Nuclear Security: Actions Taken by NRC to Strengthen Its	 
Licensing Process for Sealed Radioactive Sources Are Not	 
Effective (12-JUL-07, GAO-07-1038T).				 
                                                                 
The Nuclear Regulatory Commission (NRC) regulates domestic	 
medical, industrial, and research uses of sealed radioactive	 
sources. Organizations or individuals attempting to purchase a	 
sealed source must apply for a license and gain the approval of  
either NRC or an "agreement state." To become an agreement state,
a state must demonstrate to NRC that its regulatory program is	 
compatible with NRC regulations and is effective in protecting	 
public health and safety. NRC then transfers portions of its	 
authority to the agreement state. In 2003, GAO reported that	 
weaknesses in NRC's licensing program could allow terrorists to  
obtain radioactive materials. NRC took some steps to respond to  
the GAO report, including issuing guidance to license examiners. 
To determine whether NRC actions to address GAO recommendations  
were sufficient, the Subcommittee asked GAO to test the licensing
program using covert investigative methods.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-1038T					        
    ACCNO:   A72503						        
  TITLE:     Nuclear Security: Actions Taken by NRC to Strengthen Its 
Licensing Process for Sealed Radioactive Sources Are Not	 
Effective							 
     DATE:   07/12/2007 
  SUBJECT:   Accountability					 
	     Federal regulations				 
	     Independent regulatory commissions 		 
	     License agreements 				 
	     Licenses						 
	     Radiation safety					 
	     Radioactive materials				 
	     Safety regulation					 
	     Security investigations				 

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GAO-07-1038T

   

     * [1]Background
     * [2]Results of Investigation

          * [3]Application to NRC
          * [4]Application to the Agreement State

     * [5]Corrective Action Briefing
     * [6]Conclusions and Recommendations for Executive Action
     * [7]Contacts and Acknowledgments

          * [8]Order by Mail or Phone

Testimony

Before the Permanent Subcommittee on Investigations, Committee on Homeland
Security and Governmental Affairs, U.S. Senate

United States Government Accountability Office
GAO

For Release on Delivery Expected at 9:00 a.m. EDT

Thursday, July 12, 2007

NUCLEAR SECURITY

Actions Taken by NRC to Strengthen Its Licensing Process for Sealed
Radioactive Sources Are Not Effective

Statement of Gregory D. Kutz, Managing Director
Forensic Audits and Special Investigations

Gene Aloise, Director
Matural Resources and Environment

John W. Cooney, Assistant Director
Forensic Audits and Special Investigations

GAO-07-1038T

Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to discuss our covert testing of the Nuclear
Regulatory Commission's (NRC) licensing process for sealed radioactive
sources. Under the Atomic Energy Act of 1954, NRC regulates domestic
medical, industrial, and research uses of sealed radioactive sources
through a combination of regulatory requirements, licensing, inspection,
and enforcement. Organizations or individuals attempting to purchase a
sealed source must apply for a license and gain the approval of either NRC
or an "agreement state." To become an agreement state, a state must first
demonstrate to NRC that its regulatory program is compatible with NRC
regulations and is effective in protecting public health and safety.
Through an agreement between NRC and the state governor, NRC then
transfers portions of its regulatory and licensing authority to the state.
According to NRC, there are approximately 22,000 licenses in the United
States--NRC administers about 4,400 licenses, and the rest are
administered by regulatory authorities in the 34 agreement states.

Given that terrorists have expressed an interest in obtaining nuclear
material, the Congress and the American people expect licensing programs
for these materials to be secure. However, in 2003, we reported that
weaknesses in the licensing program could allow terrorists to obtain
radioactive materials. We recommended that NRC close this vulnerability by
modifying its licensing process.^1 Among other things, we recommended that
"NRC modify its process for issuing specific licenses to ensure that
sealed radioactive sources cannot be purchased before NRC's
verification--through inspection or other means--that the materials will
be used as intended." NRC agreed with this recommendation and referred the
issue to a working group composed of NRC and state representatives to
coordinate NRC's response. In December 2005, the working group delivered
its recommendations to NRC senior management. In December 2006, NRC issued
new guidance to agreement states and NRC regional offices meant to
strengthen the radioactive materials licensing process.^2 Although these
are important steps forward, the Subcommittee remained concerned about
whether, almost 6 years after September 11, 2001, terrorists could still
exploit weaknesses in the government's licensing process and obtain
radioactive material. To determine whether NRC actions to address our 2003
recommendations were sufficient, the Subcommittee asked us to use covert
investigative methods to test the licensing program.

