Nuclear Nonproliferation: Better Management Controls Needed for
Some DOE Projects in Russia and Other Countries (29-AUG-05,
GAO-05-828).
The National Defense Authorization Act for FY 2004 mandated that
we assess the management of threat reduction and nonproliferation
programs that the Departments of Defense and Energy each
administer. The objective of this report is to assess how the
Department of Energy's National Nuclear Security Administration
(NNSA) implements management controls, which we define here to be
the processes ensuring that work done under a contract meets
contract specifications and that payments go to contractors as
intended.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-828
ACCNO: A34857
TITLE: Nuclear Nonproliferation: Better Management Controls
Needed for Some DOE Projects in Russia and Other Countries
DATE: 08/29/2005
SUBJECT: Accountability
Contract administration
Documentation
Internal controls
Laboratories
Nuclear proliferation
Procurement records
Records management
Program management
Program evaluation
Russia
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GAO-05-828
United States Government Accountability Office
GAO Report to Congressional Committees
August 2005
NUCLEAR NONPROLIFERATION
Better Management Controls Needed for Some DOE Projects in Russia and Other
Countries
a
GAO-05-828
[IMG]
August 2005
NUCLEAR NONPROLIFERATION
Better Management Controls Needed for Some DOE Projects in Russia and Other
Countries
What GAO Found
Two NNSA offices, the Office of Nuclear Risk Reduction (designated by NNSA
as NA-23) and International Material Protection and Cooperation (NA-25),
documented management controls for almost all of their contracts that we
reviewed, but the third office, the Office of Nonproliferation and
International Security (NA-24), did not document controls for most of
their contracts because they could not provide the required documentation.
More specifically, for eight of the nine NA-23 and NA-25 contracts we
reviewed, the NA-23 headquarters staff and the laboratory staff that
manage the contracts for NA-25 provided to us complete records of
deliverables and invoices, as well as evidence that technical officials
reviewed and approved the deliverables and contract officers reviewed and
approved the invoices. (For the ninth contract, NA-25 provided us with
incomplete documentation of its controls.) In addition, NA-23 and NA-25
each apply procedural guidance that assists managers in maintaining these
controls. However, according to an NNSA official, none of the three
offices currently perform periodic reviews to ensure their existing
management controls remain appropriate.
In contrast, we were unable to determine if NA-24 implements management
controls because, for seven of the nine contracts we reviewed, the
documentation it provided to us was in most cases either incomplete or it
provided no clear audit trail that we could follow. (Documentation was
complete for the eighth and ninth contracts.) The types of documents that
were missing varied across and within some contracts. In addition, NA-24
does not provide its contract managers with procedural guidance on how to
maintain its management controls, nor does it perform a periodic review of
its controls to ensure the controls are effective and appropriate.
NNSA Documentation of Management Controls in Nuclear Nonproliferation
Contracts, by Number of Contracts
NNSA Office
Documents complete and management controls evident Documents and/or
approvals incomplete
Documents provide no clear audit trail Total
NA-23 2 00 2
NA-24 2 43 9
NA-25 6 10 7
Source: GAO.
United States Government Accountability Office
Contents
Letter
Results in Brief
Management Controls Are in Place for Two of the Three NNSA
Offices Administering Contracts for Nuclear Nonproliferation
Projects
Conclusions
Recommendations
Agency Comments and Our Evaluation
Scope and Methodology
1 5
7 11 11 12 15
Appendixes
Appendix I: NNSA Contracts 19
Appendix II:Documentation of Management Controls - GAO Assessment
by Contract 20
Appendix III: Comments from the Department of Energy 21
Appendix IV: GAO Contact and Staff Acknowledgments 26
Table Table 1: NNSA Documentation of Management Controls in Nuclear
Nonproliferation Contracts, by Number of Contracts
Contents
Abbreviations
BNL Brookhaven National Laboratory
CRDF U.S. Civilian Research and Development Foundation
DOD Department of Defense
DOE Department of Energy
FRAEC Foundation for Russian American Economic Cooperation
GIPP Global Initiatives for Proliferation Prevention
HEU Highly Enriched Uranium
INL Idaho National Laboratory
IPP Initiatives for Proliferation Prevention
ISTC International Science and Technology Center
LANL Los Alamos National Laboratory
LBNL Lawrence Berkeley National Laboratory
LEU Low Enrichment Uranium
LLNL Lawrence Livermore National Laboratory
NNSA National Nuclear Security Administration
ORNL Oak Ridge National Laboratory
PNNL Pacific Northwest National Laboratory
SNL Sandia National Laboratory
STCU Science and Technology Center of Ukraine
TST Technical Survey Team
This is a work of the U.S. government and is not subject to copyright
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separately.
A
United States Government Accountability Office Washington, D.C. 20548
August 29, 2005
The Honorable John Warner Chairman The Honorable Carl Levin Ranking
Minority Member Committee on Armed Services United States Senate
The Honorable Duncan Hunter Chairman The Honorable Ike Skelton Ranking
Minority Member Committee on Armed Services House of Representatives
In March 2000, the National Nuclear Security Administration (NNSA) assumed
responsibility for carrying out the Department of Energy's (DOE) national
security and nuclear nonproliferation responsibilities.1 These nuclear
nonproliferation projects, most of which have been undertaken in Russia
but also reside in many other foreign countries,2 involve DOE's national
laboratories,3 U.S. contractors, and Russian scientists and contractors
and entail activities such as upgrading the security of nuclear weapons
sites and "blending-down" weapons-grade highly enriched uranium so it can
be used in nuclear power plants to generate electricity. From fiscal year
2001 through fiscal year 2004, DOE obligated $1.7 billion on these
projects, which are comprised of multiple contracts for construction work
or the provision of services.
