratory that 
did not have a complete inventory of those, and I would be 
happy to walk through each and every one of those four.
    Mr. Stupak. I don't want to take all my time on these 
computers. He says there are 22 unlocated laptop computers and 
this report is April 24, so it's about 8 days old. So in the 
last 8 days, the four classified ones you said have been found?
    Mr. Darling. Four classified ones were never lost. They 
were simply not on the inventory that the DOE Inspector General 
consulted in order to track them. We've had a procurement 
property management in a number of areas, some very serious 
problems in not having items appropriately at the lab show up 
on the data bases for recordkeeping. That is what we had here. 
The Inspector General just consulted the property management 
report. Did not look at the list of classified computers where 
those computers show up.
    Mr. Stupak. They show up, but they have been physically 
found?
    Mr. Darling. They do exist and they are in a secured area.
    Mr. Stupak. What about the 10 that he claims that are 
stolen?
    Mr. Darling. One of the problems that we do have, sir, and 
we have acknowledged this in prior hearings in which you were 
not in attendance, is that there has been a lax set of 
procedures for handling missing, lost, or stolen property. 
Individuals have not been held responsible and the lab has not 
pursued those so-called unlocated computers or other property 
to see what they are. We are now putting in place procedures to 
do that. We are embarrassed by it and we intend to make sure 
that this does not happen again.
    Mr. Reed. If I might add.
    Mr. Stupak. Of these 18 or these 22, 4 have been found. 
Let's say there's 18 out there. In your testimony, the 
computers that have been secured----
    Mr. Darling. I was referring to the classified computers.
    Mr. Stupak. From this day forward, you're saying they're 
secured.
    Mr. Darling. I'm saying they were secured and they're 
presently secured.
    Mr. Stupak. How about the hard drive that was missing when 
I was out there in January? Has that been found?
    Mr. Darling. There was a hard drive carrier that was 
properly located in a secured area. There was not a hard drive 
in it. There is no----
    Mr. Stupak. But your inventory report shows a hard drive 
with a hard drive in it.
    Mr. Darling. That's correct--well, I can't recall that. 
Your memory is better than mine. We have no evidence to believe 
that there was a hard drive. We don't know whether there is. 
That remains unresolved.
    Mr. Stupak. And everyone's clear now at Los Alamos that if 
a computer is missing you have to report it to somebody, right?
    Mr. Darling. Before you do, Pat, I just want to refer to 
other so-called classified removable electronic media, which is 
what the hard drive is. We are trying to move away from having 
hard drives used for classified information because of the 
concerns you raised. So the laboratory has begun to move--at 
the Nicholas Metropolis Center where Mr. Greenwood, and I 
believe you may have visited as well, in January--toured a new 
environment where you don't have a removable media used for 
classified material. We have instituted procedures whereby 
there will be at the exit of a classified building--I guess the 
best analogy would be like when you leave a library or store, 
there is a device that lets you know when you are exiting the 
building. We have instituted a number of highly increased rate 
of randomized checks to make sure that individuals' briefcase 
and other materials are looked at on a regular basis. So we are 
trying to, in every way we possibly can, make sure that 
classified material is accounted for, as you would expect us 
to.
    Mr. Stupak. Mr. Reed, you mentioned about the Pinkerton, 
your confidential line there. You have had 13 calls, right?
    Mr. Reed. Yes, sir.
    Mr. Stupak. Have you verified those complaints in those 13 
calls?
    Mr. Reed. Well, those 13 calls represent one intake source.
    Mr. Stupak. Just answer my question. Thirteen calls, what 
did you do with the information?
    Mr. Reed. All the complaints that come in to us, I can't 
tell you precisely on those 13 which are closed or open. But we 
have not found any significant theft of property from those 
complaints or the--or other significant investigation.
    Mr. Stupak. Of these 13 calls, were they about thefts of 
property and things like that?
    Mr. Reed. They range from thefts of property to----
    Mr. Stupak. Let's say theft of property. Did you check, and 
was in fact property stolen based on that call?
    Mr. Reed. We have had 104 intakes.
    Mr. Stupak. I am just talking about the 13 now.
    Mr. Reed. Those come into the process and all complaints 
come into the process. We have worked all the missing property 
cases; 35 are closed, 69 are still open.
    Mr. Stupak. How about just these 13? I am only dealing with 
stolen property.