^1GAO, Nuclear Security: Federal and State Action Needed to Improve
Security of Sealed Radioactive Sources, [9]GAO-03-804 (Washington, D.C.:
Aug. 6, 2003).

^2The guidance was also sent to officials in New Jersey, Pennsylvania, and
Virginia--states that are not yet agreement states but have filed
statements of intent with NRC to achieve agreement state status.

To perform this investigation, we incorporated two bogus businesses--one
in a non-agreement state and one in an agreement state. We selected these
two states based on their proximity to the Washington, D.C., metro area.
Using the names of the bogus businesses, we then prepared and submitted
one application for a byproduct materials license to NRC and a second
application to the department of the environment of the agreement state.
In creating these applications, we only used publicly available
information. Our investigators did not actually purchase radioactive
materials for several reasons--first, the primary intent of our work was
to test the licensing process rather than the purchasing process; second,
we did not think the cost borne by the government would be necessary to
prove the point of our work; and third, we did not have the proper
facilities to safely store the radioactive materials. In performing
research for this work, we reviewed our previous reports on nuclear
security and learned about the licensing process from NRC's Web site. We
altered the license we received from NRC, which enabled us to obtain
agreements to purchase more radioactive material than the original license
permitted. We conducted our investigative work from October 2006 through
June 2007 in accordance with standards prescribed by the President's
Council on Integrity and Efficiency.

In summary, we found the following:

           o The license application we submitted to NRC was approved. We
           received a license in the mail from NRC about 4 weeks after
           submitting the application. Aside from traveling to a
           non-agreement state to pick up and send mail, our investigators
           did not need to leave their office in Washington, D.C., to obtain
           the license from NRC. Further, other than obtaining radiation
           safety officer training, investigators gathered all the
           information they needed for the license from the NRC Web site.

           o After obtaining a license from NRC, we sought to purchase, from
           two U.S. suppliers, machines containing sealed radioactive
           material. Our letters of intent to purchase, which included an
           altered version of the NRC license as an attachment, were accepted
           by the suppliers. These suppliers gave us price quotes and
           commitments to ship the machines containing radioactive materials.
           The amount of radioactive material we could have acquired from
           these two suppliers was sufficient to reach the International
           Atomic Energy Agency's (IAEA) definition of category 3. According
           to IAEA, category 3 sources are dangerous if not safely managed or
           securely protected and "could cause permanent injury to a person
           who handled them, or was otherwise in contact with them, for some
           hours. It could possibly--although it is unlikely--be fatal to be
           close to this amount of unshielded radioactive material for a
           period of days to weeks."^3 Importantly, with patience and the
           proper financial resources, we could have accumulated from other
           suppliers substantially more radioactive source material than what
           the two suppliers initially agreed to ship to us.

           o We withdrew our second application from the agreement state
           department of the environment after license examiners indicated
           they would visit our company office before granting the license.
           Since we did not have a company office or the proper storage
           equipment, we asked the state to withdraw our application to
           obtain a license in this state. According to an official with the
           licensing program for this state, the completion of a site visit
           is a standard procedure before the state department of the
           environment approves a radioactive materials license application.

Background

Since the September 11, 2001, terrorist attacks there has been concern
that certain radioactive material could be used in the construction of a
radiological dispersion device (RDD). An RDD disperses radioactive
material over a particular target area, which could be accomplished using
explosives or by other means.^4 The major purpose of an RDD would be to
create terror and disruption, not death or destruction. Depending on the
type, form, amount, and concentration of radioactive material used, direct
radiation exposure from an RDD could cause health effects to individuals
in proximity to the material for an extended time; for those exposed for
shorter periods and at lower levels, it could potentially increase the
long-term risks of cancer. In addition, the evacuation and cleanup of
contaminated areas after dispersal could lead to panic and serious
economic costs on the affected population. In 2003, a joint NRC/Department
of Energy (DOE) interagency working group identified several radioactive
materials (including Americium-241 and Cesium-137) as materials at higher
risk of being used in an RDD, describing these as "materials of greatest
concern."^5

^3International Atomic Energy Agency, Code of Conduct on the Safety and
Security of Radioactive Sources (Vienna, Austria: 2004).

^4According to NRC, a dirty bomb is one type of RDD that combines a
conventional explosive, such as dynamite, with radioactive material. The
terms dirty bomb and RDD are often used interchangeably in the media. Most
RDDs would not release enough radiation to kill people or cause severe
illness--the conventional explosive itself could be more harmful to
individuals than the radioactive material. However, depending on the
scenario, an RDD explosion could create fear and panic, contaminate
property, and require potentially costly cleanup.

