    Environmental Liabilities: Long-Term Fiscal Planning Hampered by
    Control Weaknesses and Uncertainties in the Federal Government's
    Estimates (31-MAR-06, GAO-06-427).

    The nation's military installations and nuclear weapons
    production facilities have accumulated many types of waste and
    contamination over the years. The federal government estimated
    its environmental liability to clean up this waste at $249
    billion in fiscal year 2004, representing the federal
    government's third largest reported liability. It represents a
    significant future outflow of funds at the same time as many
    other competing demands for federal dollars, but is currently not
    auditable. GAO was asked to address (1) the nature and extent of
    the government's environmental liabilities, (2) the extent to
    which Energy's and Defense's processes and controls were designed
    to estimate and report environmental liabilities in accordance
    with federal accounting standards, and (3) the nature and types
    of uncertainties that are currently not estimable but could
    affect the cost of cleanup.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-427
        ACCNO:   A50560
      TITLE:     Environmental Liabilities: Long-Term Fiscal Planning
    Hampered by Control Weaknesses and Uncertainties in the Federal
    Government's Estimates
         DATE:   03/31/2006
      SUBJECT:   Environmental cleanups
    	     Hazardous wastes
    	     Internal controls
    	     Liability of environmental damages
    	     Military facilities
    	     Nuclear facilities
    	     Nuclear waste disposal
    	     Radioactive waste disposal
    	     Financial analysis
    	     Cost estimates

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    GAO-06-427

         * Report to Congressional Requesters
              * March 2006
         * ENVIRONMENTAL LIABILITIES
              * Long-Term Fiscal Planning Hampered by Control Weaknesses and
                Uncertainties in the Federal Government's Estimates
         * Contents
              * Results in Brief
              * Background
              * The Federal Government's Environmental Liabilities Are
                Significant, Widespread, and Complex
                   * The Federal Government's Cleanup Responsibilities Are Vast
                     and Span the Nation
                   * Cleanup Efforts Pose Diverse Challenges
              * Energy's Processes and Controls Allowed It to Produce Estimates
                in Accordance with Federal Accounting Standards; Defense's Did
                Not
                   * Auditors Found Energy's Processes and Controls Sufficient to
                     Produce Reliable Environmental Liability Estimates in
                     Accordance with Federal Accounting Standards
                   * Minor Improvements at Energy Would Help Enhance Reliability
                     of Estimates
                   * Outdated and Incomplete Financial Management Guidance
                     Impeded Defense's Ability to Reliably Estimate Environmental
                     Liabilities
                   * Defense's Existing Policies and Procedures for Determining,
                     Reporting, and Documenting Environmental Liability Estimates
                     Were Not Consistently Followed
                   * Defense's Internal Controls Are Inadequate to Help Ensure
                     That All Cleanup Sites Are Included in the Environmental
                     Liability Estimate
              * Major Uncertainties Will Affect Future Cleanup Costs and Funding
                Demands
                   * Remediation Technologies for Some Sites Are Nonexistent or
                     Uncertain
                   * Regulatory Requirements and Legal Challenges Remain
                     Unresolved
                   * Ability to Effectively Meet Current Cost and Schedule
                     Targets is Uncertain
                   * Energy's and Defense's Financial Disclosures Acknowledge
                     Uncertainties, but Improvements Are Warranted
              * Conclusions
              * Recommendations For Executive Action
              * Agency Comments and Our Evaluation
         * Scope and Methodology
         * Comments from the Department of Defense
         * GAO Contact and Staff Acknowledgments
         * Related GAO Reports

    Report to Congressional Requesters

    March 2006

    ENVIRONMENTAL LIABILITIES

    Long-Term Fiscal Planning Hampered by Control Weaknesses and Uncertainties
    in the Federal Government's Estimates

    Contents

    Tables

    Figures

    March 31, 2006Letter

    The Honorable Todd R. Platts Chairman Subcommittee on Government
    Management,   Finance, and Accountability Committee on Government Reform
    House of Representatives

    The Honorable Darrell E. Issa Chairman Subcommittee on Energy and
    Resources Committee on Government Reform House of Representatives

    The nation's military installations and nuclear weapons production
    facilities have accumulated many types of waste and contamination over the
    years. This material, which includes radioactive byproducts from nuclear
    weapons production, nonradioactive but hazardous chemicals such as
    polychlorinated biphenyls (PCB), and unexploded ordnance such as bombs and
    missiles at military ranges, poses a potential threat to the public's
    health and well-being.1 Various federal laws, agreements with states, and
    court decisions require the government to clean up these environmental
    hazards. Federal accounting standards require agencies responsible for
    cleaning up this waste and contamination to estimate the cleanup and
    disposal cost and report it in their financial statements as environmental
    liabilities.2 In the federal government's fiscal year 2004 consolidated
    financial statements, these environmental liabilities were estimated at
    $249 billion-the third largest reported liability facing the

    federal government.3 This amount is currently unauditable and likely
    misstated given the problems we discuss later in this report with the
    Department of Defense's (Defense) controls over its estimation processes.
    Paying for this liability will require a significant future outflow of
    funds at the same time that the federal government will be facing many
    other competing demands for its limited dollars, such as escalating health
    care costs and growing Social Security obligations.

    Given that the inability to estimate total environmental liabilities has
    contributed to our disclaimer of opinion on the U.S. government's
    consolidated financial statements, and that the ultimate cost of cleanup
    and disposal activities will affect the long-term fiscal outlook of the
    federal government, you asked us to review the government's financial
    reporting of its environmental liabilities.4 We focused our work on the
    two federal agencies primarily responsible for those efforts-the
    Department of Energy (Energy), which oversees the nation's nuclear weapons
    facilities, and Defense, which oversees the nation's military
    installations and weapons systems. Together, these two agencies comprised
    99 percent of the cleanup and disposal cost estimates reported in the
    federal government's fiscal year 2004 consolidated financial statements.
    In response to your request, our report addresses

    o the nature and extent of the environmental cleanup and disposal cost
    liabilities as reported in the federal government's financial statements,

    o the extent to which Energy's and Defense's processes and controls are
    adequately designed to estimate and report environmental liabilities in
    accordance with related federal accounting standards, and

    o the nature and types of uncertainties that are currently not estimable
    but could affect the ultimate cost of Energy's and Defense's environmental
    cleanup efforts.

    In performing our work, we focused our review on Energy's and Defense's
    Performance and Accountability Reports for fiscal year 2004, the most
    recent completed fiscal year at the time we began our review, to determine
    what the agencies recorded and reported in their financial statements with
    respect to their environmental liabilities.5 We interviewed Energy and
    Defense officials, visited various sites, and reviewed policies and other
    documentation to obtain a better understanding of each agency's cleanup
    responsibilities and the cleanup and disposal issues being addressed by
    each agency, their internal controls and procedures for developing their
    environmental liability estimates, and the uncertainties that could affect
    the ultimate cost of cleanup and disposal. In reviewing both agencies'
    internal controls, we did not review or test detailed contractor estimates
    but instead focused on each agency's procedures for compiling and
    developing its environmental liability amounts.

    Because an independent public accounting firm audited Energy's fiscal year
    2004 financial statements and found them to be fairly stated, we reviewed
    those statements, traced and verified environmental liabilities amounts to
    supporting schedules, and reviewed audit workpapers where available. We
    otherwise relied on the work performed by the independent auditors and did
    not perform additional audit procedures to verify the completeness or
    accuracy of the amounts reported. Because Defense has acknowledged serious
    data reliability problems related to its financial systems and
    information, including those involved in the reporting of its
    environmental liabilities, auditors did not attempt to perform audit
    procedures and disclaimed an opinion on Defense's fiscal year 2004
    financial statements. Therefore, it was not our objective to-and we did
    not-audit the completeness or accuracy of Defense's reported environmental
    liabilities amounts. Although we have previously reported on the potential
    for Defense to incur costs in voluntary restoration initiatives in
    conjunction with returning overseas Defense facilities to host nations,
    these activities are not reported as environmental liabilities in its
    financial statements, and we did not review their international operations

    or processes.6 Since Defense's reported amounts are not reliable, we are
    providing them in this report for informational purposes only.

    We also reviewed Energy's and Defense's fiscal year 2005 Performance and
    Accountability Reports primarily to determine whether any significant new
    issues had arisen subsequent to the issuance of the fiscal year 2004
    financial statements. We performed our work from October 2004 through
    January 2006 in accordance with generally accepted government auditing
    standards. Appendix I provides further details on our scope and
    methodology.

    Results in Brief

    The environmental liability amount reported in the federal government's
    consolidated financial statements reflects an estimate of the cost to
    clean up and dispose of environmental contamination in every state in the
    nation. Of the $249 billion reported for fiscal year 2004, Energy's
    recorded liability was $182 billion, the largest of any agency, and was
    related primarily to the cleanup of nuclear waste and contamination at
    about 50 Energy locations around the country. Over 40 percent of Energy's
    total liability relates to cleanup at three locations in Washington, South
    Carolina, and Idaho where most of the nation's nuclear weapons production
    activities occurred during World War II and the subsequent Cold War. The
    estimated cleanup costs relate to the treatment and disposal of millions
    of gallons of radioactive byproducts from making plutonium and other
    nuclear materials, decontamination and demolition of facilities used for
    decades in nuclear materials production, and the cleanup of contaminated
    soil and groundwater at these locations. Energy's recorded environmental
    liabilities also include estimates for the future cleanup of its current,
    or "active," facilities; long-term stewardship and monitoring at sites
    after they are cleaned up; and disposal of high-level waste, used
    ("spent") nuclear fuel, and excess special nuclear material. The
    radioactivity of most of Energy's waste makes its cleanup effort
    technically difficult, costly, and subject to significant legal
    challenges.

    Defense's unaudited cleanup cost estimate, reported at $64 billion in
    fiscal year 2004, accounted for the bulk of the government's remaining
    reported environmental liability balance. Its cleanup responsibilities
    include treatment and disposal of many types of hazardous wastes
    associated with military operations; disposal of weapons systems including
    nuclear ships and submarines; storage and disposal of highly toxic
    chemical weapons such as nerve agents and sulfur mustard blister agents;
    and environmental cleanup at military installations affected by base
    realignment and closures. Defense has identified about 600 military
    locations and over 1,700 formerly used defense locations requiring
    remediation in all 50 states.