1Title 32 of the National Defense Authorization Act for Fiscal Year 2000
(Pub. L. No. 106-65 (1999)) created NNSA as a separately organized agency
within DOE.
2Countries in the former Soviet Union receiving these contracts include
Ukraine, Armenia, Georgia, Kazakhstan, Uzbekistan, and the Kyrgyz
Republic. Other countries involved in NNSA nonproliferation projects
include Greece and Turkey. However, of the 72 nonproliferation projects
that NNSA provided us, 66 of the projects, representing over 99.4 percent
of their dollar value, involved work in Russia.
3DOE oversees the largest laboratory system of its kind in the world. The
mission of DOE's 23 national laboratories has evolved over the last 55
years. Originally created to design and build atomic bombs under the
Manhattan Project, these national laboratories have since expanded to
conduct research in many disciplines-from high-energy physics to advanced
computing at facilities throughout the nation. Nine of DOE's laboratories
are large, multiprogram national laboratories that dominate DOE's science
and technology activities.
Three offices within NNSA administer most of the nonproliferation
projects:4
o The Office of Nuclear Risk Reduction (designated by NNSA as NA-23)
seeks to reduce the risk of accidents at foreign nuclear facilities by,
among other things, strengthening foreign governments' abilities to
respond to nuclear emergencies. For example, two current projects aim to
enable two Russian cities, Seversk and Zheleznogorsk, to replace nuclear
power reactors that produce weapons-grade material that the cities
currently use for heat and electricity production with fossil-fuel
electricity plants.5 NA-23 staff provide the day-to-day management of the
contracts for these projects.
o The Office of Nonproliferation and International Security (NA-24),
counters proliferation and strengthens the nonproliferation regime by
promoting transparency and verification in the dismantlement of weapons of
mass destruction (WMD), denying acquisition of WMD by terrorists and
illicit trade in nuclear technology, and encouraging international
partners to strengthen their export controls and redirect the work of
former nuclear scientists, technicians, and engineers toward projects with
commercial potential, such as the development of titanium alloys for
medical applications. DOE's national laboratories provide most of the
day-to-day technical management of the contracts for these projects.
o The Office of International Material Protection and Cooperation (NA-25)
administers projects designed to, among other things, improve the security
of weapons-usable nuclear and radiological material and enhance detection
infrastructure at sites that currently store these
4Two other NNSA offices also do nonproliferation work in Russia: the
Office of Global Threat Reduction (NA-21) and Office of Fissile Materials
Disposition (NA-26). NA-21's mission is to identify, secure, remove,
and/or facilitate the disposition of vulnerable, high-risk nuclear and
other radiological materials that pose a threat to the United States. Many
of NA-21's projects were previously administered by NA-24 and NA-25.
NA-26's mission is to reduce inventories of surplus fissile materials in a
safe, secure, transparent, and irreversible manner. NA-26's projects were
not included because at the time we began our work, they did not have
significant nonproliferation contracts under way outside the United
States.
5See GAO, Nuclear Nonproliferation: DOE's Effort to Close Russia's
Plutonium Production Reactors Faces Challenges, and Final Shutdown Is
Uncertain, GAO-04-662 (Washington, D.C.: June 4, 2004).
materials. The national laboratories provide most of the day-to-day
management of the contracts that carry out these projects.
The three NNSA offices use essentially the same process to ensure
contractors' work and payments made to them meet the specifications of the
contract. After contractors or scientists complete a task, they send a
deliverable (a technical report or other documentation of the work
performed) and an invoice to the appropriate national laboratory or NNSA
office for technical review and approval. If the technical reviewer
approves the deliverable, he or she documents approval and forwards the
documentation of the approval, along with the invoice, to the contract
officer at the national laboratory or NNSA office. If the contract officer
approves the invoice, in most cases, the national laboratory then makes
payment to the contractors or scientists.6 In other cases, the deliverable
and invoice then proceed to the relevant NNSA office for further review,
and either the office or another organization makes the final payment to
the contractors or scientists.7
A key way for federal program managers to ensure accountability within
such contracting processes, as well as to improve outcomes and minimize
problems in their programs, is to implement appropriate management
(internal) controls. As described in two GAO documents, Standards for
Internal Controls in the Federal Government and Internal Control
Management and Evaluation Tool, management controls can address
6For some contracts under the auspices of NA-24's Initiatives for
Proliferation Prevention (IPP) program, the International Science and
Technology Center (ISTC) in Moscow, or the Science and Technology Center
of Ukraine (STCU) in Kiev manage the contract and make all payments. In
these cases, quarterly payments may be made before the technical review is
completed but, if the technical reviewer is not satisfied with the
progress of the work, the next quarter's payments may be withheld until
the issue is resolved. These centers were the subject of an earlier GAO
report, see GAO, Weapons of Mass Destruction: State Department Oversight
of Science Centers Program, GAO-01-582 (Washington, D.C.: May 10, 2001).
See also Nuclear Nonproliferation: DOE's Efforts to Assist Weapons
Scientists in Russia's Nuclear Cities Face Challenges, GAO-01-429
(Washington, D.C.: May 3, 2001).
7Those IPP contracts not managed by one of the science centers are managed
by a national laboratory or NNSA headquarters directly. In these cases,
the process for technical approval of deliverables is similar, but NNSA
headquarters must also approve deliverables before payments are approved.
