Department of Energy: Poor Property Management Allowed Vulnerability to
Theft at Rocky Flats (Letter Report, 07/03/95, GAO/OSI-95-4).

According to the Energy Department (DOE) and contractor officials, theft
is a factor in their inability to account for millions of dollars worth
of government-owned property at the Rocky Flats Plant.  The extent of
theft is unknown due to poor property management and inadequate records.
Further, even when potential theft was identified, it was not property
referred to DOE's Office of Inspector General or the FBI.  At the Rocky
Flat Motor Vehicle, Maintenance Shop, ineffective management oversight,
poor internal controls, and lax physical security meant that shop
automotive parts could be easily stolen. GAO also found that a shop
supervisor had accessed a database without authorization and has
disclose the incumbent supplier's unit prices of its then current
contract to a competitor.  The competitor later won the new contract.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  OSI-95-4
     TITLE:  Department of Energy: Poor Property Management Allowed 
             Vulnerability to Theft at Rocky Flats
      DATE:  07/03/95
   SUBJECT:  Federal property management
             Internal controls
             Inventory control systems
             Property losses
             Larceny
             Information disclosure
             Government owned equipment
             Contract monitoring
             Contractor responsibility
             Proprietary data

             
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Cover
================================================================ COVER


Report to Congressional Requesters

July 1995

DEPARTMENT OF ENERGY - POOR
PROPERTY MANAGEMENT ALLOWED
VULNERABILITY TO THEFT AT ROCKY
FLATS

GAO/OSI-95-4

Poor Property Management and Theft at Rocky Flats

(600371)


Abbreviations
=============================================================== ABBREV

  DOE - Department of Energy
  EG&G - EG&G-Rocky Flats, Inc. 
  FBI - Federal Bureau of Investigation
  GAO - General Accounting Office
  OIG - Office of Inspector General
  OSI - Office of Special Investigations
  RCED - Resources, Community, and Economic Development Division

Letter
=============================================================== LETTER


B-261651

July 3, 1995

The Honorable Cardiss Collins
Ranking Minority Member
Committee on Government Reform
 and Oversight
House of Representatives

The Honorable Dan Schaefer
Chairman, Subcommittee on Energy
 and Power
Committee on Commerce
House of Representatives

The Honorable David E.  Skaggs
House of Representatives

This report responds to the October 5, 1994, request from Mike Synar,
then Chairman, Subcommittee on Environment, Energy and Natural
Resources, House Committee on Government Operations, that we examine
whether theft has contributed to the Department of Energy's (DOE)
inability to account for millions of dollars worth of equipment at
DOE's Rocky Flats Plant (now the Rocky Flats Environmental Technology
Site).  This report continues the examination of property management
issues at Rocky Flats that we reported on in 1994.\1 In addition, the
Subcommittee's office requested that we investigate allegations that
the plant's Motor Vehicle Maintenance Shop was vulnerable to theft
and that contract-award abuse had occurred. 


--------------------
\1 Department of Energy:  The Property Management at the Rocky Flats
Plant Is Inadequate (GAO/RCED-94-77, Mar.  1, 1994) and Department of
Energy:  Status of DOE's Property Management Program
(GAO/RCED-94-154FS, Apr.  7, 1994). 


   BACKGROUND
------------------------------------------------------------ Letter :1

The Subcommittee's request followed its September 1994 hearing\2 on
property management at DOE facilities.  Concerns were raised at the
hearing about the operation and management of the government-owned,
contractor-operated Rocky Flats Plant.  The facility was formerly
dedicated to nuclear weapons-related activities.  Today, Rocky Flats
is addressing environmental restoration, cleanup, and waste
management issues that

grew out of its use as a nuclear weapons plant.  Since January 1,
1990, EG&G-Rocky Flats, Inc.  (EG&G) has operated the plant.  In
September 1993, government-owned property in the plant's property
tracking database totalled about $600 million.  At that time, the
contractor reported nearly $13 million worth of missing property. 
GAO is currently assessing whether the contractor and DOE have
resolved these property management issues. 

Our 1994 testimony documented serious weaknesses in EG&G's property
management and noted that DOE's oversight of EG&G was insufficient. 
The testimony presented several reasons for missing property, one of
which was theft.  The testimony further discussed the possibility of
a tainted contract award (a parts purchase agreement contract for the
Rocky Flats Motor Vehicle Maintenance Shop) and the need for future
investigation. 


--------------------
\2 Managing DOE:  Government Property Worth Millions of Dollars Is
Missing (GAO/T-RCED-94-309, Sept.  19, 1994). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

According to DOE and EG&G officials, theft has contributed to their
inability to account for millions of dollars worth of
government-owned property throughout the plant.  The extent to which
theft is a factor is unknown due to poor property management
practices and inadequate records.  Further, even when potential theft
was identified, it oftentimes was not properly referred to the
DOE/Office of Inspector General (OIG) or the Federal Bureau of
Investigation (FBI), the responsible investigative entities. 

We uncovered weaknesses in the ordering and inventory systems of
Rocky Flats' Motor Vehicle Maintenance Shop.  Ineffective management
oversight, inadequate internal controls, and lax physical security
contributed to an environment in which the shop automotive parts and
supplies were easily pilferable. 