In its risk-based approach to securing radioactive sources, NRC has made a
commitment to work toward implementing the provisions of IAEA's Code of
Conduct. This document provides a framework that categorizes the relative
risk associated with radioactive sources.^6 While NRC has recently focused
on upgrading its capacity to track, monitor, and secure category 1 and 2
sources, which are considered high risk, category 3 sources are not a
primary focus of NRC regulatory efforts. Category 3 sources include
byproduct material, which is radioactive material generated by a nuclear
reactor, and can be found in equipment that has medical, academic, and
industrial applications. For example, a standard type of moisture gauge
used by many construction companies contains small amounts of
Americium-241 and Cesium-137. According to NRC, it would take 16 curies of
Americium-241 to constitute a high-risk category 2 quantity, and 1.6
curies of Americium-241 is considered a category 3 quantity.

Results of Investigation

In October and November 2006, using fictitious names, our investigators
created two bogus companies--one in an agreement state and one in a
non-agreement state. After the bogus businesses were incorporated, our
investigators prepared and submitted applications for a byproduct
materials license to both NRC and the department of the environment for
the selected agreement state. The applications, mailed in February 2007,
were identical except for minor differences resulting from variations in
the application forms. Using fictitious identities, one investigator
represented himself as the company president in the applications, and
another investigator represented himself as the radiation safety officer.
The license applications stated that our company intended to purchase
machines with sealed radioactive sources.

^5The DOE/NRC Interagency Working Group on Radiological Dispersal Devices,
Radiological Dispersal Devices: An Initial Study to Identify Radioactive
Materials of Greatest Concern and Approaches to Their Tracking, Tagging,
and Disposition (Washington, D.C.: 2003).

^6NRC has endorsed the IAEA Code of Conduct and is working toward the
implementation of its various provisions. On November 8, 2006, NRC issued
a rule to require licensees to report information on the manufacture,
transfer, receipt, disassembly, and disposal of all category 1 and 2
sources throughout their entire life cycle in the National Source Tracking
System (NSTS). NRC's latest estimate is that the NSTS will be operational
in May 2008. NRC told us that it has plans to consider including category
3 sources in the NSTS after the system becomes operational.

According to NRC guidance finalized in November 2006 and sent to agreement
states in December 2006, both NRC and agreement state license examiners
should consider 12 screening criteria to verify that radioactive materials
will be used as intended by a new applicant.^7 For example, one criterion
suggests that the license examiner perform an Internet search using common
search engines to confirm that an applicant company appears to be a
legitimate business that would require a specific license. Another
screening technique calls for the license examiner to contact a state
agency to confirm that the applicant has been registered as a legitimate
business entity in that state. If the examiner believes there is no reason
to be suspicious, he or she is not required to take the steps suggested in
the screening criteria and may indicate "no" or "not applicable" for each
criteria. If the license examiner takes additional steps to evaluate a
criterion, he or she should indicate what publicly available information
was considered. If there is concern for a potential security risk, the
guidance instructs license examiners to note the basis for that concern.

Application to NRC

Nine days after mailing their application form to NRC, our investigators
received a call from an NRC license examiner. The NRC license examiner
stated that the application was deficient in some areas and explained the
necessary corrections. For example, the license examiner asked our
investigators to certify that the machines containing sealed radioactive
source material, which are typically used at construction sites, would be
returned to the company office before being transported to a new
construction site. The license examiner explained that this was a standard
security precaution. Even though we did not have a company office or a
construction site, our investigators nevertheless certified their intent
to bring the machines back to their office before sending them to a new
location. They made this certification via a letter faxed to NRC. Four
days after our final correction to the license application, NRC approved
our application and mailed the license to the bogus business in the
non-agreement state. It took a total of 4 weeks to obtain the license. See
figure 1 for the first page of the transmittal letter we received from NRC
with our license.

^7Nuclear Regulatory Commission, Checklist to Ensure that Radioactive
Materials Will Be Used As Intended, NUREG-1556, Vol. 20, C (Washington,
D.C.: Nov. 2006).

Figure 1: Excerpt from NRC License Acceptance Letter for Bogus Business

The NRC license is printed on standard 8-1/2 x 11 inch paper and contains
a color NRC seal for a watermark. It does not appear to have any features
that would prevent physical counterfeiting. We therefore concluded that we
could alter the license without raising the suspicion of a supplier. We
altered the license so that it appeared our bogus company could purchase
an unrestricted quantity of sealed source materials rather than the small
amounts of Americium-241 and Cesium-137 listed on the original license. We
determined the proper language for the license by reviewing publicly
available information.