    Mr. Reed. I would have to get you the information.
    Mr. Stupak. See, the point I am trying to make: You put up 
this confidential line, change the tone and tenor of this 
place, and you have this confidential line and people call in; 
they trust it for a minute here, and if you're not getting back 
to them and if you're not verifying what's going on, they just 
think oh, hell, it's the same thing that went on before.
    Mr. Reed. I'm sorry to have confused you. We are working on 
each one of these cases. I am having difficulty as we sit here 
pulling the Pinkerton cases out from those who reported these 
matters to a different channel.
    Mr. Darling. And Mr. Stupak, if I may add, one of the 
features of the anonymous whistle-blower hotline is that an 
individual can call anonymously, can report an event, they are 
then given a case number. We are then obliged, or obliging 
ourselves to then call back the outside hotline to inform what 
the progress is so the individual can still anonymously call in 
and check up on the progress of that case by case number 
without revealing their----
    Mr. Stupak. I understand all that and I am trying to figure 
out if you're doing it, because you are never going to restore 
the confidence unless they know what's going to happen.
    Mr. Darling. I completely agree with you.
    Mr. Stupak. This division manager that the Chairman asked 
about, on this software that had been going outside the system 
that has been going on for a long time, you indicated in the 
preliminary report no disciplinary action has been taken. Maybe 
OIG might do something. But my impression is the university is 
not going to do anything.
    Mr. Reed. Not to confuse you again, the report has just 
been provided to management in draft form as of the day before 
yesterday. The decision not to put the--I will call it the 
perpetrator of the licensing scheme--was made back in February 
because of their cooperation. The report disclosed 2 days ago 
was the first disclosure of who had an awareness of what was 
going on. Mr. Darling. We have terminated 18 individuals. Every 
individual that has been brought to our attention involved in 
theft where the investigation has been concluded--the auditor, 
the deputy director, the director, the head of security, the 
deputy head of security, the chief financial officer, the head 
of the procurement program, the head of the purchase card 
program--all of those individuals have either been terminated 
or removed from the laboratory or reassigned for the very 
reasons you mentioned. Persons must be held personally 
accountable for their actions and we intend to do so.
    Mr. Radanovich. Your time is up.
    Mr. Stupak. I just wanted to ask him about the Mustang 
case. No decision on that one yet?
    Mr. Darling. The Mustang case is one of the ones that we 
had hoped to obtain additional information from the U.S. 
Attorney in Albuquerque. Because we did not do so because the 
FBI refused our Freedom of Information Act request to obtain 
information, we have sent two individuals out to the vendor in 
Phoenix to obtain additional documentation that might tie that 
purchase to a specific individual. Mr. Reed can comment 
further, but we are not where we would like to be in that 
investigation.
    Mr. Stupak. You don't have to wait for law enforcement to 
take any internal action.
    Mr. Darling. Yes. In accordance with our contract when 
there is a theft, we are first obliged to notify the Department 
of Energy Inspector General or Federal law enforcement 
officials. They then take possession of the case. We put the 
individual on investigative leave. We were not allowed to take 
any actions whatsoever in the case until they had handled it. 
It was only at the last hearing where they relinquished the 
authority and where we could for the very first time begin to 
pursue our own investigation.
    We have pursued personnel action and that action is 
pending. So we have not--we have been pursuing it aggressively 
since we were given the authority to do so.
    Mr. Radanovich. I'm afraid the time is up. We will be going 
up for another round of questions. So if anybody has any 
further questions they want to ask, there will be the 
opportunity, but I would like to recognize Ms. Eshoo.
    Ms. Eshoo. President Atkinson, Vice President Darling, Mr. 
Reed and Ms. Broome, welcome. It's good to see you. When 
Chairman Greenwood was asking--and I would like to set this 
down for the record--about the dollars that the university has 
expended over the years and in terms of a benefit for in-state 
tuition for employees, I would like to just highlight and 
underscore what that means. If any of us had as a benefit that 
our children would have a deeply discounted reduced tuition to 
Harvard or to Yale, we wouldn't spend a nanosecond to struggle 
to come to the conclusion that that is a great, great benefit. 
And so I think that needs to be appreciated here. That isn't 
anything that is insignificant.