    Energy's processes and internal controls over the financial reporting of
    its environmental liabilities have enabled it to produce an estimate of
    its environmental liabilities in accordance with federal accounting
    standards for several years; however, Defense's have not. Key components
    of Energy's environmental liability estimation process include the
    issuance of internal control guidance to its field locations for the
    development and annual update of environmental liability estimates,
    independent reviews of selected projects, and establishment of a
    requirement that project work scope changes and cost increases be approved
    by a control board. Another key part of Energy's financial reporting
    process is its "contingency estimate," which is used to take into account
    the inherent uncertainties in estimating the cost of environmental cleanup
    activities. Adding this component to the liability helped Energy achieve a
    clean financial statement audit opinion in fiscal year 1999 and in
    subsequent years.

    In contrast, numerous weaknesses in the design of Defense's processes and
    internal controls for estimating and reporting environmental liabilities
    have precluded it from producing an auditable estimate of its
    environmental liabilities. While some progress has been made over the
    years, we found that (1) Defense's outdated and incomplete accounting
    guidance for developing and reporting its environmental liabilities
    estimates led to errors in financial reporting; (2) its policies and
    procedures for determining, reporting, and documenting environmental
    liability estimates were not consistently followed; and (3) none of the
    military services had adequate controls in place to help ensure that all
    identified contaminated sites were included in their reported
    environmental liability estimates. These weaknesses not only impacted the
    reliability of Defense's environmental liability estimate, but also that
    of the federal government as a whole.

    Even if Defense resolves all of its control deficiencies and reports cost
    estimates that meet all federal accounting standards, nonquantifiable
    uncertainties currently exist for both Energy and Defense that could
    increase the eventual cost of the cleanup beyond the estimated amounts
    recorded in the federal government's consolidated financial statements.
    While not quantifiable, these, like the quantified environmental
    liabilities, add to the fiscal exposures of the federal government and
    will affect the long-term fiscal outlook. For example, various regulatory
    requirements and legal challenges have caused multiple delays in the
    licensing and design of the nation's planned high-level waste repository
    at Yucca Mountain, Nevada, and many of the environmental liability cost
    estimates are predicated upon Yucca Mountain opening and accepting this
    waste by certain milestone dates. Further delays could cause construction,
    interim storage, and other costs to increase, but Energy has not yet
    committed to a new target date for opening the repository. These
    uncertainties do not affect the auditability of the liability because
    under current federal accounting standards a potential liability that
    cannot be estimated but is considered at least reasonably possible to
    occur is not required to be recorded, only disclosed. Both Energy and
    Defense currently disclose these types of uncertainties in the notes to
    their financial statements, although improvements in their disclosures are
    warranted at both agencies.

    Given these uncertainties and the extensive internal control weaknesses at
    Defense, the ultimate cost and funding requirements of cleanup and
    disposal of the federal government's environmental contamination cannot be
    fully determined. Improving Defense's financial management processes and
    controls are critical to ensuring that environmental liability estimates
    are as reliable as possible under current circumstances. We are making
    eight recommendations to Defense that, if properly implemented, will
    improve internal controls at Defense to help ensure that its environmental
    liabilities estimates are adequately supported and properly reported. We
    are also making a recommendation to Energy to help improve disclosure in
    the notes to the financial statements of uncertainties that could have a
    significant impact on ultimate cleanup costs. We provided Energy and
    Defense with a draft of applicable sections of this report for their
    review and comment. We received verbal comments from Energy, and written
    comments from Defense that are reprinted in appendix II. Each concurred
    with the respective recommendations made to them and described the
    corrective actions they were taking to address them.

    Background

    Federal agencies' responsibilities for environmental cleanup are set forth
    in a number of different laws, regulations, and agreements. For example,
    many of Energy's and Defense's cleanup activities are governed by the

    Resource, Conservation, and Recovery Act of 1976, as amended,7 and the
    Comprehensive Environmental Response, Compensation, and Liability Act of
    1980, as amended.8 Additionally, the Nuclear Waste Policy Act of 1982, as
    amended,9 established a program for the development of a geologic
    repository (a permanent deep disposal system) for disposing of high-level
    radioactive waste and spent nuclear fuel; the Waste Isolation Pilot Plant
    Land Withdrawal Act10 provided for the establishment of a repository for
    transuranic wastes. Furthermore, 10 U.S.C. S:S: 2701-2709 established the
    Defense Environmental Restoration Program to identify, investigate, and
    clean up properties contaminated by Defense's activities. Table 1
    describes the primary categories of waste and materials that the
    government is faced with cleaning up.

    Table 1: Primary Categories of Environmental Waste and Byproducts

              Type                              Description
    Spent nuclear fuel Fuel elements and irradiated targets that have been
                          removed from nuclear reactors. These spent fuels are
                          highly radioactive and must be stored in special
                          facilities that shield and cool the materials.
    High-level waste   Highly radioactive liquid left over when spent nuclear
                          fuel is reprocessed to recover reusable uranium or
                          plutonium. Most of Energy's high-level waste came from
                          the production of plutonium. This designation is also
                          applied to solids made when liquid high-level waste is
                          treated. This waste typically contains highly
                          radioactive, short-lived fission products as well as
                          long-lived isotopes, hazardous chemicals, and toxic
                          heavy metals. High-level waste must be isolated from
                          the environment for thousands of years.
    Transuranic waste  Waste contaminated with transuranic elements at a
                          concentration higher than 100 nanocuries per gram. This
                          includes soil and chemicals as well as contaminated
                          tools, equipment, and clothing. Transuranic waste is
                          generated during nuclear weapons production and other
                          activities involving long-lived transuranic elements,
                          such as plutonium. Some of these isotopes have
                          half-lives of tens of thousands of years, thus
                          requiring long-term isolation.
    Low-level waste    Any radioactive waste that does not fall into one of
                          the above categories regardless of content, activity
                          level, or longevity. Most low-level waste contains
                          small amounts of radioactivity in large volumes of
                          material.
    Hazardous waste    Hazardous wastes are chemical wastes containing
                          substances defined as hazardous by law. These are
                          capable of causing illness, death, or some other harm
                          to humans and other life forms when mismanaged or
                          released into the environment.
    Mixed waste        Waste that contains both radioactive and chemically
                          hazardous materials. Some high-level, transuranic, and
                          low-level wastes are also hazardous and thus are also
                          considered mixed waste.

    Source: GAO.

    In our report on major challenges facing the nation in the 21st century,
    we pointed out that progress in cleaning up sites frequently does not meet
    expected time frames and the costs dramatically exceed available funding
    levels.11 Furthermore, the current approaches to cleaning up the various
    sites are not consistent and, in some cases, not especially efficient or
    effective. Such issues are some of the reasons we have designated aspects
    of Energy's and Defense's operations as high-risk areas for the federal
    government.12 We have also previously reported on shortcomings with the
    federal budgeting process for environmental liabilities.13 Specifically,
    we reported that because the federal budget is primarily calculated on a
    cash basis, the full costs of a program that will have cleanup costs are
    not recognized in the budget, nor are estimates of these future costs
    provided elsewhere in budget documents. Consequently, the budget itself
    does not provide policymakers the information to compare the full costs of
    certain programs and thus, the long-term fiscal exposures. We have
    previously suggested to the Congress that budget process mechanisms be
    developed to prompt more deliberations about such fiscal exposures while
    recognizing the uncertainty inherent in estimating some long-term costs.14

    Meeting these cleanup responsibilities carries a financial cost, and
    federal accounting standards require the costs associated with the federal
    government's environmental cleanup responsibilities to be reported in the
    respective agencies' financial statements as well as the federal
    government's consolidated financial statements. The Federal Accounting
    Standards Advisory Board's Statement of Federal Financial Accounting
    Standards (SFFAS) No. 5, Accounting for Liabilities of the Federal
    Government, requires the recognition of a liability when there has been a
    past government-related event and there is both a probable and a
    reasonably estimable future outflow or sacrifice of resources.15 If a
    future outflow of resources is probable but the amount is not reasonably
    estimable, then SFFAS No. 5 requires the disclosure of a liability in the
    notes to the financial statements with a statement that the amount of the
    liability cannot be estimated. If a future outflow of resources is not
    considered probable but there is at least a reasonable possibility that a
    loss or future expenditure may be incurred, SFFAS No. 5 requires
    disclosure of the possible liability in the notes to the financial
    statements. Table 2 explains in more detail the accounting criteria for
    determining when to record a liability in the federal financial
    statements, disclose it in the notes to the financial statements, or not
    disclose it at all.16

    Table 2: Accounting Requirements for Recording or Disclosing a Liability
    in the Federal Financial Statements

                            Degree to which
                              loss can be
                                measured
          Likelihood of     Loss amount can   Loss range can be   Loss amount or
        future outflow or    be reasonably   reasonably measured range cannot be
    other sacrifice of       measured                            reasonably
            resources                                                measured
    Probable: Future     Record a         Record a liability  Disclose nature
    confirming event(s)  liability        for best estimate   of liability and
    are more likely to   (reported on     or minimum amount   include a
    occur than not a     balance sheet    in loss range if    statement that
                            and statement of there is no best    an estimate
                            net cost)        estimate, and       cannot be made
                                             disclose nature and
                                             range of estimated
                                             liability
    Reasonably           Disclose nature  Disclose nature of  Disclose nature
    possible:            of possible      possible liability  of possible
    Possibility of       liability and    and estimated loss  liability and
    future confirming    estimated loss   range               include a
    event(s) occurring   amount                               statement that
    is more than remote                                       an estimate
    and less than                                             cannot be made
    likely
    Remote: Possibility  No disclosure    No disclosure       No disclosure
    of future event(s)
    occurring is slight

    Source: Statement of Federal Financial Accounting Standards, No. 5.

    aFor liabilities related to litigation, probable is defined as a future
    confirming event(s) that is likely to occur.