Next, we contacted two U.S. suppliers of the machines specified in our
license. We requested price quotes and faxed the altered license to the
suppliers as proof that we were certified to purchase the machines. Both
suppliers offered to sell us the machines and provided us price quotes.
One of these suppliers offered to provide twice as many machines as we
requested and offered a discount for volume purchases. In a later
telephone call to one of the suppliers, a representative of the supplier
told us that his company does not check with NRC to confirm the terms
listed on the licenses that potential customers fax them. He said that his
company checks to see whether a copy of the front page of the license is
faxed with the intent to purchase and whether the requested order exceeds
the maximum allowable quantity a licensee is allowed to possess at any one
time.

Although we had no legitimate use for the machines, our investigators
received, within days of obtaining a license from NRC, price quotes and
terms of payment that would have allowed us to purchase numerous machines
containing sealed radioactive source materials. These purchases would have
substantially exceeded the limit that NRC approved for our bogus company.
If these radioactive materials were unsealed and aggregated together, the
machines would yield an amount of Americium-241 that exceeds the threshold
for category 3 materials.

As discussed previously, according to IAEA, category 3 sources are
dangerous if not safely managed or securely protected and "could cause
permanent injury to a person who handled them, or was otherwise in contact
with them, for some hours. It could possibly--although it is unlikely--be
fatal to be close to this amount of unshielded radioactive material for a
period of days to weeks." Importantly, with patience and the proper
financial resources, we could have accumulated, from other suppliers,
substantially more radioactive source material than what the two suppliers
initially agreed to ship to us--potentially enough to reach category 2.
According to IAEA, category 2 sources, if not safely managed or securely
protected, "could cause permanent injury to a person for a short time
(minutes to hours), and it could possibly be fatal to be close to this
amount of unshielded material for a period of hours to days."

Application to the Agreement State

Ten days after mailing their application form to the agreement state's
department of environment, our investigators received a call from a
department license examiner. The license examiner stated that the
application was deficient in some areas and said that she would send us a
letter outlining what additional information the state required before
approving the license. The examiner further stated that before the license
was granted, she would conduct a site visit to inspect the company office
and storage facilities cited in our application. Our investigators
subsequently decided not to pursue the license in this state and requested
that their application be withdrawn. According to an official in the
department of environment for this state, the license examiner followed
the required state procedure in requesting a site visit. The official told
us that as a matter of long-standing state policy, license examiners in
this state conduct site visits and interview company management
(especially radiation safety officers) before granting new licenses for
radioactive materials. This state policy is more stringent than the
guidance NRC provided agreement states in December 2006. The NRC guidance
identified a site visit as one possible screening criterion to use in
evaluating a new license application, but, as discussed above, a site
visit is not required under the NRC guidance.

Corrective Action Briefing

On June 1, 2007, we contacted NRC and discussed the results of our work.
An NRC official indicated that NRC would take immediate action to address
the weaknesses we identified. After this meeting, we learned that NRC
suspended its licensing program for specific licenses until it could
determine what corrective actions were necessary to resolve the
weaknesses. NRC also held a teleconference with a majority of the 34
agreement states to discuss our work. On June 12, 2007, NRC issued
supplemental interim guidance with additional screening criteria. These
criteria are intended to help a license examiner determine whether a site
visit or face-to-face meeting with new license applicants is required. NRC
told us that it planned to convene a working group to develop improved
guidance addressing the weaknesses we identified.

Conclusions and Recommendations for Executive Action

NRC's goal is to provide licenses to only those entities that can
demonstrate that they have legitimate uses for radioactive materials.
However, our work shows that there continues to be weaknesses in the
process NRC uses to approve license applications. In our view, a routine
visit by NRC staff to the site of our bogus business would have been
enough to reveal our lack of facilities and equipment. Furthermore, if NRC
license examiners had conducted even a minimal amount of screening--such
as performing common Web searches or making telephone calls to local
government or business offices--they would have developed serious doubts
about our application. Once we received our license, the ease with which
we were able to alter the license and obtain price quotes and commitments
to ship from suppliers of radioactive materials is also cause for concern.
Accordingly, we are making the following three recommendations to the
Chairman of the NRC:

           o First, to avoid inadvertently allowing a malevolent individual
           or group to obtain a license for radioactive materials, NRC should
           develop improved guidance for examining NRC license applications.
           In developing improved screening criteria, NRC should consider
           whether site visits to new licensees should be mandatory. These
           improved screening criteria will allow NRC to provide reasonable
           assurance that licenses for radioactive materials will only be
           issued to those with legitimate uses.

           o Second, NRC should conduct periodic oversight of license
           application examiners so that NRC will be assured that any new
           guidance is being appropriately applied.

           o Third, NRC should explore options to prevent individuals from
           counterfeiting NRC licenses, especially if this allows the
           purchase of more radioactive materials than they are approved for
           under the terms of the original license.