    And if I might say, the University of California has in its 
combined 10 campuses, has duly earned the reputation of being 
the greatest public university in the world. It is not without 
her problems and certainly some of them is what has brought us 
here today. But I would think if anyplace is going to recognize 
what a great university's role is in terms of our Nation and 
the betterment of our Nation, certainly the Congress should 
recognize that as we review both the contract, the problems 
that have occurred, and the longtime stewardship of the 
university.
    On page 7 of the recommendations to Secretary Abraham, 
there is a footnote. And what I would like to do is just to 
highlight that again, Mr. Chairman, as you pursue the questions 
relative to pensions, and I do have some questions on that. But 
that footnote talks about the prospect of termination already 
having an adverse effect.
    Now, we are talking about a benefit that accrues to our 
country relative to the role of the contract and what happens 
with the science. As of April 8, 266 Los Alamos employees, 68 
with critical skills--and maybe someone from the panel would 
like to identify what a critical skill is--have applied for 
retirement. In contrast there were only 177 retirements during 
all of 2002. Retirement requests at Livermore are currently 
running at roughly twice the 2002 rate. So I think that good, 
bad, or whatever is in between, that this is all having an 
effect.
    My question to you is, No. 1--and I know that it's 
difficult to look down the road, but, President Atkinson, as 
you described the relationship over the years--as I said 
earlier, I was 4 months and 1 day old when the first contract 
was entered into and I am not suggesting that you were around 
then doing this--do you believe, and the problems that you have 
I think pretty frankly alluded to--do you believe that U.C. 
Will recompete for this contract as it becomes available in 
2005?
    Mr. Atkinson. It is just too early for us to make a 
statement on that. There are a lot of factors that have to be 
taken into account and I think it will take about 6 months. As 
I said, we'll have to see the report from the blue ribbon 
committee. I hope there are people on that committee who 
thoroughly understand the issues of nuclear weapons and 
research related to nuclear weapons, and we'll have to wait and 
see the outcome of Senator Domenici's hearings. And I think it 
will be very interesting to see what the judgment is of people 
on just how this should be competed. I have no problem with the 
issue of competition if that's the direction in which the 
country wishes to go. There has been some worry that it will be 
very costly for the university to compete.
    Ms. Eshoo. The $25 million figure I have seen, is there any 
credence to that?
    Mr. Atkinson. Of course there is. You heard the Ambassador 
speak about that. It might be high, it might be low, but it's 
going to be a very significant amount. But of course those 
moneys are returned to the contractor as part of the overhead 
whether they win or lose over the course of a series of 
contracts. For the University of California, though, I don't 
worry about that. The fact is we're not going to compete in 
that mode. We're not going to go out and hire special writers 
or special film crews. We can put a proposal together in 2 or 3 
weeks with 10 or 12 people, and that will be the investment 
that we make in the proposal.
    We will stand by our record. Clearly our record in the area 
of business practices at Los Alamos in the last period of 
time--and that may go back 7 or 8 years--has been abysmal and 
it has to be corrected. I hope by the time the 2\1/2\ years is 
up, we will have corrected it. And I hope that the record will 
clearly indicate where the university stands as a competitor in 
the process. But I do not like the idea of the word 
``competition.'' The university has never sought this contract. 
We were asked to do this and we did it as a national service. 
We're very proud of our national service. And if the country 
has come to the view that it should be done in some other way, 
we will happily bow out.
    Ms. Eshoo. Explain, if you would, the scenario of change. 
Big science has been referred to more than once during this 
hearing today. Big science calls for big minds. Certainly there 
are not big salaries that go with this. But we need to retain 
this intellectual property, as it were, for our Nation's 
security. What happens? What exactly happens with a change of 
contract? Is it simply that the big minds that relate to the 
big science become employees of someone else? Is that 
overstated? Is that understated?
    Mr. Darling. Straightforward answer is we have no 
experience with this because of the nature of the university's 
relationship with DOE. I am sure there are defense contractors 
or other laboratories that can give you answers to those. Those 
are some of the issues we have to look into. The figure of $25 
million came from Admiral Nanos, who is the current interim 
Director of Los Alamos. He was before in charge of the Navy's 
Sea Systems Command, and before that the entire U.S. And U.K. 
Nuclear weapons program. He said, in his experience letting 
large contracts with U.S. Defense contractors, that is what 
they would typically spend to put in a proposal for a contract 
the size of Los Alamos National Laboratory.