    Federal agencies are also obligated to establish and maintain effective
    internal control. We issue the standards for internal control in the
    federal government, which provide the overall framework for establishing
    and maintaining internal control and for identifying and addressing major
    performance and management challenges and areas at greatest risk of fraud,
    waste, abuse, and mismanagement.17 According to the standards, internal
    control is an integral component of an organization's management that
    provides reasonable assurance that agency objectives-such as the
    reliability of financial reporting and the effectiveness and efficiency of
    operations-are being met. These standards define the minimum level of
    quality acceptable for internal control in government and provide the
    basis against which internal control is to be evaluated.

    The Federal Government's Environmental Liabilities Are Significant,
    Widespread, and Complex

    For fiscal year 2004, the estimated cost for environmental cleanup
    reported in the federal government's consolidated financial statements was
    $249.2 billion-the third largest reported liability. The government's
    responsibility for cleanup extends to locations in every state of the
    nation, with Energy and Defense showing marked differences in the nature
    of these locations and the types of cleanup needed.18 Energy's liability
    is primarily for the cleanup of waste resulting from the nation's nuclear
    weapons complex, and the number of these locations is considerably fewer
    than the locations for which Defense is responsible. Although concentrated
    at fewer locations, the radioactivity associated with much of Energy's
    cleanup work make the efforts technically difficult and costly. Defense's
    liability is for contamination from current and past military activities
    at over 2,300 locations across the country, creating difficult management
    challenges. While cleanup at many of these locations may not carry the
    same technical challenges as those associated with Energy's nuclear
    cleanup responsibilities, some Defense locations have chemical weapons or
    hazardous waste that carry considerable challenges of their own.

    The Federal Government's Cleanup Responsibilities Are Vast and Span the
    Nation

    The federal government's reported environmental liability is an estimated
    amount, stated in current dollars. As illustrated in figure 1, Energy and
    Defense together made up $246 billion (99 percent) of the federal
    government's total reported environmental liability at the end of fiscal
    year 2004. The remaining $3 billion (1 percent) of the reported 2004
    liability represented the estimated environmental cleanup costs of 12
    other federal agencies, with the three largest being the Department of
    Transportation ($1.1 billion), National Aeronautics and Space
    Administration ($987 million), and the Department of Veterans Affairs
    ($339 million).

    Figure 1: The Federal Government's Reported Fiscal Year 2004 Environmental
    Liabilities by Agency

    The size of the overall estimate makes the environmental liability amount
    the third largest reported liability that the federal government faces,
    behind federal debt securities held by the public with their related
    accrued interest and federal employee and veteran benefits payable.19 As
    such, management of the environmental liability represents one of the
    federal government's major challenges from both financial and
    environmental perspectives.

    The majority of Energy's environmental liability, reported at $182 billion
    as of September 30, 2004, comes from nuclear weapons production during
    World War II and the Cold War. During this period, the United States built
    a massive industrial complex to research, produce, and test nuclear
    weapons. At all locations where these activities took place, environmental
    contamination of buildings, soil, surface water, and groundwater occurred.
    This environmental legacy of nuclear weapons production also produced
    large volumes of radioactive and chemical waste requiring treatment,
    stabilization, and disposal. Collectively, the waste remaining from the
    development and production of nuclear weapons is referred to as legacy
    waste. Energy is also responsible for stabilizing and disposing of waste
    from ongoing operations at active facilities, such as at its national
    laboratories, which carry out scientific research for national and defense
    purposes.20 Additionally, Energy is tasked with disposing of radioactive
    special nuclear materials and depleted uranium surplus from our national
    defense needs, including the nation's surplus plutonium and highly
    enriched uranium used in nuclear weapons. Energy has about 50 locations
    nationwide for which it is responsible for cleaning up, stabilizing, and
    disposing of hazardous and radioactive wastes and materials resulting from
    past and current operations.21 Figure 2 shows major Energy locations where
    legacy and active facility wastes require cleanup either currently or in
    the future. Although Energy's legacy and active facility waste cleanup and
    disposal locations are dispersed throughout the United States, over 40
    percent of Energy's total environmental liabilities estimate pertains to
    cleanup and related long-term monitoring at just three locations: Hanford
    near Richland, Washington; Savannah River near Aiken, South Carolina; and
    Idaho National Laboratory near Idaho Falls, Idaho.

    Figure 2: Energy's Cleanup Locations and Waste Repositories as of
    September 30, 2004

    Note: Map locations not drawn to scale.

    In contrast to Energy, Defense reports a need to clean up over 2,300
    locations around the country. This includes about 600 current and base
    realignment and closure (BRAC) military locations and over 1,700 formerly

    used defense locations in every state in the country.22 Defense is
    required to clean up contamination resulting from past and current waste
    disposal practices, leaks, spills, and other activities that have created
    a public health or environmental risk. Defense is also responsible for
    costs of (1) closure and monitoring associated with the transportation,
    storage, and disposal of hazardous wastes, (2) disposal of weapons systems
    such as nuclear ships and submarines and their associated spent nuclear
    fuel, (3) storage and disposal of highly toxic chemical weapons, and (4)
    environmental cleanup related to base realignments and closures. As figure
    3 shows, every state has at least one such Defense cleanup location, and
    14 states have more than 100.

    Figure 3: Number of Defense's Reported Cleanup Locations by State

    Note: Map does not reflect the locations of chemical weapons and nuclear
    ships and submarines. The number of states reflected in the legend
    includes the District of Columbia.

    Cleanup Efforts Pose Diverse Challenges

    As shown in figure 4, about $130 billion (72 percent) of Energy's reported
    fiscal year 2004 environmental liability relates primarily to the cleanup
    and long-term stewardship of legacy waste at sites where weapons research,
    production, and testing took place. By comparison, Energy's 2004 liability
    for the estimated cost of cleaning up its active facilities when current
    operations cease was only $30 billion, 17 percent of the total. Energy's
    plan is to dispose of its high-level waste and spent nuclear fuel in a
    deep geologic repository that will also be used for the disposal of such
    waste from other federal agencies and commercial nuclear generators.
    Energy's allocated share of the disposal cost at the repository is $15
    billion, 8 percent of its reported environmental liability.23 The
    remaining $6 billion, 3 percent of the liability, primarily relates to the
    disposal of special nuclear material in excess of national defense needs.

    Figure 4: Energy's Reported Fiscal Year 2004 Environmental Liabilities by
    Type

    Energy's cleanup and disposal efforts involve difficult and costly
    technical challenges. The physical characteristics and radioactivity of
    its wastes affect the handling requirements, treatment, and disposal
    methods, and thus the cost of cleanup. For example, Energy's cleanup
    efforts involve large amounts of radioactive waste from nuclear weapons
    production. While the level of radioactivity varies, some waste-such as
    waste contaminated with plutonium-will stay radioactive for thousands of
    years. As a result, some wastes must be remotely handled with special
    robotic machines sealed in heavily shielded rooms because they are too
    dangerous for workers to physically handle. This further adds to the cost
    of cleanup.

    Figure 5: Waste Drum Being Opened and Contents Processed through a
    Remote-Handled Waste Facility

    Furthermore, Energy is developing and testing technologies and methods of
    treatment for certain types of waste because there are currently no proven
    methods for cleaning them up. As discussed later in this report, some of
    these treatment methods have proved unsuccessful, requiring Energy to
    pursue new methods. This lack of treatment technology means that the cost
    to treat these wastes will likely increase. Also, the hazardous and
    long-lived nature of much of Energy's waste has resulted in contention
    between interested parties as to the best way and extent to which cleanup
    should occur. As discussed later in this report, this has at times
    resulted in legal challenges, which can also increase the extent and cost
    of cleanup.

    The Defense portion of the federal government's environmental liabilities
    also poses significant challenges. Defense's environmental liabilities,
    shown in figure 6, consist primarily of (1) hazardous waste disposal and
    cleanup on training ranges, including removal of unexploded ordnance, (2)
    disposal of nuclear ships and submarines, and (3) disposal of chemical
    weapons. The "other" category includes cleanup of hazardous wastes (such
    as petroleum products and PCBs) at military bases and formerly used
    defense sites.

    Figure 6: Defense's Reported Fiscal Year 2004 Environmental Liabilities by
    Type

    Although the technical processes for dealing with Defense's cleanup may be
    more clearly defined and understood at this point than the processes for
    dealing with some of Energy's cleanup of high-level radioactive wastes,
    many of Defense's cleanup efforts are nonetheless significant and
    challenging. Not only are Defense's cleanup efforts spread across the
    nation, but estimating the future costs of disposing of nuclear ships and
    submarines is complicated by the uncertainty surrounding the final
    disposal location of spent nuclear fuel, as discussed more fully later in
    this report. Further, Defense has responsibility for safeguarding the
    environment and human life from the extreme risks inherent in storing the
    nation's stockpile of deadly chemical weapons-including highly toxic nerve
    agents and sulfur mustard blister agents-while working to develop
    alternative methods for their disposal.

    Energy's Processes and Controls Allowed It to Produce Estimates in
    Accordance with Federal Accounting Standards; Defense's Did Not

    Energy's processes and internal controls for developing its overall
    environmental liability estimate have evolved and improved over time to
    the point where, for fiscal years 1999 through 2004, its auditors
    determined that the financial statements that reported the estimated
    environmental liabilities were presented fairly and in accordance with
    federal accounting principles.24 Key components of Energy's environmental
    liability estimation process include the issuance of internal control
    guidance to its field locations for the development and annual update of
    environmental liability estimates; independent reviews of selected
    projects; and establishment of a requirement that project work scope
    changes and cost increases be approved by a control board. Another key
    part of Energy's financial reporting process is its "contingency
    estimate," which is used to take into account the inherent uncertainties
    in estimating the cost of environmental cleanup activities. Adding this
    component to the liability estimate helped Energy achieve a clean
    financial statement audit opinion in fiscal year 1999 and subsequent
    years. While Energy's auditors identified some issues related to the
    environmental liability reporting process that require corrective action,
    none of these were significant enough to materially impact the
    reasonableness of the overall liability estimate.