The actual payments are made via the U.S. Civilian Research and
Development Foundation (CRDF). All IPP program deliverable payments are
made via third parties (ISTC, STCU, and CRDF) directly into former Soviet
weapons scientists' or engineers' bank accounts in order to comply with
the congressional requirement that all payments be made tax free; these
three organizations have the legal and technical wherewithal to do so.
many activities in a program or organization. Therefore, it is important
that a program's management controls relate directly to its processes and
activities. Thus, in the context of NNSA's nuclear nonproliferation
projects, appropriate management controls mean that the three offices do
the following with each component contract:
o maintain complete records of deliverables and technical officials'
review and approval of them;
o maintain complete records of invoices and contract officers' review and
approval of them;
o maintain documentation of the above records for ready access by agency
program managers, either at a national laboratory or headquarters, to
facilitate active monitoring of the contract;
o use formal, procedural guidance that specifies processes for
maintaining management controls; and
o periodically review management control processes and documentation to
ensure they remain appropriate and effective.
The National Defense Authorization Act for Fiscal Year 20048 mandated that
we assess the management controls used to carry out nonproliferation and
threat reduction projects administered by DOE and the Department of
Defense (DOD) and the effect of these controls on the execution of the
projects. In response, we have issued two reports to date. The first
report assessed how DOD and NNSA use their own strategies to guide their
respective threat reduction and nonproliferation projects and how well the
agencies have coordinated their strategies.9 The second report examined
DOD's management controls for its Cooperative Threat Reduction program.10
This report, which completes our response to the mandate, assesses NNSA's
implementation of management controls for its nuclear nonproliferation
projects.
8Pub. L. No. 108-136, S: 3611 (2003).
9See GAO, Weapons of Mass Destruction: Nonproliferation Programs Need
Better Integration, GAO-05-157 (Washington, D.C.: Jan. 28, 2005).
10See GAO, Cooperative Threat Reduction: DOD Has Improved Its Management
and Internal Controls, but Challenges Remain, GAO-05-329 (Washington,
D.C.: June 30, 2005).
To perform this assessment, we obtained from the three relevant NNSA
offices a list of contracts for nuclear nonproliferation projects that
were active between June 2001 and June 2004. From this list, we then
identified contracts whose value exceeded $1 million. Going down this
list, we selected a nonprobability sample of the largest 18 dollar-value
contracts: two from NA-23, nine from NA-24, and seven from NA-25.11 This
mix reflected the proportion of contracts among the three offices that
were active from June 2001 through June 2004 and included at least one
contract from each of the national laboratories cited on the original list
of nonproliferation contracts that we received from NNSA-Brookhaven in New
York, Los Alamos and Sandia in New Mexico, Lawrence Berkeley and Lawrence
Livermore in California, Oak Ridge and the Y-12 National Security Complex
in Tennessee, Pacific Northwest in Washington, and the Idaho National
Laboratory. In addition, we obtained documents on the three offices and
the 18 contracts and interviewed officials from each of the offices and
national laboratories.12 A more detailed description of our methodology is
included at the end of this letter.
We conducted our work from May 2004 to July 2005 in accordance with
generally accepted government auditing standards.
Results in Brief Two NNSA offices, NA-23 and NA-25, documented management
controls for almost all of their contracts that we reviewed; but the third
office, NA-24, could not provide us with complete records related to its
contracts, and thus could not document its management controls. Regarding
NA-23 and NA-25, for eight of the nine contracts we reviewed, the staffs
that manage these contracts provided to us complete records of
deliverables, invoices, and evidence that technical reviewers approved the
deliverables and contract officers approved the invoices. NA-23 and NA-25,
as evidenced by their ability to provide us with key contract records,
maintain the key contract documents at headquarters and the national
laboratories, respectively, such that the records are quickly accessible
for active monitoring by contract and program managers. In addition, NA-23
and NA-
11Results from nonprobability samples cannot be used to make inferences
about a population, because in a nonprobability sample, some elements of
the population being studied have no chance or an unknown chance of being
selected as part of the sample.
12Although one of the contracts we examined involves work in Ukraine, the
other 17 contracts involve work in Russia, so we refer to all work as
being in Russia for simplicity of discussion.
25 each use formal procedural guidance on how to maintain management
controls for their contracts. Finally, according to NNSA officials,
neither of the offices performs periodic reviews of their management
control processes, although NA-23 had a review performed on its management
controls at the outset of its projects.
Regarding NA-24, staff could not provide a complete set of deliverables,
invoices, and approvals of deliverables and invoices for seven of the nine
contracts we reviewed. The types of missing documents differed among
contracts. For example, for one contract, NA-24 documented that a
technical official had approved work performed but provided no proof that
a contract officer had approved the invoice for the work. On another
contract, NA-24 provided us with fewer than half the deliverables and
one-fifth of the invoices. Moreover, although NA-24 officials told us that
the national laboratories maintain key contract records so that NA-24's
managers have quick access to them, the inability of NA-24 to obtain these
records suggests that this may not be the case. In addition, NA-24 does
not use formal, procedural guidance on how to maintain management controls
for its contracts. Finally, like NA-23 and NA-25, NA-24 does not
periodically review its management control processes, as suggested by GAO
management control standards, to ensure that the controls remain
appropriate and effective.