    Ms. Eshoo. Well, Mr. Chairman, I don't have that much time 
left. I don't know when the next hearing is, if there are going 
to be future hearings. I think in fairness to investigation and 
oversight, the issues that have not only been uncovered but 
reviewed by the INO subcommittee or the full committee, that in 
my view we should come back and revisit the progress that the 
university is making and have the committee make a further 
determination if in fact there is progress. I believe that it 
is early on, but there have been important steps taken.
    To the University of California, as a Californian, as an 
American, I think the university is a great university. This 
has been a very, very difficult, embarrassing chapter in the 
life of the university.
    I would say to the committee and to my colleagues in the 
Congress that with the toughness of the questions and the 
review and the oversight, that we continue to keep in mind that 
through this oversight that we have pressed for and are making 
progress relative to the business management of Los Alamos. I 
have not heard once where our national security has been 
impaired as a result of the university's work on this project. 
So I hope that we will come back and revisit it and review the 
progress of what the university has put into place, the 
sustaining of the reforms. And I hope that at the end of this 
process, whatever the determination of the university is, to 
continue on with the contract or to bring to a close its 
service to the Nation, that we will end on a note of great 
dignity.
    So I thank you, Mr. Chairman, for again extending this 
legislative courtesy to me. And I thank the university's 
representatives, the president, the vice president and those 
that have accompanied them here today in the Congress.
    Mr. Radanovich. Thank you. I concur with your remarks. I 
want to start off by saying that I have confidence in the high 
quality and scientific and technical work at Los Alamos that 
has been performed by the University of California.
    Let me ask this question. I think that--and recognizing the 
long service that U.C. Provided to the national security 
interests of the United States over many, many years--if the 
issue does come up, and since the Secretary of Energy said that 
this will come up to competitive bid--and this doesn't make 
money, why would the University of California--assuming that 
the University of California were to bid, which you know is an 
assumption, why would the university, assuming that, want to 
keep the contract?
    Mr. Atkinson. Well, I think I said before that we view this 
as a service to the Nation and we had a unique contribution to 
make here and I am very proud of that contribution. And you 
know, if we continue in the future, it will be--I won't view it 
as a competition, let me simply put it that way. I will view it 
as the university's record is there. We are happy to write a 
proposal. It will not be, as I said, a $25 million proposal. 
And the Department of Energy can make its decision. I just hope 
that knowledgeable people are involved in making that decision.
    Mr. Radanovich. Again, continuing to have confidence in the 
high quality of work the University of California has given at 
Los Alamos, I also believe that the lab recognizes that the 
business administrative practices of the lab need to be 
revamped so they will rise to the level of quality--similar to 
the quality of the science of the lab.
    In that regard, what corrective actions, Mr. Darling, does 
the U.C. Plan to take in the future to strengthen financial 
controls and restore the American public's confidence in Los 
Alamos and the university's management of it?
    We have a vote. We will wind this thing up in about 10 
minutes.
    Mr. Darling. Mr. Radanovich, I think what we're going to do 
is build on the changes that we have begun to make, but not 
stop there. We will continue in a relentless way to understand 
the problems, the issues, and the opportunities at the 
laboratory. We will implement all the recommendations that have 
come from our own reviews as well as from the reviews of the 
outside groups we have brought in, such as 
PricewaterhouseCoopers and Ernst and Young, and then we will 
assess our performance over time. We will invite the Department 
of Energy to do so and involve outside reviewers in doing so, 
and I would invite you to do the same.
    Mr. Radanovich. Ms. Broome, I do have a question for you 
regarding business operations. What plans does U.C. Have to 
review the business operations at its other DOE facilities, 
which are of course Lawrence Livermore and Lawrence labs at 
Berkeley?
    Ms. Broome. Currently we have a review going on at the 
Lawrence Livermore laboratory by Ernst and Young, the same firm 
which reviewed all the business processes at Los Alamos. We 
will be receiving a report from them probably by next week, 
initial report. We invited them obviously in to get--also an 
independent view of our business practices, though while as was 
testified earlier, we believe that those business practices 
don't have the issues that we have at Los Alamos, but we wanted 
an independent.
    Mr. Radanovich. To make sure.
    Mr. Darling. I would just add to that, the moment we 
returned from Los Alamos on November 25, where a group of us 
went out to look at the business problems, we made available 
our report, its nine recommendations, to the two other 
laboratory directors. Mr. Reed engaged the auditors of those 
two laboratories in reviewing the very issues, and we continued 
in that pattern up to this very day. Every issue that comes up, 
we informed other laboratories to assess whether there are 
similar problems. We have not seen the extent of those problems 
at the other two laboratories.