    Defense has made some improvements to its controls in recent years, such
    as issuing management guidance for reporting environmental cleanup costs
    that are not funded under the Defense Environmental Restoration Program.
    However, there remain significant weaknesses in Defense's processes and
    internal controls that have hindered it from producing auditable estimates
    of its environmental liabilities. Specifically, Defense's outdated and
    incomplete accounting guidance for developing and reporting its
    environmental liabilities estimates led to errors in financial reporting;
    its policies and procedures for determining, reporting, and documenting
    environmental liability estimates were not consistently followed; and none
    of the military services had adequate controls in place to help ensure
    that all identified contaminated sites were included in their
    environmental liability cost estimates. These weaknesses not only impacted
    the reliability of Defense's environmental liability estimate, but also
    that of the federal government as a whole.

    Auditors Found Energy's Processes and Controls Sufficient to Produce
    Reliable Environmental Liability Estimates in Accordance with Federal
    Accounting Standards

    Over the years, the design of Energy's processes and internal controls for
    developing its overall environmental liability estimate has evolved and
    improved, which enabled its auditors to determine that Energy's financial
    statements that reported these estimates were presented fairly and in
    accordance with federal accounting principles from fiscal years 1999
    through 2004. Beginning in fiscal year 1999, Energy issued written
    internal control guidance to its field offices outlining requirements they
    are to follow in the development and annual update of environmental
    liability estimates, such as assigning responsibilities, maintaining
    supporting documentation, and reviewing and approving the estimates.
    Energy's estimating process for its legacy waste cleanup, which
    represented 62 percent of its fiscal year 2004 environmental liability
    estimate, normally starts with life cycle cost estimates that are usually
    prepared by Energy's contractors based on the extent of cleanup, timing of
    the work, and funding levels. External independent reviews are to be
    conducted each year on selected projects, and headquarters management is
    to perform baseline validation reviews of projects before they are put
    under Energy's configuration control process. The configuration control
    process requires that proposed changes to a particular project, such as a
    change in cost estimate or a change in work scope, be approved by Energy's
    configuration control board.25 Energy's second largest environmental
    liability component-the future clean up of its active
    facilities-represented 17 percent of its 2004 environmental liability
    total. Unlike the legacy waste component that is managed entirely by
    Energy's Office of Environmental Management, active facilities may be
    managed by any of several different programs, such as Energy's Office of
    Science or the National Nuclear

    Security Administration (NNSA).26 Energy's Office of the Chief Financial
    Officer developed an approach in 1996 that uses a cost-estimating model to
    develop its active facilities baseline estimate. With the model, various
    parameters, such as facility type and size, are used to estimate the total
    cost of cleanup, including facility deactivation and decommissioning. Some
    locations, such as the Idaho National Laboratory, have developed their own
    site-specific active facilities liability estimates, and thus, are not
    included in the baseline model. Idaho lab officials indicated they develop
    their estimate based on more specific information about their facilities
    than the baseline model requires, which enables them to prepare a more
    detailed active facilities estimate.

    Accounting standards recognize that no one accounting estimate can be
    considered accurate with certainty.27 One of the auditors' criticisms of
    Energy's fiscal year 1998 environmental liability estimate was that it did
    not sufficiently reflect significant uncertainties associated with the
    technical cleanup scope of the program. Thus, in fiscal year 1999 Energy
    began adding an amount-which Energy refers to as a contingency estimate-to
    its environmental liabilities baseline amount to help recognize the risks
    associated with its projects, such as the reliance on new technology and
    complex construction projects. In fiscal year 2004, Energy added $33.2
    billion to its baselines estimates for this contingency estimate, 18.3
    percent of its total environmental liabilities, which the auditors
    reviewed as part of Energy's annual financial statement audit.28

    Although the contingency amount is significant, it is not intended to
    estimate all uncertainties. Federal accounting standards require recording
    a liability only when a future outflow of resources is considered both
    probable and measurable. The estimated liability may be a specific amount
    or range of amounts. If the estimate is a range, the standards require
    only the minimum amount in the range to be recognized unless some amount
    within the range is a better estimate. Energy developed its contingency
    methodology to derive its best estimate within the range. For each
    project, the cognizant project manager assigns a risk score of one to five
    to each of three project characteristics: project definition, which refers
    to how well the project is defined in terms of its cost, schedule, and
    scope; innovation, which refers to the maturity of technology upon which
    the project is reliant; and complexity, which refers to the difficulty and
    number of processing and treatment steps required. These risk scores are
    then input to a statistical model that predicts the range of total
    life-cycle cleanup costs and the mean within the range. The difference
    between the mean and the current project baseline total is the amount that
    is recorded as the contingency estimate.

    This additional contingency amount is necessary because Energy's cleanup
    cost estimates can and have experienced significant increases. For
    example, Energy is currently constructing a waste treatment plant
    consisting of three treatment facilities, an analytical laboratory, and
    several support structures to attempt to treat over 53 million gallons of
    radioactive and hazardous waste at its Hanford location, but this complex
    project has experienced several cost increases. It was originally approved
    for $4.3 billion in 2000, but later increased to $5.8 billion in 2003.
    Subsequent problems-including required changes to the design's seismic
    criteria after the seismic assumptions were found inadequate-resulted in
    the contractor revising the cost estimate in 2005 to $8.0-$8.3 billion,
    which Energy has not yet approved. The Army Corps of Engineers (Corps)
    reviewed the contractor's revised cost estimate under an agreement with
    Energy, and found that the actual cost could be an additional $1.3 billion
    higher than the revised estimate. Although Energy has not yet approved a
    revised estimate, both the contractor's revised estimate and Corps' review
    of it indicated that the final cost will likely be significantly higher
    than the current $5.8 billion estimate. At Energy's request, the
    contractor subsequently submitted a more detailed cost estimate in early
    fiscal year 2006, which the Corps is now reviewing. Because of the
    uncertainty of the project estimate, Energy added both a project-specific
    contingency estimate and included this project in the statistical model
    calculation of its overall contingency estimate in fiscal year 2005. These
    construction cost increases are the types of things for which Energy
    established its contingency amount. Using this overall approach to develop
    its environmental liability estimate, Energy has been able to produce an
    auditable estimate from fiscal years 1999 through 2004.

    Figure 7: Aerial View of the Waste Treatment Plant under Construction at
    Hanford

    Minor Improvements at Energy Would Help Enhance Reliability of Estimates

    In its audit report on Energy's fiscal year 2004 financial statements,
    Energy's independent auditors did not identify any material weaknesses or
    reportable conditions related to environmental liabilities, but did
    identify two matters related to environmental liabilities that warranted
    communicating to management for corrective action.29 While not material to
    the overall estimate, continued attention to improvement helps ensure the
    future auditability of the estimate. The following are the issues the
    auditors identified in fiscal year 2004.

    o As previously discussed, Energy uses a cost-estimating model to estimate
    its environmental liability for the future remediation of active
    facilities. Field location personnel are responsible for inputting and
    verifying certain facility data such as type of facility (e.g., office
    space, laboratory), size, and a general characterization of the type of
    contamination in the facility. The model then uses the data to estimate
    the active facilities' portion of the environmental liability estimate. In
    fiscal year 2004, the auditors tested a statistical sample of facilities
    and structures from each of five locations to test the reliability and
    accuracy of selected facility data, and found immaterial errors at two of
    the five locations. The auditors made recommendations to correct the
    specific errors and to improve internal controls for verifying the
    accuracy of the data.

    o The auditors' review of selected key projects identified two instances
    where the field location did not have adequate supporting documentation on
    file for its cost estimates. For both projects, the field location was
    ultimately able to produce detailed information that satisfied the
    auditors as to the reasonableness of the cost estimates. However, the
    auditors made recommendations to establish procedures to ensure that all
    project cost estimates were adequately supported by written documentation
    and reviewed.

    In fiscal year 2005, the auditors also noted immaterial errors in the
    active facilities' data and supporting documentation tested, although the
    specific locations at which these errors were identified may have changed.
    The auditors made specific recommendations in each instance, and indicated
    that management generally agreed with the findings and was responsive to
    the recommendations.

    In addition, we learned of an instance during our review where the
    estimated cleanup cost of a particular project was erroneously excluded
    from a prior-year environmental liability estimate. Specifically, in
    fiscal year 2003, Energy's Office of Environmental Management recorded a
    liability for the estimated cost of operating the Savannah River Site's H
    Canyon Processing Facility through fiscal year 2007, and assumed that NNSA
    would take over responsibility for the facility and record the liability
    for fiscal years 2008 through 2010. However, NNSA never agreed to take
    over responsibility for this facility and thus did not record those costs,
    which were estimated at $632 million. The Office of Environmental
    Management subsequently included the full amount in its fiscal year 2004
    estimates. Subsequent to the costs being excluded, Energy issued a policy
    requiring such transfers to be formally documented, agreed to by the
    affected parties, and approved by the Secretary of Energy through the
    Chief Financial Officer. If properly implemented, this should help ensure
    that estimates associated with such transfers are not excluded in future
    estimates.

    While these errors and omissions were not material to the overall
    liability estimate, continued attention and improvements to Energy's
    internal controls would help provide additional assurance that its overall
    environmental liability estimates are reliable and are reported in
    accordance with federal accounting standards.

    Outdated and Incomplete Financial Management Guidance Impeded Defense's
    Ability to Reliably Estimate Environmental Liabilities

    At the time of our review, the accounting guidance provided by Defense's
    Financial Management Regulations (FMR) had not been updated to reflect
    current federal accounting standards for determining and reporting
    environmental liabilities. This outdated and incomplete guidance
    contributed to financial reporting errors in fiscal years 2004 and 2005 as
    follows.

    o Changes in federal accounting standards, which eliminated the asset
    category of National Defense Property, Plant, and Equipment, and changed
    the required accounting for the associated environmental liabilities were
    issued in May 2003.30 Defense's FMR had not been timely updated to reflect
    the effect of these changes for recognition of cleanup costs related to
    nuclear ships and submarines. Consequently, the Navy was recording the
    cleanup cost estimates in full at the time the ships and submarines were
    placed into service rather than incrementally over the useful life of the
    vessels, as the new standards required. This could result in an
    overstatement of the estimated environmental liability for the affected
    vessels.

    o FMR accounting guidance did not completely identify all the budgetary
    cost elements that should be considered when determining the unpaid costs
    required to be included in reported environmental liability estimates.31
    In certain circumstances, such as for estimates of remediation costs on
    BRAC bases, some Defense component officials told us that they were
    excluding certain cleanup costs once appropriations had been received to
    pay those costs, even though actual payments had not yet been made. As a
    result, certain costs (e.g., unsigned contracts) intended to be paid for
    with prior-year budgetary authority were not included in BRAC cleanup cost
    estimates, even though this is required to comply with federal accounting
    standards.