We are recommending that the Secretary of Energy, working with the
Administrator of the National Nuclear Security Administration, require
NNSA to take a number of actions designed to strengthen its management
control processes. Specifically, we recommend that (1) NNSA develop
formal, procedural guidance for its program managers that clearly states
management control processes; (2) NNSA's program managers maintain quick
access to key contract records such as deliverables and invoices that
relate to management controls, regardless of the records' location; and
(3) NNSA perform periodic reviews of its management controls to ensure
their effectiveness.
In its written comments to a draft of this report, NNSA stated that it
will undertake a series of actions in response to our recommendations, but
it believes that our report creates an inaccurate perception that the
Defense Nuclear Nonproliferation Program, particularly NA-24, is lacking
in the application of management controls. In response, we believe that
the facts support our assessment and that the implementation of our
recommendations will improve the effectiveness of the management
controls we reviewed. We have incorporated technical changes into the
report where appropriate.
Management Controls Are in Place for Two of the Three NNSA Offices
Administering Contracts for Nuclear Nonproliferation Projects
Two NNSA offices, NA-23 and NA-25, documented management controls for
almost all of their contracts that we reviewed; but the third office,
NA-24, could not provide us with the complete records necessary to
document these controls. Similarly, NA-23 and NA-25 provide their
technical reviewers and contract managers with procedural guidance that
assists in maintaining these controls, while NA-24 did not provide this
type of guidance. In addition, NA-23 and NA-25 maintain the key contract
documents at headquarters and the national laboratories, respectively, in
such a way that the records are quickly accessible for active monitoring
by contract and program managers, as evidenced by their ability to provide
us with key contract records.
NA-23 and NA-25 Documented Management Controls for the Contracts We Reviewed
Two NNSA offices, NA-23 and NA-25, documented management controls for most
of their contracts that we reviewed. As shown in table 1, for eight of the
nine contracts we reviewed from these two offices, NA-23 staff and
national laboratory officials who manage NA-25's contracts provided us
with complete records of deliverables and invoices as well as evidence
that technical reviewers and contract officers reviewed and approved
deliverables and invoices, respectively. (For the ninth contract, which
involved comprehensive physical protection upgrades to a strategic rocket
forces site in Russia, Oak Ridge National Laboratory did not provide
complete documentation of approvals for deliverables.) For example, the
two contracts we reviewed from NA-23-which are designed to construct or
refurbish fossil-fuel plants for the Russian cities of Zheleznogorsk and
Seversk so that each city can shut down its plutonium-producing nuclear
reactor that it currently uses to generate heat and electricity-involve
multiple contractors in the United States and Russia. Despite being by far
the largest contracts by dollar value in our sample ($390 million for
Seversk and $570 million for Zheleznogorsk-the next largest contract was
valued at $29 million), NA-23 headquarters provided us with, among other
things, complete documentation of all invoices; photographs of the
deliverables (i.e., construction work) completed to date; and evidence of
the reviews and approvals of the invoices and payments to the foreign
contractors and subcontractors. NA-23 also provided us with detailed
breakdowns of work (called Work Breakdown Structures), work
authorizations, and cost evaluations for each project. The documentation
NA-23 provided us was
among the most complete and organized of all the contracts we reviewed. An
NA-23 official told us that this office makes efforts to specify in acute
detail the work to be done and the costs for that work because this
enables the office to effectively monitor and maintain a degree of control
over the work of foreign contractors and subcontractors.
Table 1: NNSA Documentation of Management Controls in Nuclear
Nonproliferation Contracts, by Number of Contracts
Documents complete Documents and/ Documents
NNSA and management or approvals provide no clear
Office controls evident incomplete audit trail Total
NA-23 2 0 0
NA-24 2 4 3
NA-25 6 1 0
Source: GAO.
NA-25 officials also provided us with complete documentation of management
controls for the contracts they manage. As shown in table 1, for six of
the seven contracts we reviewed, the national laboratories that manage
these contracts provided complete records of deliverables and invoices as
well as evidence that technical reviewers at the national laboratories
and/or contract officers at the national laboratories and/or NA-25
reviewed and approved the deliverables and invoices, respectively. (The
seventh contract is the Oak Ridge contract, mentioned above.) For example,
for the two contracts we reviewed that Brookhaven National Laboratory
manages for NA-25, each invoice on the contracts received at least one
approval from technical reviewers at the laboratory, and each financial
transaction received two approvals from contract managers. In another
contract involving the purchase of nuclear detection devices for
deployment in Russia, the national laboratory managing the contract-
Pacific Northwest-provided us with purchase orders for the contract as
well as a receipt of delivery so that we could verify that the goods
purchased had reached their destination prior to final delivery in Russia.
Both NA-23 and NA-25 maintain copies of key records, such as deliverables
and invoices within quick access to program and contract managers, as
evidenced by the ability of each office to provide these records to us.
NA-23 maintains these records at headquarters, while NA-25 maintains the
records at the national laboratories that provide the day-to-day
management over the contracts. However, it is important to note that the
laboratories should be able to provide NNSA managers with complete and
quick access to contract records, as the national laboratories are
contractors to DOE, and it is NNSA that is ultimately responsible for
monitoring the nonproliferation projects.