Mr. Chairman, this concludes our statement. We would be pleased to answer
any questions that you or other Members of the Subcommittee may have at
this time.

Contacts and Acknowledgments

For further information about this testimony, please contact Gregory D.
Kutz at (202) 512-7455 or [email protected] or Gene Aloise at (202) 512-3841
or [email protected]. Contacts points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
testimony.

(192228)

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[16]www.gao.gov/cgi-bin/getrpt?GAO-07-1038T .

To view the full product, including the scope
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For more information, contact Gregory D. Kutz at (202) 512-7455 or
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Highlights of [17]GAO-07-1038T , a testimony before the Permanent
Subcommittee on Investigations, Committee on Homeland Security and
Governmental Affairs, U.S. Senate

July 12, 2007

NUCLEAR SECURITY

Actions Taken by NRC to Strengthen Its Licensing Process for Sealed
Radioactive Sources Are Not Effective

The Nuclear Regulatory Commission (NRC) regulates domestic medical,
industrial, and research uses of sealed radioactive sources. Organizations
or individuals attempting to purchase a sealed source must apply for a
license and gain the approval of either NRC or an "agreement state." To
become an agreement state, a state must demonstrate to NRC that its
regulatory program is compatible with NRC regulations and is effective in
protecting public health and safety. NRC then transfers portions of its
authority to the agreement state.

In 2003, GAO reported that weaknesses in NRC's licensing program could
allow terrorists to obtain radioactive materials. NRC took some steps to
respond to the GAO report, including issuing guidance to license
examiners. To determine whether NRC actions to address GAO recommendations
were sufficient, the Subcommittee asked GAO to test the licensing program
using covert investigative methods.

[18]What GAO Recommends

GAO recommends that NRC develop improved screening criteria to evaluate
new license applications, conduct periodic reviews of license examiners to
ensure the criteria are properly applied, and explore options to prevent
license counterfeiting.

By using the name of a bogus business that existed only on paper, GAO
investigators were able to obtain a genuine radioactive materials license
from NRC. Aside from traveling to a non-agreement state to pick up and
send mail, GAO investigators did not need to leave their office in
Washington, D.C., to obtain the license from NRC. Further, other than
obtaining radiation safety officer training, investigators gathered all
the information they needed for the license from the NRC Web site.

Excerpt from NRC License Acceptance Letter for Bogus Business

After obtaining a license from NRC, GAO investigators altered the license
so it appeared that the bogus company could purchase an unrestricted
quantity of radioactive sealed sources rather than the maximum listed on
the approved license. GAO then sought to purchase, from two U.S.
suppliers, machines containing sealed radioactive material. Letters of
intent to purchase, which included the altered NRC license as an
attachment, were accepted by the two suppliers. These suppliers gave GAO
price quotes and commitments to ship the machines containing radioactive
materials. The amount of radioactive material we could have acquired from
these two suppliers was sufficient to reach the International Atomic
Energy Agency's (IAEA) definition of category 3. According to IAEA,
category 3 sources are dangerous if not safely managed or securely
protected. Importantly, with patience and the proper financial resources,
we could have accumulated substantially more radioactive source material.

GAO also attempted to obtain a license from an agreement state, but
withdrew the application after state license examiners indicated they
would visit the bogus company office before granting the license. An
official with the licensing program told GAO that conducting a site visit
is a standard required procedure before radioactive materials license
applications are approved in that state.

As a result of this investigation, NRC suspended its licensing program
until it could determine what corrective actions were necessary to resolve
the weaknesses GAO identified. On June 12, 2007, NRC issued supplemental
interim guidance with additional screening criteria. These criteria are
intended to help a license examiner determine whether a site visit or
face-to-face meeting with new license applicants is required.

References

Visible links
9. http://www.gao.gov/cgi-bin/getrpt?GAO-03-804
  10. http://www.gao.gov/
  11. http://www.gao.gov/
  12. http://www.gao.gov/fraudnet/fraudnet.htm
  13. file:///home/webmaster/infomgt/d071038t.htm#mailto:[email protected]
  14. file:///home/webmaster/infomgt/d071038t.htm#mailto:[email protected]
  15. file:///home/webmaster/infomgt/d071038t.htm#mailto:[email protected]
  16. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1038T
  17. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1038T
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