    Defense Office of Comptroller financial management personnel told us that
    the FMR had not been updated in a timely manner because of personnel
    turnover and inadequate staffing. Subsequent to our inquiries, but prior
    to the release of this report, the FMR was updated to address the issues
    we identified, and to reflect current federal accounting standards
    requirements for measuring and recognizing estimated cleanup costs related
    to environmental liabilities. According to Defense component officials,
    cleanup cost estimates will be reported in accordance with the new FMR
    guidance no later than September 30, 2006.

    Defense's Existing Policies and Procedures for Determining, Reporting, and
    Documenting Environmental Liability Estimates Were Not Consistently
    Followed

    In addition to the guidance problems, certain policies and procedures
    included in Defense's FMR related to environmental liabilities are not
    being consistently followed by some military service components. Further,
    there continues to be a lack of adequate documentation supporting
    estimates of environmental liabilities, which precluded Defense's
    management from properly carrying out their oversight responsibilities
    related to the estimation process. This lack of documentation also
    precludes Defense's financial auditors from making a determination of the
    reasonableness of the liability amount recorded in the financial
    statements. These compliance lapses were caused in part by a lack of
    financial management review and oversight of the environmental liability
    estimation process at both the Department of Defense and the military
    services level. We identified several instances where the failure to
    follow established policies and procedures resulted in errors in the
    liability estimates, as follows.

    o The Navy has not been estimating and reporting all costs for disposing
    of spent nuclear fuel produced by its nuclear ships and submarines. The
    Navy's financial reporting and program management personnel believed that
    the Navy's responsibility for estimating costs for spent nuclear fuel
    disposal stopped with the fuel's removal from the ship or submarine, since
    at that point the fuel became the property of Energy. The Navy's
    management assumed, but had not verified, that Energy was recording this
    liability. However, further discussions with the Navy's and Energy's
    financial management confirmed that the liability for disposing of nuclear
    fuel generated by Navy ships and submarines was not being estimated and
    reported by either department. Prior to the issuance of this report, Navy
    financial management assumed responsibility for reporting a liability for
    disposing of spent nuclear fuel, which Defense has estimated may be as
    much as $4 billion, in its financial statements beginning in fiscal year
    2006.

    o The Navy's financial management was unaware that the Navy had been
    discontinuing the reporting of cost estimates for disposing of nuclear
    ships and submarines when appropriated funds were obligated, which is
    prior to the actual disposal costs being paid, and is contrary to federal
    accounting requirements. Naval Sea Systems, which has responsibility for
    estimating and reporting these disposal liabilities, ceased doing so once
    individual ships or submarines were scheduled for inactivation, a contract
    for disposal was executed with the Puget Sound Naval Shipyard, and funds
    were obligated for the cost of disposal. Because it is not unusual for the
    actual inactivation of a ship or submarine to be extended to meet
    operational demands and for the disposal activities to take over a year to
    accomplish, costs may not be paid for months or years after the liability
    estimate was omitted from the reporting process. As a result, the Navy has
    understated reported environmental liabilities by the unpaid costs of
    ships and submarines still in the process of inactivation and disposal.

    o The Air Force has not been including in its environmental liability
    estimates all of the unpaid costs that are required by both Defense's FMR
    and federal accounting standards.32 Personnel at two Air Force major
    commands told us that estimates for completing Defense Environmental
    Restoration Program (DERP) efforts reflected only those costs that had not
    yet been funded. Costs that had been incurred in prior years and for which
    funding had been received but payments had not been made were not included
    in the DERP estimates. These omissions were also contrary to Air Force
    guidance that required estimates to include "all anticipated costs
    required to effect the restoration of the site."33 Because Air Force
    financial management did not have a monitoring process in place to ensure
    that guidance was understood and being followed, the Air Force has been
    understating its cost estimates by the amount of incurred but unpaid
    prior-year costs.

    o The military services are not preparing or retaining documentation that
    supports the consistency and adequacy of their reported environmental
    cleanup and disposal cost estimates. In its annual Performance and
    Accountability Reports for fiscal years 2003 through 2005, Defense has
    acknowledged-and independent financial auditors have reported-that
    inadequate supporting documentation for environmental liabilities is an
    ongoing material weakness in the department's system of internal control.
    In addition, in recent audit reports specifically targeting environmental
    liability controls, various military audit agencies reported a general
    lack of adequate documentation to support cost estimates in the military
    services.34 One auditor told us that environmental personnel completing or
    updating environmental liability estimates erroneously believed that an
    electronic file created by a cost estimating model was sufficient
    supporting documentation, even though the model did not explain or contain
    source documentation for variables used in the cost calculation, such as
    remaining capacity, usage rates, contractors estimates, or engineering
    studies. According to military service representatives, environmental
    engineers see no need to retain supporting documentation for cost
    estimates since management does not request or review it. Neither
    financial or program management nor auditors will be able to assess the
    reliability of environmental cost estimates until estimators develop and
    retain sufficient documentation to support their calculations.

    Defense's Internal Controls Are Inadequate to Help Ensure That All Cleanup
    Sites Are Included in the Environmental Liability Estimate

    Even if the guidance and monitoring issues previously discussed are
    remedied, none of the military services have a structured process in place
    and working at the installation level to provide reasonable assurance that
    all known contaminated sites and hazardous operations are included in the
    reported environmental liability cost estimates. One example of such a
    control would be a comparison of the cleanup sites and hazardous waste
    operations actually being reported by specific programs on each base to a
    comprehensive inventory of all sites and hazardous waste operations
    located on each base that was prepared without regard to reporting program
    or Defense component use. Defense's FMR requires a reconciliation of
    environmental and property records, and indicates the purpose of the
    resulting inventory is to ensure that all disposal liabilities are
    recognized.35 The FMR stops short of specifically requiring a comparison
    of the reconciled site inventory to sites included in environmental
    liability reporting, and no Army, Navy, or Air Force program or financial
    management personnel we spoke with were aware of any activity at the base
    level making such a comparison. As a result, contaminated sites and
    operations that are not included in a reporting program are at risk of not
    being identified and reported as required, and the related cost estimates
    could be understated. For example, we spoke with Defense component
    personnel who expressed conflicting views about responsibility for
    reporting cleanup costs associated with underground storage tanks
    physically located on a military base that contain fuel owned and managed
    by another Defense component. Thus, the associated liability is at risk of
    not being reported by any Defense component. Without a comparison of site
    lists as described, such an oversight would likely go undetected.

    Major Uncertainties Will Affect Future Cleanup Costs and Funding Demands

    Beyond the issues previously discussed that make Defense's and the federal
    government's environmental liability estimates unauditable, the ultimate
    cost of the cleanup will be affected by major uncertainties, the impact of
    which cannot be currently estimated. These uncertainties, which primarily
    involve the lack of feasible or proven remediation technologies,
    regulatory impediments and legal challenges to cleanup and disposal, and
    uncertainties as to the agencies' abilities to meet their current cost and
    schedule targets, do not impact the auditability of the liability because
    under current federal accounting standards a potential liability that
    cannot be estimated but is considered at least reasonably possible to
    occur is not required to be recorded on the face of the financial
    statements, only disclosed in the notes. Both Energy and Defense currently
    disclose various uncertainties in the notes to their financial statements,
    although improvements to their disclosures are warranted at both agencies.
    It is important to understand the nature and extent of these uncertainties
    in assessing future funding demands for environmental cleanup because they
    have the potential to materially affect the ultimate cost and timing of
    cleanup activities.

    Remediation Technologies for Some Sites Are Nonexistent or Uncertain

    The nature and extent of contamination the federal government must clean
    up is complex and vast, and suitable technologies to address all of the
    waste do not currently exist. As stated in Energy's fiscal year 2004
    Performance and Accountability Report, estimated cleanup costs at sites
    for which there is no current feasible remediation approach would be
    higher if some remediation were assumed for these areas, but because
    Energy has not identified effective remediation technologies for these
    sites, no basis for estimating costs is available. Energy has identified
    18 significant uncertainties, at various and multiple locations, where no
    currently feasible remediation technology exists or the effectiveness of
    technologies currently being explored remains to be seen. An example of a
    location for which Energy reported that cleanup costs were excluded is the
    nuclear explosion test area at the Nevada Test Site. The Nevada Test Site,
    an area larger than Rhode Island, was the site of over 900 atmospheric and
    underground nuclear test explosions that occurred over four decades ending
    in 1992. These nuclear detonations left residual radioactivity, but most
    of the radioactivity is in highly inaccessible underground locations.
    According to Energy, effective, feasible remediation technologies have not
    yet been developed to address this widespread contamination, and Energy's
    fiscal year 2004 environmental liability estimate primarily for the Nevada
    Test Site only included an estimate of approximately $3.3 billion for
    monitoring of groundwater contamination plumes, disposal of active
    facilities, and long-term stewardship.

    Figure 8: Craters Left As A Result Of Underground Nuclear Testing At The
    Nevada Test Site

    In other cases, potential remediation technologies have been identified,
    but their effectiveness has yet to be successfully demonstrated. For
    example, during operations at Energy's Hanford location from 1943 through
    1989, Energy generated large volumes of hazardous and radioactive waste.
    Some of this waste was deposited directly into the ground, while some of
    the most hazardous and radioactive material was stored in underground
    tanks that have leaked contaminants into the soil. Over time, concern has
    developed about the impact of Hanford's waste moving through the ground
    and toward the Columbia River. As we have previously reported, Energy has
    used three main approaches to treat the groundwater near the river, but

    has experienced problems with all three.36 For example, one approach has
    been to use a chemical barrier near the Columbia River to block chromium
    from entering the river near major fish breeding areas.37 The barrier
    consists of a series of wells where Energy injected a chemical into the
    groundwater that reacts with chromium to change it to a less hazardous and
    less mobile form. However, in 2004 Energy reported that the barrier was
    not fully effective, and that the hazardous form of chromium was detected
    in groundwater readings beyond the barrier. Energy is currently evaluating
    alternative approaches to contain the chromium or fix the barrier. Until
    an effective remediation technology can be identified, tested, and
    implemented, the ultimate cost of cleaning up this groundwater
    contamination remains unknown.