NA-23 and NA-25 each apply formal, procedural guidance that assists
technical reviewers and contract managers in maintaining management
controls. For example, because the contracts involve capital procurement
or acquisitions exceeding $5 million, NA-23 must apply the rules and
procedures specified in DOE Order 413.3, Project Management for the
Acquisition of Capital Assets. NA-23's contract managers receive program
guidance through work authorizations signed by an authorized official at
NNSA headquarters and guidance on the payment process via DOE's Contract
Specialist Guide 42.8, which specifies procedures for review and approval
of vouchers and invoices so that contract managers will handle them in a
timely and efficient manner. According to NA-23 officials, Federal
Acquisition Regulations also stipulate many of the specific steps that
NA-23 must undertake in the planning, implementation, and review of the
contracts that make up the Seversk and Zheleznogorsk projects. NA-25
developed its own procedural guidance, known as the Project Management
Document, for technical reviewers and contract officials. This guide
provides instructions on, among other things, project planning, funds
management, reporting of a project's ongoing progress and costs, contract
management, and procedures for putting important contract data into
NA-25's Program Management Information System.
Finally, according to NNSA's Director of Policy and Internal Controls
Management and an NNSA official in charge of acquisitions in the Office of
Defense Nuclear Nonproliferation, neither NA-23 nor NA-25 perform periodic
reviews of their management control processes, although NNSA's Office of
Engineering and Project Support, at the outset of NA-23's projects, did
perform a general review of NA-23's management controls. GAO's management
control guidelines state that agencies should monitor and regularly
evaluate their control activities to ensure that they are still
appropriate and working as intended.
NA-24 Provided Insufficient NA-24 could not provide evidence of the
records necessary to document its Documentation on management controls.
Despite our numerous inquiries from January 2005 Management Controls to
June 2005 and discussions with agency officials-including one with
NNSA's Principal Assistant Deputy Administrator-the documentation we
received on seven of the nine contracts we examined from this office was
either incomplete or did not provide a clear audit trail that we could
follow. (For the two other contracts, one managed by Brookhaven National
Laboratory and one managed by Los Alamos National Laboratory, laboratory
officials provided complete documentation of management controls.) For
example, for one contract managed by the Idaho National Laboratory
involving the discovery of bioactive compounds in Russia that may be used
in watershed protection or carbon sequestration:
o Ten of the 35 invoices did not include a document showing that NA-24
had authorized payment to the Russian contractors.
o Fourteen invoices on this contract did not include evidence that Idaho
National Laboratory's technical reviewer for the contract approved the
deliverable on which the invoice was based.
For another contract managed through NA-24 headquarters, Foundation for
Russian American Economic Cooperation (FRAEC), NA-24 provided us with
documentation, but we were able to determine very little about the
contract on the basis of this documentation because of the following
reasons:
o there appeared to be no explanation of the linkages between the work
products outlined in the contract, the deliverables, and the invoices, and
o we received fewer than half of the invoices for the contract and fewer
than one-fifth of the deliverables for the contract.
Senior officials with NA-24 told us that it doesn't need to keep copies of
key contract documents because the documents are maintained at the
national laboratories managing the contracts and accessible to NA-24.
However, the fact NA-24 was unable to obtain complete sets of records on
seven of the nine contracts we reviewed suggests otherwise. In addition,
NA-24 did not provide us with formal, written guidance that provides
managers with the procedures on how to process and maintain key contract
records, and the office appears to rely on each national laboratory to
provide its own procedural guidelines.
Finally, NA-24, like NA-23 and NA-25, does not perform periodic reviews of
its management control processes. GAO's management control guidelines
state that agencies should monitor and regularly evaluate their control
activities to ensure that they are still appropriate and working as
intended.
Conclusions On the basis of our review of the contracts, it appears that,
if an NNSA program office provides its managers with procedural guidance
on how to maintain management controls, the office does a better job at
implementing and documenting these management controls. In our view,
procedural guidance enables program and contract managers to implement and
document management controls in a systematic way, as evidenced by the fact
that NA-23 and NA-25 each use procedural guidance and were able to
document their controls.
In addition, maintaining managers' quick and complete access to key
contract records-regardless of whether the records are located at the
national laboratory or NNSA headquarters-appears to coincide with
maintaining and documenting management controls. Officials at NA-24 told
us that they have access to all contract records through the laboratories
that manage their contracts, yet the office was unable to provide us with
these records.
Finally, as required by GAO standards for management controls, periodic
reviews of management controls would help the NNSA offices that we
reviewed determine whether they are adhering to their management controls
and whether these controls are relevant and effective. For example, if
NA-24 had performed a review of its management control procedures, it
might have discovered that it did not have on hand complete sets of
invoices and approvals of deliverables for each of the office's
nonproliferation contracts.
Recommendations To ensure that each NNSA office that we reviewed maintains
complete documentation of its management controls, we recommend that the
Secretary of Energy, working with the Administrator of the National
Nuclear Security Administration, require NNSA to take the following three
actions:
o each NNSA office use formal, procedural guidance that clearly states
management control processes;
o NNSA's program managers maintain quick access to key contract records
such as deliverables and invoices that relate to management controls,
regardless of whether the records are located at a national laboratory or
headquarters; and
o NNSA perform periodic reviews of its management control processes to be
certain that each program office's management controls can be documented
and remain appropriate and effective.
Agency Comments and Our Evaluation
We provided the Department of Energy's National Nuclear Security
Administration (NNSA) with a draft of this report for its review and
comment. NNSA's written comments are presented as appendix III. In its
written comments, NNSA notes that it will undertake a series of actions in
response to our recommendations, but also states that our report creates
an incorrect perception that the Defense Nuclear Nonproliferation Program,
particularly NA-24, is lacking in the application of management controls.
In their comments to our draft report, NNSA's major points are as follow:
1.
2.
3.
4.
5.