    Mr. Radanovich. Mr. Darling, while we are engaged here, can 
you give me an idea of what's termed as wall-to-wall inventory 
and the progress of that initiative?
    Mr. Darling. This was addressed briefly by Ambassador 
Brooks. The so-called wall-to-wall inventory is a comprehensive 
inventory of every piece of property at the laboratory that is 
known as control. That means it has a value in excess of $5,000 
or is otherwise a sensitive item of property that could 
disappear easily, such as a computer, cell phone, or other such 
items. The last one that was done was 1998. This is the first 
time it is done. It is about 97 percent complete at this point 
in time. And I know Vice President Broome could provide more 
details about it.
    Mr. Radanovich. If you could briefly, too. I want to 
accommodate Mr. Stupak.
    Ms. Broome. I would like to assure you that the lab is 10 
weeks ahead of schedule. We brought in Pricewaterhouse to do a 
complete review of all the procedures and controls surrounding 
the taking of this physical inventory, and they will actually 
be doing test checks as well to verify the results of this 
inventory.
    Mr. Radanovich. In closing, my last remarks may not require 
an answer but I do want to put on the record my concern for the 
fact that this was put up to bid in the first place, because 
there are many other national laboratories in the United States 
that are not for various reasons. And my big concern is the 
loss of talent that's there that's able to apply for pensions 
and leave some expertise that may not be found anywhere else in 
the United States.
    Thank you. Mr. Stupak.
    Mr. Stupak. Just a couple of questions still bugging me on 
the audits.
    Mr. Reed, would you agree that the Inspector General's 
evaluation of the audit function at Los Alamos--would you agree 
that the evaluation was a rather negative evaluation?
    Mr. Reed. I agree there are problems and I agree that there 
were problems with independents, with performance.
    Mr. Stupak. You're the university's auditor.
    Mr. Reed. That's correct.
    Mr. Stupak. Why didn't you know the condition of the Los 
Alamos function before these events occurred then?
    Mr. Reed. If I could address those individual components. 
The independent issue, I think, is one of professional and 
individual objectivity. It's not structure. We have changed the 
structure. But the structure that was in place in that 
laboratory was the same as Livermore up until we decided to 
conform it.
    Mr. Stupak. Wouldn't you get the audit reports that were 
done internally?
    Mr. Darling. Mr. Stupak, I testified about this at earlier 
hearings. I want to say as directly as I said then, the auditor 
of Los Alamos National Laboratory did not fully provide the 
information to the university and indeed rebuffed the 
university when the university made attempts to find it out.
    Mr. Stupak. Didn't the university ask?
    Mr. Reed. Let me also say that--because I thought about 
that question a lot. If there is one concept that I personally 
feel like I bought in too much is that they had so much DOE 
oversight that the university was redundant. I am not blaming 
the DOE, but I think it was the lab keeping us at bay to some 
extent.
    Mr. Stupak. What's the plan to get credible audits done on 
time? Because they say internally they're understaffed.
    Mr. Reed. Well, we have a lot of resources to help us. As 
of yesterday, we had completed the backlog of all that follow-
up work. All 280 follow-up items have been completed. We have 
hired additional staff on a temporary basis to help us put 
together a plan to have the subcontractor audits caught up to 
date by September 30. We have submitted--myself as university 
auditor--a plan for next fiscal year's audit program that will 
be submitted to the regents in 2 weeks for approval that meets 
my full expectation.
    Mr. Stupak. Is it really a good business practice to have 
auditors reporting to the people they audit?
    Mr. Reed. No.
    Mr. Stupak. Why did it happen at Los Alamos then?
    Mr. Reed. The way that we mitigated that was to have a 
dual-reporting structure in place so the auditor there also 
reported to me. But again I think in this case that was not an 
effective reporting channel.
    Mr. Stupak. Your new structure, is that going to be 
temporary or permanent?
    Mr. Reed. Permanent.
    Mr. Radanovich. I want to thank the panel for being here. 
Forgive me for closing this so shortly, but we have to get out 
to vote. Appreciate your testimony and also the performance of 
University of California over the last 50 years. Thank you very 
much.
    [Whereupon, at 1:30 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

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