    Regulatory Requirements and Legal Challenges Remain Unresolved

    Various regulatory requirements and legal challenges also affect the
    ultimate cost, extent, and timing of cleanup at several sites. The primary
    uncertainty facing the federal government's cleanup efforts relates to the
    opening of the national geologic repository for high-level waste and spent
    nuclear fuel. The disposal of Energy's and Defense's high-level waste and
    spent nuclear fuel is contingent upon the opening of this repository
    planned for Yucca Mountain. However, multiple challenges related to the
    regulatory and legal requirements it must meet have caused several delays
    in its licensing and design. Additionally, the degree of cleanup required
    by regulations can vary from site to site and depend on how the land is
    expected to be used after it has been cleaned up. These decisions must
    usually be agreed upon by various federal and state agencies, with input
    from interested parties, such as community representatives. Even after an
    agreement has been signed, various parties may raise legal challenges to
    the agreement, the outcome of which could affect both the cost and timing
    of cleanup plans. Thus, it can take years to determine the final cleanup
    requirements for some sites. Until these issues are resolved, the ultimate
    cost of cleanup and disposal of the federal government's environmental
    contamination cannot be fully determined. The following are examples of
    current regulatory and legal uncertainties Energy and Defense are facing,
    the resolution of which could significantly impact the final cost of
    cleanup.

    o Over the years, regulatory requirements and legal challenges have caused
    multiple delays in the licensing and design of the Yucca Mountain geologic
    repository, which is intended to be the nation's first high-level waste
    and spent nuclear fuel disposal site. For example, Energy reported that it
    did not meet its goal of submitting a license application for the
    repository to the Nuclear Regulatory Commission by the end of calendar
    year 2004, in part due to a July 2004 decision by the U.S. Court of
    Appeals to invalidate the Environmental Protection Agency's (EPA)
    radiation standard, which set a 10,000 year time frame in which the amount
    of radiation that can be released from the repository would be limited.38
    The court held that EPA violated section 801 of the Energy Policy Act of
    1992, which required the agency to issue standards for Yucca Mountain
    based upon and consistent with findings by the National Academy of
    Sciences. In August 2005, EPA issued a proposed standard that extended
    protection to 1 million years to be consistent with the Academy's
    recommendations. Because the repository must be designed to comply with
    the EPA standard, approval of a revised standard is critical.
    Consequently, Energy acknowledged that it will not meet its goal of
    commencing disposal operations by 2010 but has not committed to a new
    target date for opening the repository. Energy acknowledged that delays in
    opening the repository could cause project costs to increase, including
    the cost of constructing the repository as well as interim storage and
    other costs, for the Energy and Defense locations that are expected to
    ship waste to Yucca Mountain. For example, officials at Energy's Savannah
    River location estimated that if there was a 5-year delay in the opening
    of the repository, the additional costs incurred for their spent nuclear
    fuel disposal could range anywhere from about $50 million to $200 million,
    depending on how Energy decides to deal with the fuel during such a delay.

    Figure 9: View of an Exploratory Tunnel at Yucca Mountain

    o The 2005 Defense Base Closure and Realignment Commission recommended 22
    major base closures and 33 major base realignments. Although cleanup costs
    for Defense property in prior BRAC rounds are included in Defense's
    environmental liabilities, some of the cleanup costs that will result from
    the 2005 BRAC round have not yet been estimated, such as the estimated
    cleanup cost of currently operational ranges with ordnance or other
    explosive material. In addition, the decision to realign or close a base
    may result in a change to its planned use and thus require a change in
    cleanup estimate based on those plans. For example, the cleanup
    requirements and therefore the cleanup costs are less if the property is
    expected to be used for industrial purposes than if it is to be used for
    residential purposes. But before planned use can be decided, Defense must
    determine who the next owner will be. If, as in previous BRAC rounds, most
    property is transferred to nonfederal ownership for economic development
    and other purposes, communities receiving the property transfer will
    likely want contamination removal. Defense may prefer containment to save
    costs, thus, the adopted cleanup plan and final associated costs will
    often be the result of negotiation and agreement among all of the involved
    parties including Defense, EPA, and various community representatives.
    Until all of these significant new decisions are made for each site, the
    cost to remediate excess property as a result of the 2005 BRAC round
    remains uncertain.

    o At the Idaho National Laboratory there is a great deal of controversy
    over how much buried transuranic waste Energy will have to excavate and
    remove from the lab's Subsurface Disposal Area, an 88-acre area where
    radioactive transuranic waste has been buried in shallow pits and trenches
    since 1952. In April 2002, the State of Idaho sued Energy over its
    interpretation of a 1995 settlement agreement concerning the amount of
    transuranic waste that must be removed from the Idaho National Laboratory.
    Specifically, Energy asserted that the agreement requires only certain
    stored waste to be removed, but the state asserted that the agreement also
    applied to all buried transuranic waste. In March 2003, the District Court
    of Idaho ruled in favor of the state and concluded that Energy was
    responsible for removing all transuranic waste buried or stored at the
    laboratory. Energy appealed, and in December 2004, the court of appeals
    reversed the decision and sent the case back to the district court for
    further consideration. Energy is currently removing selected portions of
    the buried waste totaling 4 acres where it has identified the highest
    concentrations of radioactivity and has recorded a corresponding
    environmental liability for this portion of the waste. However, officials
    indicated that the cost to excavate all 88 acres would be extremely costly
    and cannot be estimated. Should the state ultimately prevail, the
    resulting additional costs could be substantial.

    Figure 10: An Excavator Removes Buried Transuranic Waste at Energy's Idaho
    Cleanup Location

    Ability to Effectively Meet Current Cost and Schedule Targets is Uncertain

    Both Energy's and Defense's environmental liabilities estimates are based
    upon current plans and targets for accomplishing their cleanup
    responsibilities. However, our previous reports have identified project
    management weaknesses at both agencies that could hinder them from meeting
    these goals.39 At Energy, we have previously reported that many of its
    major projects, including environmental cleanup projects, have experienced
    substantial cost overruns and delays. For example, our 2002 assessment of
    Energy's contract reform initiatives found that 5 of the 16 major projects
    we examined had more than doubled in cost-for billions of dollars in total
    cost overruns-and experienced more than 5 years in

    delays.40 In late 2002, Energy began implementing an accelerated cleanup
    plan to address the uncontrolled cost and schedule overruns that had
    occurred over many years. In describing this plan, Energy reported that it
    would reduce the total cost of the cleanup program by an estimated $50
    billion and would complete its cleanup activities by 2035-35 years earlier
    than called for in previous plans. While Energy has made some progress
    since it implemented its plan, both we and the Energy Inspector General
    have identified cleanup projects and activities that are behind schedule
    and thus may cost more than currently planned.41 Although Energy
    reevaluates and adjusts its environmental liability estimates each year,
    its history of cost and schedule overruns raises additional uncertainties
    as to what the ultimate cost of cleanup will be.

    In addition to the processes and internal control weaknesses discussed
    earlier that have prevented Defense from developing an auditable estimate
    of its environmental liabilities, we have also previously reported on
    program management weaknesses at Defense that add to the uncertainty about
    its current estimates. For example, we previously reported that Defense
    had made limited progress in its program to identify, assess, and clean up
    sites that may be contaminated with military munitions, and that its plan
    to address potentially contaminated sites relied on preliminary cost
    estimates that can change significantly because they were developed using
    incomplete information.42 In another report, we found that the U.S. Army
    Corps of Engineers did not have a sound basis for determining that about
    38 percent of former defense sites-sites now owned by states, local
    governments, and individuals and used for parks, farms, schools, and

    homes-did not need further study or cleanup action.43 As a result, the
    Corps' assessment may not be accurate, and the Corps cannot be reasonably
    certain that it has identified all hazards that may require further study
    or cleanup. These issues raise questions as to whether Defense and Energy
    can effectively perform the necessary cleanup work within current cost and
    schedule targets and thus raise additional uncertainties as to the
    ultimate cost of cleanup.

    Energy's and Defense's Financial Disclosures Acknowledge Uncertainties,
    but Improvements Are Warranted

    As mentioned earlier in this report, federal accounting standards require
    recording a liability only if the future outflow of resources is
    considered both probable and measurable. If one of the two conditions is
    not met but the future outflow of resources is considered at least
    reasonably possible, then it does not need to be recorded as a liability
    in the financial statements but should be disclosed in the notes to the
    financial statements. Both Energy and Defense disclose in the notes to
    their financial statements various uncertainties that are not included in
    their liability estimates because the events are not considered probable
    or the amount of the liability cannot be reasonably estimated. Some
    examples of Energy's disclosures in its notes to the fiscal year 2004
    financial statements include the following.

    o "The Department has identified approximately 10,400 potential release
    sites from which contaminants could migrate into the environment. Although
    virtually all of these sites have been at least partially characterized,
    final remedial action and/or regulatory decisions have not been made for
    many sites. Site-specific assumptions regarding the amount and type of
    contamination and the remediation technologies that will be utilized were
    used in estimating the environmental liability related to these sites."

    o "Cost estimates for management of the Department's high-level waste are
    predicated upon assumptions as to the timing and rate of acceptance of the
    waste by the first geologic repository. Delays in opening the repository
    could cause EM project costs to increase."

    o "Estimated cleanup costs at sites for which there is no current feasible
    remediation approach are excluded from the baseline estimates, although
    applicable stewardship and monitoring costs for these sites are included.
    The cost estimate would be higher if some remediation were assumed for
    these areas. However, because the Department has not identified effective
    remedial technologies for these sites, no basis for estimating costs is
    available. An example of a site for which cleanup costs are excluded is
    the nuclear explosion test area at the Nevada Test Site."