We reviewed only contracts from a portion of NA-24, Global Initiatives for
Proliferation Prevention (GIPP), and we did not receive complete
documentation from NA-24 because we did not speak to the procurement
officer for the GIPP program;
NA-24 has implemented "very stringent" management controls;
We mischaracterize the management controls on two contracts-one managed by
the Idaho National Laboratory (INL) and the other managed by NA-24
headquarters staff;
For an NA-25 contract managed by Oak Ridge National Laboratory, we
received incomplete documentation because of an initial misunderstanding
by the laboratory rather than a control problem within NA-25, and that
managers at Oak Ridge sent us the missing documents on August 16, 2005.
NA-25 does conduct external program management reviews of its management
controls through a Technical Survey Team (TST).
First, regarding the scope of our review, at the outset of our work, we
asked NA-24 for a list of all its contracts in Russia and other countries
that were active from the beginning of June 2001 through the end of June
2004, then took a nonprobability sample of those contracts. We did not
intentionally focus solely on NA-24's GIPP program. Regardless, as we
state in the report, results from nonprobability samples cannot be used to
make
inferences about a population, and our statements about NA-24 relate to
its ability to document the management controls for the contracts we
examined. Regarding NNSA's comment that we did not meet with the GIPP
procurement officer, it is unclear to us why NNSA is making this point.
For most of the contracts we reviewed, NA-24 provided us with documents
directly. After providing NA-24 with a fact sheet stating that we received
incomplete documentation for seven of the nine the contracts we reviewed,
we met with NA-24's Assistant Deputy Administrator on June 27, 2005, who
provided us with additional documentation that she characterized as
"complete". After a thorough review, we found much of this additional
documentation to be incomplete, indecipherable, and often duplicative of
the information we had already been given earlier in our review. On August
17, 2005, after submitting our draft report to NNSA for comment, we met
again with the Assistant Deputy Administrator as well as the Associate
Assistant Deputy Administrator, the Principal Assistant Deputy
Administrator for Defense Nuclear Nonproliferation, and the GIPP
procurement officer. At this meeting, the procurement officer provided us
with no new documentation, and the NA-24 officials again asserted that the
documents they provided us in June were "complete". Furthermore, during
the meeting, while discussing some of the documents that we found to be
missing, we asked the officials to produce a few of these documents at
random from the materials they gave us in June. In most cases, they were
unable to do so. In fact, in the case of one missing document, an NA-24
official stated that it "had to be somewhere in there" (included in the
materials submitted in June), but it was not.
Second, we disagree with NA-24's contention that it has implemented "very
stringent" management controls. Although NNSA cites a number of actions
that NA-24 has taken to strengthen its controls, the fact remains that
NA-24 did not provide us with sufficient documentation for seven of the
nine contracts we reviewed despite numerous requests from us to do so. For
example, on one contract managed by the Y-12 National Security Complex,
rather than providing a "real-time" technical reviewer's approval for each
deliverable, NA-24 provided us with a single email from the technical
reviewer, dated June 24, 2005, that purported to cover two years' worth of
missing approvals. This post-hoc approval does not represent a
satisfactory management control. Based on what NA-24 provided us, we
believe that the office's controls for some contracts we reviewed are
weak. In our view, NA-24 needs to implement actions that address and
strengthen the specific management controls we identify in the report, and
we are encouraged that NNSA has agreed to implement our recommendations.
Third, for the INL-managed contract, NNSA asserts that it provided us in
June with the documentation we sought. However, the documents were
indecipherable to us because most were unlabeled, presented in no
particular chronological order, and rely on emails in which neither the
sender's nor recipients' positions were identified. For the
headquarters-managed contract, NNSA contends that, at our meeting on
August 17, 2005, it explained how the process of deliverables and invoices
for this contract (providing assistance to the Foundation for Russian
American Economic Cooperation) differs from the processes of other
contracts we examined. Although this may be the case, the documents that
NA-24 provided did not clearly explain or illustrate those processes. More
importantly, the documents that NA-24 provided comprised fewer than
one-half of the deliverables and one-fifth of the invoices that we
identified in June as missing.
Fourth, although we have fewer concerns about NA-25's management controls,
in the case of one of the contracts managed by Oak Ridge National
Laboratory, managers provided acceptable documentation of technical
reviewers' approvals on only three of six deliverables. Although we agree
with NNSA that officials at the laboratory did not initially provide us
with complete documentation of technical approvals, as we state in the
report, NNSA is ultimately responsible for the controls on its contracts,
even if the contracts are managed day-to-day by someone else. In addition,
the documentation that officials at the laboratory sent us on August 16,
2005, did not provide all the information that was missing. Rather, they
provided documentation of one additional technical review and resubmitted
materials that we had already informed Oak Ridge managers did not
represent acceptable documentation. As a result, we stand by our
recommendation that NNSA perform periodic reviews of management controls
for each of the three offices we examined.
Fifth, regarding NNSA's statement that TST performs external reviews of
NA-25's management controls, it is important to note that the TST is a
panel of experts established by DOE to determine if DOE-installed security
systems at Russian nuclear sites meet departmental guidelines for
effectively reducing the risk of nuclear theft. Moreover, we spoke to
NNSA's Director of Policy and Internal Controls Management on August 26,
2005, and he agreed that, while the TST provides useful project oversight,
it does not provide the kind of comprehensive review of program management
controls examined in our review. More importantly, during the course of
our work, NA-25 did not provide evidence of any reviews of their
management controls.