    As noted previously, the State of Idaho is currently in litigation with
    Energy over the amount of transuranic waste that must be removed from the
    Idaho National Laboratory, and in March 2003 the Idaho District Court
    ruled in the state's favor. Energy did not disclose this potential
    liability in the notes to its fiscal year 2004 financial statements. We
    questioned Energy's decision not to disclose this case in its fiscal year
    2004 financial statements given that it had an adverse court ruling at the
    time that would seem to indicate that there was at least a reasonably
    possible likelihood that Energy would ultimately be required to remediate
    additional acreage. Energy officials stated that, at the time, the case
    was under appeal and they thought the likelihood that they would be
    required to remediate all transuranic waste within the 88 acres was
    remote. However, Energy did not document this conclusion, the reasons
    behind its conclusion, and whether its legal counsel concurred with that
    conclusion in its fiscal year 2004 legal representation letter.44

    Subsequent to the issuance of its fiscal year 2004 financial statements on
    November 15, 2004, the court of appeals reversed the decision and sent the
    case back to the district court for further consideration, which is still
    ongoing. Nonetheless, Energy disclosed this matter in the notes to its
    fiscal year 2005 financial statements. According to Energy officials,
    activities at the site to evaluate the waste in the area have indicated
    that the amount of waste that would have to be removed should Idaho
    prevail would be greater than what Energy originally estimated, and thus
    it documented in its fiscal year 2005 legal representation letter that
    there was a reasonably possible likelihood of an unfavorable outcome.
    Energy's fiscal year 2005 financial statement disclosure noted that the
    State of Idaho was challenging Energy's interpretation of the 1995
    settlement agreement concerning the shipment of transuranic waste from the
    Idaho National Laboratory. It further disclosed that, should the state
    prevail, the resulting costs could be substantial but Energy had not
    recorded a provision for such costs in its financial statements.

    Because of these and other uncertainties discussed in Energy's Performance
    and Accountability Report, Energy's auditors have included an emphasis
    paragraph with the audit opinion since fiscal year 1999, emphasizing that
    the cost estimates supporting Energy's environmental liabilities are based
    upon assumptions regarding future actions and decisions, many of which are
    beyond Energy's control.45 In essence, this highlights the fact that,
    should circumstances change in the future, the effects of such changes
    could be material.

    Defense disclosed one uncertainty in the notes to its financial
    statements. Defense acknowledged that, because the extent of buried
    chemical munitions and agents is not known, the Army was unable to provide
    a reasonable estimate of its liability to clean up buried chemical
    munitions and agents.

    However, Defense failed to disclose the liability implications of its 2005
    BRAC round. In its September 8, 2005, report to the President, the 2005
    Defense Base Closure and Realignment Commission reported that Defense will
    likely incur additional environmental cleanup and restoration costs
    resulting from these base realignment and closure activities. Since the
    additional costs could be significant, the lack of a discussion of the
    2005 BRAC round in the notes precludes financial statement users from
    having a full understanding of Defense's environmental liability
    exposures.

    Conclusions

    The federal government is responsible for cleaning up environmental
    contamination that is both complex and widespread. The estimated cost of
    cleaning up this waste is substantial and will be competing for limited
    federal resources over many years. Therefore, proper reporting of the
    government's environmental liabilities is important to help determine
    priorities for cleanup and disposal activities and to appropriately
    consider future budgetary resources needed to carry out these activities.
    However, weaknesses in Defense's processes and internal controls are
    largely responsible for the federal government's inability to reasonably
    estimate or adequately support the amounts reported for its environmental
    liabilities. Also, significant uncertainties at both Energy and Defense
    surrounding how waste will be cleaned up and when it will be disposed of
    make it inherently impossible to fully determine the ultimate cost of
    cleanup; therefore, it is essential that disclosures of such uncertainties
    help keep policymakers informed of potential future resource needs.
    Without adequate policies, processes, and internal controls for
    identifying, estimating, recording, and disclosing its environmental
    liabilities, the federal government does not have sufficient information
    on the potential cost of addressing these liabilities for long-term fiscal
    planning.

    Recommendations For Executive Action

    To address Defense-related deficiencies, we are making the following eight
    recommendations. To improve internal controls over the development and
    reporting of environmental liabilities and to prevent recurrence of the
    types of problems we identified in our report, we recommend that the
    Secretary of Defense direct the Under Secretary of Defense (Comptroller)
    and the Secretaries of the Army, Navy, and Air Force, as appropriate, to

    o develop, document, and implement a program for financial management
    review, approval, assessment, and monitoring of the estimation and
    reporting processes for environmental liabilities,

    o improve compliance with federal accounting standards and FMR guidance
    and remedy the specific deficiencies we identified by

    o designing a process and controls at the department level to identify new
    federal accounting standards and to update the FMR for changes and
    additions in a timely manner,

    o reassessing its process for ensuring that all required financial
    statement disclosures are made, and disclosing in the notes to the
    financial statements for the department and for the Army, Navy, and Air
    Force, as appropriate, all significant uncertainties in accordance with
    current federal accounting standards, including the effects of the 2005
    BRAC round on reported environmental liabilities,

    o estimating, updating, and reporting the accrued environmental liability
    for the cost of disposing of the Navy's spent nuclear fuel,

    o implementing revised FMR guidance for recognizing cleanup costs for the
    Navy's nuclear ships and submarines over the estimated lives of those
    assets,

    o including all appropriate budget elements for reporting financial
    liabilities for (1) the Navy's nuclear ships and submarines, (2) the Air
    Force's cleanup and restoration costs, and (3) all costs intended to be
    paid for with prior-year budgetary authority (e.g., unsigned contracts) by
    the Army, Navy, and Air Force,

    o reconciling the Army's, Navy's, and Air Force's installation-level
    environmental records to installation-level property records as required
    and then using the corrected site inventories to determine that all sites
    with cleanup or corrective action costs and all hazardous waste operations
    with cleanup or closure costs are included in financial reports of
    environmental liabilities and all are reported by the appropriate Defense
    component, and

    o producing and maintaining adequate supporting documentation for Army,
    Navy, and Air Force environmental liabilities at all levels in accordance
    with internal control standards in the federal government.

    To address the deficiency identified with Energy's legal representation
    letters, we recommend that the Secretary of Energy reassess Energy's
    process for ensuring that all litigation is appropriately documented in
    its legal representation letters, including its evaluation of the
    likelihood of an unfavorable outcome, the basis for its conclusion, and
    whether its legal counsel concurred with that conclusion.

    Agency Comments and Our Evaluation

    We provided a draft of this report to Defense for review and comment. In
    written comments, Defense's Principal Deputy Under Secretary of Defense
    (Comptroller) stated that Defense concurred with all eight recommendations
    in the report and was taking actions to correct the noted deficiencies.
    For example, Defense stated that the military departments have been
    instructed to include steps and milestones in their Financial

    Improvement Plan46 to comply with several of the recommendations. Defense
    also established a workgroup to improve the financial reporting of
    environmental liabilities, and it plans to assist the military departments
    in meeting the key milestones. Defense also noted that it was updating the
    financial statement reporting guidance in the FMR to improve its
    disclosures and would change some of its environmental liability
    accounting procedures to comply with applicable federal accounting
    standards and FMR guidance. Once properly implemented, these steps should
    significantly improve Defense's environmental liability reporting.

    We received verbal comments from Energy officials on a draft of this
    report. Energy officials concurred with our recommendation, and stated
    that they will implement procedures to help ensure that all cases are
    appropriately documented in their legal representation letters.
    Specifically, Energy officials said that the headquarters program offices
    will now send the field offices' summary evaluations and backup
    documentation on each case to the office of the Chief Financial Officer in
    addition to the office of General Counsel. Once the office of General
    Counsel prepares the final legal representation letter, staff in the
    office of the Chief Financial Officer are to compare the cases listed in
    the letter with the case summaries received from the field offices to help
    ensure that all cases were appropriately included in the letter. If
    properly implemented, these actions appear responsive to the
    recommendation.

    We are sending copies of this report to other interested congressional
    committees; the Secretary of Energy; the Secretary of Defense; the Under
    Secretary of Defense (Comptroller); and the Secretaries of the Army, the
    Air Force, and the Navy. Copies will be made available to others upon
    request. In addition, this report is available at no charge on the GAO Web
    site at http://www.gao.gov .

    Please contact me at (202) 512-9508 or calboml@gao.gov if you or your
    staffs have any questions about this report. Contact points for our
    Offices

    of Congressional Relations and Public Affairs may be found on the last
    page of this report. Other GAO contacts and key contributors to this
    report are listed in appendix III.

    Linda M. Calbom Director Financial Management and Assurance

    Scope and Methodology Appendix I

    To determine the nature and extent of the federal government's reported
    environmental liabilities, we reviewed the Performance and Accountability
    Reports of all federal agencies that reported environmental liabilities
    for fiscal year 2004, the most recent completed fiscal year at the time we
    began our review. Because Energy's fiscal year 2004 financial statements
    were audited by an independent public accounting firm and determined to be
    reliable, we reviewed those statements, traced and verified environmental
    liabilities amounts to supporting schedules, and reviewed audit
    workpapers, where available. We otherwise used the work performed by the
    independent auditors and did not perform additional audit procedures to
    verify the completeness or accuracy of the amounts reported. Because
    Defense has acknowledged serious data reliability problems related to its
    financial systems and information, auditors did not attempt to perform
    audit procedures and disclaimed an opinion on Defense's fiscal year 2004
    financial statements. Therefore, it was not our objective to-and we did
    not-audit the completeness and accuracy of Defense-reported environmental
    liabilities amounts. Although we have previously reported on the potential
    for Defense to incur costs related to voluntary restoration initiatives in
    conjunction with returning overseas Defense facilities to host nations,
    these activities are not reported as environmental liabilities in its
    financial statements, and we did not review its international operations
    or processes.1 Since Defense-reported amounts are not reliable, we are
    providing them in this report for informational purposes only. We also
    reviewed Energy's and Defense's fiscal year 2005 Performance and
    Accountability Reports primarily to determine whether any significant new
    issues had arisen subsequent to the issuance of the fiscal year 2004
    statements.

    At Energy and Defense, we interviewed agency officials and performed site
    visits to obtain a better understanding of the types of environmental
    contamination being addressed. We met with officials at Energy
    headquarters and visited its three largest cleanup locations (the Hanford
    nuclear reservation in Washington State, the Savannah River location in
    South Carolina, and the Idaho National Laboratory in Idaho). For Defense,
    we met with program management, financial management, and financial
    reporting officials for the relevant environmental programs for each
    military service. For additional background information, we also visited
    Defense's Puget Sound Naval Shipyard in Washington State, which dismantles
    and disposes of nuclear ships and submarines that are being removed from
    service.

    To determine the extent to which Energy's and Defense's processes and
    internal controls are adequately designed to assure estimating and
    reporting environmental liabilities in accordance with federal accounting
    standards, we interviewed Energy's financial auditors and reviewed
    selected workpapers prepared for its annual financial statement audit;
    interviewed Energy and Defense program and financial management officials
    at agency headquarters and at the field locations we visited; and reviewed
    agency documentation supporting their processes. We did not review or test
    detailed contractor estimates but focused on each agency's procedures for
    compiling and developing its environmental liability amounts. We compared
    Energy's and Defense's processes and internal controls to GAO's Standards
    for Internal Control in the Federal Government2 and reviewed applicable
    federal accounting standards and guidance for the recognition and
    reporting of environmental liabilities.

    To determine the nature and types of uncertainties that might affect the
    ultimate cost of Energy's and Defense's environmental cleanup efforts, we
    interviewed Energy and Defense program and financial management officials
    and reviewed supporting documentation. During interviews with agency,
    contractor, and state agency officials, we inquired about sites that have
    not been fully estimated or reported as well as other uncertainties that
    could affect the total cost to the federal government of cleaning up the
    contamination. We also reviewed Energy's and Defense's recent Performance
    and Accountability Reports for further information on disclosed
    uncertainties that are not estimated in their environmental liabilities
    balances, and reviewed our relevant prior reports. Our work was conducted
    from October 2004 through January 2006 and was performed in accordance
    with generally accepted government auditing standards.

    Comments from the Department of Defense Appendix II

    GAO Contact and Staff Acknowledgments Appendix III

    Linda M. Calbom, (202) 512-9508 or calboml@gao.gov

    In addition to the contact named above, Molly Boyle, Assistant Director;
    Doreen Eng, Assistant Director; Stephen Lipscomb, Assistant Director;
    William Bates; Jessica Gray; Mary Ann Hardy; Charles Hodge; Nancy
    Kintner-Meyer; Rick Kusman; Delores Lee; Jenny Li; Tom Perry; Bennet
    Severson; and Stan Stenerson made key contributions to this report.

    Related GAO Reports

    Nuclear Waste: Better Performance Reporting Needed to Assess DOE's Ability
    to Achieve the Goals of the Accelerated Cleanup Program. GAO-05-764.
    Washington, D.C.: July 29, 2005.

    Securing U.S. Nuclear Materials: DOE Needs to Take Action to Safely
    Consolidate Plutonium. GAO-05-665. Washington, D.C.: July 20, 2005.

    Opportunities Exist to Improve Future Comprehensive Master Plans for
    Changing U.S. Defense Infrastructure Overseas. GAO-05-680R Washington, D.
    C.: June 27, 2005.

    Department of Energy: Further Actions Are Needed to Strengthen Contract
    Management for Major Projects. GAO-05-123. Washington, D.C.: March 18,
    2005.

    Nuclear Waste: Absence of Key Management Reforms on Hanford's Cleanup
    Project Adds to Challenges of Achieving Cost and Schedule
    Goals. GAO-04-611.  Washington, D.C.: June 9, 2004.

    DOD Operational Ranges: More Reliable Cleanup Cost Estimates and a
    Proactive Approach to Identifying Contamination Are Needed. GAO-04-601.
    Washington, D.C.: May 28, 2004.

    Yucca Mountain: Persistent Quality Assurance Problems Could Delay
    Repository Licensing and Operation. GAO-04-460. Washington, D.C.: April
    30, 2004.

    Nuclear Waste Cleanup: DOE Has Made Some Progress in Cleaning Up the
    Paducah Site, but Challenges Remain. GAO-04-457.  Washington, D.C.: April
    1, 2004.

    Military Munitions: DOD Needs to Develop a Comprehensive Approach for
    Cleaning Up Contaminated Sites. GAO-04-147. Washington, D.C.: December 19,
    2003.

    Nuclear Waste: Challenges to Achieving Potential Savings in DOE's
    High-Level Waste Cleanup Program. GAO-03-593.  Washington, D.C.: June 17,
    2003.

    Environmental Contamination: DOD Has Taken Steps to Improve Cleanup
    Coordination at Former Defense Sites but Clearer Guidance Is Needed to
    Ensure Consistency. GAO-03-146.  Washington, D.C.: March 28, 2003.

    Fiscal Exposures: Improving the Budgetary Focus on Long-Term Costs and
    Uncertainties. GAO-03-213. Washington, D.C.: January 24, 2003.

    Long-Term Commitments: Improving the Budgetary Focus on Environmental
    Liabilities. GAO-03-219.  Washington, D.C.: January 24, 2003.

    Environmental Contamination: Corps Needs to Reassess Its Determinations
    That Many Former Defense Sites Do Not Need Cleanup. GAO-02-658.
    Washington, D.C.: August 23, 2002.

    Environmental Contamination: Many Uncertainties Affect the Progress of the
    Spring Valley Cleanup. GAO-02-556.  Washington, D.C.: June 6, 2002.

    Waste Cleanup: Status and Implications of DOE's Compliance
    Agreements. GAO-02-567.  Washington, D.C.: May 30, 2002.

    Nuclear Waste: Technical, Schedule, and Cost Uncertainties of the Yucca
    Mountain Repository Project. GAO-02-191. Washington, D.C.: December 21,
    2001.

    Environmental Liabilities: Cleanup Costs From Certain DOD Operations Are
    Not Being Reported. GAO-02-117.  Washington, D.C.: December 14, 2001.

    Environmental Contamination: Cleanup Actions at Formerly Used Defense
    Sites. GAO-01-557. Washington, D.C.: July 31, 2001.

    Nuclear Cleanup: DOE Should Reevaluate Waste Disposal Options Before
    Building New Facilities. GAO-01-441.  Washington, D.C.: May 25, 2001.

    Nuclear Waste: Agreement Among Agencies Responsible for the West Valley
    Site Is Critically Needed. GAO-01-314. Washington, D.C.: May 11, 2001.

    Environmental Liabilities: DOD Training Range Cleanup Cost Estimates Are
    Likely Understated. GAO-01-479.  Washington, D.C.: April 11, 2001.

    Nuclear Waste: DOE's Advanced Mixed Waste Treatment Project--Uncertainties
    May Affect Performance, Schedule, and Price.  RCED-00-106.  Washington,
    D.C.: April 28, 2000.

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    transparent illustrator graphic

    www.gao.gov/cgi-bin/getrpt? GAO-06-427 .

    To view the full product, including the scope

    and methodology, click on the link above.

    For more information, contact Linda Calbom at (202) 512-9508 or
    calboml@gao.gov.

    Highlights of GAO-06-427 , a report to congressional requesters

    March 2006

    ENVIRONMENTAL LIABILITIES

    Long-Term Fiscal Planning Hampered by Control Weaknesses and Uncertainties
    in the Federal Government's Estimates

    The nation's military installations and nuclear weapons production
    facilities have accumulated many types of waste and contamination over the
    years. The federal government estimated its environmental liability to
    clean up this waste at $249 billion in fiscal year 2004, representing the
    federal government's third largest reported liability. It represents a
    significant future outflow of funds at the same time as many other
    competing demands for federal dollars, but is currently not auditable. GAO
    was asked to address (1) the nature and extent of the government's
    environmental liabilities, (2) the extent to which Energy's and Defense's
    processes and controls were designed to estimate and report environmental
    liabilities in accordance with federal accounting standards, and (3) the
    nature and types of uncertainties that are currently not estimable but
    could affect the cost of cleanup.

    What GAO Recommends

    GAO is making eight recommendations to help Defense improve its internal
    controls over its environmental liabilities by improving its financial
    management guidance and processes. We are also making a recommendation to
    help Energy improve its process for ensuring all litigation for potential
    disclosure is documented. Both Defense and Energy concurred with the
    recommendations, and described corrective actions being taken to address
    them.

    The federal government's environmental liability reflects the estimated
    cost to clean up and dispose of environmental contamination in every state
    in the nation. The Departments of Energy and Defense report about 99
    percent of this liability. Energy's reported liability of $182 billion
    relates primarily to the cleanup and disposal of nuclear waste,
    contamination, and by-products that resulted from decades of nuclear
    weapons production. Defense's reported liability of $64 billion is
    primarily for the cleanup of hazardous wastes at training ranges, military
    bases, and former defense sites; disposal of nuclear ships and submarines;
    and disposal of chemical weapons.

    While the design of Energy's internal controls have enabled its auditors
    to determine that Energy's financial statements were presented fairly and
    in accordance with federal accounting principles, significant weaknesses
    in Defense's controls have hindered it from producing auditable
    environmental liability estimates. Specifically, Defense's outdated and
    incomplete accounting guidance for developing and reporting its
    environmental liability estimates led to errors in financial reporting;
    its policies and procedures for determining, reporting, and documenting
    environmental liability estimates were not consistently followed; and none
    of the military services had adequate controls in place to help ensure
    that all identified contaminated sites were included in their
    environmental liability cost estimates. These weaknesses not only affected
    the reliability of Defense's environmental liability estimate, but also
    that of the federal government as a whole.

    Even if Defense resolved its internal control weaknesses, uncertainties
    exist for both Energy and Defense-the effect of which cannot currently be
    estimated-that could increase the government's environmental liabilities
    beyond the currently recorded amounts. These uncertainties involve the
    lack of feasible or proven remediation technologies, regulatory
    impediments and legal challenges, and uncertainties with the agencies'
    abilities to meet their current cost and schedule targets. It is important
    to understand the nature and extent of these uncertainties because they
    have the potential to materially impact the ultimate cost and timing of
    cleanup activities.

    Craters Left as a Result of Underground Nuclear Testing at the Nevada Test
    Site
    *** End of document. ***