Finally, we believe it is important to note that management controls were
most evident on NA-24 and NA-25 contracts managed by national laboratories
from which we were able to obtain all the necessary documentation
directly, without any NNSA headquarters involvement. This was especially
noteworthy in the case of NA-24 because both of this office's contracts
that we determined demonstrated effective management controls were managed
by a national laboratory - Brookhaven or Los Alamos - and in both cases we
obtained all the necessary documents directly from the laboratory
managers.
Scope and Methodology
To assess the effectiveness of the NNSA's management controls of its
nonproliferation projects, we identified the three offices within NNSA
that currently oversee and manage the nonproliferation projects that fell
within the scope of our work: (1) the Office of Nuclear Risk Reduction
(designated by NNSA as NA-23), (2) the Office of Nonproliferation and
International Security (NA-24), and (3) the Office of International
Material Protection and Cooperation (NA-25). To identify what constitutes
management controls, we consulted two GAO documents: Standards for
Internal Controls in the Federal Government and Internal Control
Management and Evaluation Tool. Using these documents, we focused on the
management controls associated with NNSA's nonproliferation contracts.
More specifically, we examined the supervisory actions designed to ensure
that the work performed under the contract (known as "deliverables") meet
the contract's specifications and that payments for that work receive
required approvals and reach the intended recipients. To do this, we
sought from NNSA the following documents for each of the contracts we
reviewed:
o statement of work;
o contract deliverables (or summary of the deliverable - as practicable);
o technical approval from an NNSA or national laboratory official for
each deliverable;
o invoices for all deliverables;
o documentation of an independent payment authorization and review for
each deliverable, which should include at least one signature from a
national laboratory financial office official supervising the contract
and/or one official at NNSA headquarters;
o approval letter from NNSA or the national laboratory authorizing the
final payment of the contractors for a deliverable (as applicable);
o a guide to the process each national laboratory uses to approve a
deliverable and authorize payment.
To select a nonprobability sample of contracts, we obtained, from the
three offices in NNSA, a list of all their nonproliferation contracts in
Russia and other countries that were active from the beginning of June
2001 through the end of June 2004. We identified contracts whose value
exceeded $1 million and arranged them in descending dollar value. We chose
the 15 contracts with the largest dollar value, subject to the constraints
that (1) no more than two contracts come from NA-23, 7 contracts from
NA-24, and six contracts from NA-25 and (2) a single national laboratory
manages no more than three contracts in our sample.13 We chose these
constraints so that (1) the mix of contracts among the three offices in
our sample roughly reflected the mix of contracts among the three offices
in our original list and (2) the sample would reflect a diversity of
laboratories. Finally, we included one contract from each of the three
remaining laboratories that were not yet included in our sample, bringing
our final list to 18 contracts.
To ensure that NNSA's lists of its nuclear nonproliferation contracts were
sufficiently reliable for our purposes, we obtained responses to a series
of questions covering issues such as data entry, data access,
quality-control procedures, and the accuracy and completeness of the data
for the eight databases from which these data were drawn. Follow-up
questions were added, whenever necessary. Based on our review of this
work, we found these data to be sufficiently reliable for the purpose of
using these lists to select a nonprobability sample of 18 contracts for
review.
In addition to contract documents, we also interviewed NNSA officials in
Washington, D.C., and Germantown, Maryland. To gather information about
the contracts we selected for review, we traveled to Brookhaven National
Laboratory in New York and Los Alamos and Sandia National Laboratories in
New Mexico to meet with laboratory officials and program, project,
procurement, and contract managers to explain our review; to learn about
NNSA programs and projects, as well as procedures for implementing
management controls; and to determine the kinds of project documents we
would need. To gather information and documents on the
13Only two contracts from NA-23 had dollar values exceeding $1 million.
remaining contracts, on the basis of what we learned during these trips,
we sent detailed written communications and conducted teleconferences,
numerous and frequent in some cases, with the requisite staff in
headquarters and at other national laboratories. Specifically, we
contacted staff at the Lawrence Berkeley and Lawrence Livermore National
Laboratories in California, the Oak Ridge National Laboratory and the Y-12
National Security Complex in Tennessee, the Pacific Northwest National
Laboratory in Washington, and the Idaho National Laboratory. We focused on
identifying the controls implemented to ensure that former Soviet Union
partners meet contract terms before the invoices for the deliverables are
paid.
After we gathered and evaluated all the available documentation from NNSA
headquarters and the various national laboratories for each contract, we
assessed the contracts on the basis of the completeness of their
documentation and overall evidence of the implementation of management
controls. We placed each contract in one of three categories: (1)
contracts for which all or almost all of the necessary documentation was
provided- especially the major contract documents (statement of work and
task orders), deliverables, and technical and independent
contractual/financial approvals of each deliverable-providing clear
evidence of the systematic implementation of management controls
throughout the life-cycle of the contract; (2) contracts for which most of
the documents were provided, suggesting that systematic implementation of
management controls may be occurring but not clearly indicating as much;
and (3) contracts for which there were significant gaps in necessary
documentation, providing no basis to conclude that systematic management
controls are implemented.14
We conducted our review between May 2004 and July 2005 in accordance with
generally accepted government auditing standards.
We are sending copies of this report to interested congressional
committees and the Secretary of Energy. We will also make copies available
14The Federal Acquisition Regulation and the Department of Energy
Acquisition Regulation provide regulatory requirements that may apply to
NNSA and laboratory contracts. These requirements include, for certain
contracts, systems for filing and maintenance of documents and the
necessity for implementation of management controls in accordance with
Comptroller General standards. We did not evaluate whether the contracts
reviewed for this report were managed and documented in accordance with
any applicable contracting regulations.
to others upon request. In addition, the report will be available on the
GAO Web site at http://www.gao.gov.
If you have any questions regarding this report, please contact Mr. Aloise
at (202) 512-3841 or [email protected]. Contact points for our Office of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO contacts and staff acknowledgements are listed in
appendix IV.
Gene Aloise Director, Natural Resources and Environment
Appendix I
NNSA Contracts
The following table lists all NNSA contracts that we reviewed.
Project NA Managing Lab $ Contract
Zheleznogorsk Fossil Fuel Plant NA-23 HQ $570,500,000
Seversk Fossil Fuel Plant Refurbishment NA-23 HQ $390,000,000
Luch - Task Order 1 - Blend-down HEU to NA-25 BNL $29,024,700
LEU
PBZ-C2 Comprehensive Physical Protection NA-25 SNL $10,737,740
Upgrades to Russian Navy Site
CBC-B2 Comprehensive Physical Protection NA-25 SNL $10,716,770
Upgrades to Russian Navy Site
TVZ01-Minatom Guard Railcar Procurement NA-25 ORNL $9,262,000
COMP2BR-Comprehensive Physical Protection NA-25 ORNL
System Upgrades $9,050,000
Aquila - Purchase of Equipment to enhance the monitoring of nuclear
materials
NA-25 BNL $8,825,572 FRAEC -Technical and administrative assistance in planning,
establishing, NA-24 HQ $3,716,319 and operating the international development
centers.
Pipe Coating Facility (#63544) - Establish a NA-24 BNL $2,600,628
production facility within the city
of Snezhinsk for the production of insulated pipes.
T2-0192-RU - Development of a 3-D neutronics NA-24 LBNL
optimization algorithm for $1,620,000
application to cancer treatment facilities.
Nuclear Non-Proliferation Center -The Analytical NA-24
Center for Nuclear Non- HQ $1,500,000
Proliferation will carry out research on several
projects, including a Quarterly
Information Bulletin and Internet Analysis and
creation of an Internet page.
T2-0186-RU - Development of a Tank Retrieval and NA-24 SNL $1,350,000
Closure Demonstration
Center in the Mining and Chemical Combine (MCC) to
help in retrieval and
processing of radioactive wastes generated during
production of plutonium for
nuclear weapons.
T2-0194-RU - The use of new technologies to process NA-24 LANL $1,290,000
important Ti alloys for
medical applications and aerospace industries.
T2-0204-UA - Welding and Reactive Diffusion Joining NA-24
(RDJ) repair technologies ORNL/ $1,260,000
for use in aircraft and land-based turbine engines. Y-12
SAIC/P.O. # 14436 - Nuclear material detectors for NA-25 PNNL $2,330,700
border guards
T2-0244-RU - Development of an explosives detection NA-24 LLNL $1,260,000
system.
T2-2002-RU - Discovery of bioactive compounds from NA-24 INL $1,110,000
selected environments
in Russia for products such as watershed protection
and carbon sequestration.
Source: GAO.
Appendix II
Documentation of Management Controls - GAO Assessment by Contract
Documents
Documents complete and/or Documents NNSA and management approvals provide
no clear Office Managing lab Project controls evident incomplete audit
trail
NA-23 HQ Zheleznogorsk Fossil Fuel Plant 1
NA-23 HQ Seversk Fossil Fuel Plant 1
NA-25 BNL Luch Task Order 1 - Blend-down 1
HEU to LEU
NA-25 SNL PBZ C2 - Security Upgrades to 1
Russian Navy Site
NA-25 SNL CBC B2 - Security Upgrades to 1
Russian Navy Site
NA-25 ORNL TVZ01- Minatom Guard Railcar 1
Procurement
NA-25 ORNL COMP2BR - Comprehensive 1
Physical Protection Systems
Upgrades
NA-25 BNL Aquila - Enhanced nuclear materials 1
monitoring systems
NA-24 HQ FRAEC - Technical and administrative assistance in planning,
establishing, and operating international development centers.
NA-24 BNL SEST #63544 - Pipe Coating Facility 1
NA-24 LBNL T2-0192-RU - Neutronics Algorithm 1
for Cancer Treatment
NA-24 HQ Nuclear Non-Proliferation Center
NA-24 SNL T2-0186-RU - Tank Retrieval 1
NA-24 LANL T2-0194-RU - Ti Alloys for Medical 1
Applications
NA-24 ORNL/Y-12 T2-204-UA - Welding and Reactive Diffusion Joining
NA-25 PNNL SAIC/P.O. #14436 - Nuclear material 1
detectors for border guards
NA-24 LLNL T2-0244-RU - Explosive Detection 1
System
NA-24 INL T2-2002-RU (subcontract 240) - 1
Discovery of Bioactive Compounds
Total 105 3
Source: GAO.
Appendix III
Comments from the Department of Energy
Appendix III
Comments from the Department of Energy
Appendix III
Comments from the Department of Energy
Appendix III
Comments from the Department of Energy
Appendix III
Comments from the Department of Energy
Appendix IV
GAO Contact and Staff Acknowledgments
GAO Contact F. James Shafer (202) 512-6002
Staff In addition, Nancy Crothers, Greg Marchand, Judy Pagano, Daren
Sweeney, Acknowledgments and Kevin Tarmann made significant contributions
to this report.
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