We also discovered that an EG&G shop supervisor had accessed a
database without authorization and disclosed the incumbent supplier's
unit prices of its then current contract to a competitor.  The
competitor subsequently won the new contract. 

Since the hearing that prompted this request, DOE and EG&G have
reported improvements in the physical security of government-owned
property.  However, it is important that their increased focus on
property management and associated security measures continue during
the interval between and after the changeover of contractors. 

As of July 1, 1995, Kaiser-Hill will be the new contractor for plant
operations.  Susceptibility to theft and a loss of accountability is
high during changeover periods, and the new contractor must be aware
of the problem areas we found. 


   POSSIBLE THEFT NOT REFERRED OR
   INVESTIGATED APPROPRIATELY
------------------------------------------------------------ Letter :3

Poor property management practices, such as characterizing possibly
stolen property as missing and not confronting theft issues,
contributed to an environment that allowed theft at Rocky Flats.  We
found instances in which EG&G did not report possible theft to DOE,
and we also found instances in which DOE did not refer possible theft
to the DOE/OIG or the FBI, as regulations require. 


      EG&G DID NOT REPORT POSSIBLE
      THEFT TO DOE
---------------------------------------------------------- Letter :3.1

The EG&G Administrative Inquiries Unit did not always report
suspected stolen property to DOE for referral to investigative
authorities.  In fiscal year 1993, 65 cases of missing/possibly
stolen property were reported to EG&G's Administrative Inquiries
Unit.  That unit reported 5 of the 65 cases to DOE's Office of
Safeguards and Security.\3 The EG&G unit incorrectly assumed that
another unit would forward the remaining 60 cases to DOE. 

For example, in a property accountability report, a Rocky Flats
property custodian categorized the removal of a laptop computer as a
theft because it had disappeared from an employee's unlocked,
overhead storage cabinet while the employee was at lunch.  However,
EG&G's Administrative Inquiries Unit reflected it as a missing laptop
computer.  Because the report was not submitted to the Office of
Safeguards and Security, it was not referred to the FBI or DOE/OIG
for investigation. 

In another instance, a Rocky Flats employee arranged to move an Apple
computer, monitor, and keyboard to his new office location.  The
employee and the property custodian verified that the three items,
which had been packed in boxes, arrived at the new site.  However,
when the employee began unpacking his office belongings, the three
items were missing.  The employee reported this to EG&G, but the
incident was not referred to DOE.  Four weeks after the incident, the
same employee reported that his Apple LaserWriter II printer and
cables had been taken from his office.  The employee again informed
the EG&G Administrative Inquiries Unit about the missing equipment. 
For over a year, the Administrative Inquiries Unit did not report
either instance to DOE so that they could be referred to the FBI or
the DOE/OIG. 

According to DOE, it has clarified the reporting responsibilities, in
that DOE's Office of Safeguards and Security now periodically reviews
EG&G reports to ensure that all cases concerning possibly stolen
property are reported to DOE for referral to the proper investigative
authorities. 


--------------------
\3 The Office of Safeguards and Security oversees preliminary
inquiries to develop information on the probability of violations,
losses, and security incidents.  It reports such information to the
DOE/OIG, the FBI, and other responsible DOE headquarters elements, as
appropriate. 


      DOE DID NOT REFER POTENTIAL
      THEFT TO DOE/OIG OR FBI
---------------------------------------------------------- Letter :3.2

Officials of DOE's Office of Safeguards and Security stated that, in
accordance with DOE Order 5639.3, authority to investigate theft at
Rocky Flats is limited to the FBI and DOE/OIG.  Despite instances of
missing/stolen property reported by plant employees, DOE has referred
few instances to these two entities.  For example, the Office of
Safeguards and Security referred six incidents of possible theft to
the FBI and DOE/OIG in fiscal year 1993.  Although DOE's Office of
Safeguards and Security kept no records of its referrals for fiscal
years 1991-92, the FBI official responsible for that region reported
receiving "few" stolen-property referrals from Rocky Flats in those
years.  As a result, instances of stolen or missing property at Rocky
Flats--ranging from laptop computers to laser printers and power
tools--may not have been adequately investigated.  The fact that DOE
did not refer all potential theft cases to appropriate investigative
authorities decreased the likelihood that actual theft could be
detected or the criminals could be apprehended. 


   INCREASED INVESTIGATIVE EFFORTS
   AT ROCKY FLATS NOW OCCURRING
------------------------------------------------------------ Letter :4

As a result of our audit/investigation, the FBI in Denver, supported
by the U.S.  Attorney's Office, increased its investigative efforts
at Rocky Flats to detect property theft.  Additionally, DOE's Office
of Safeguards and Security is now referring all instances of missing
or possibly stolen property to the DOE/OIG, which is working closely
with the FBI.  For example, currently there are four separate ongoing
investigations of property theft, as well as an investigation into
how eight armored personnel carriers, formerly owned by Rocky Flats,
ended up in private hands. 


   MOTOR VEHICLE MAINTENANCE SHOP
   VULNERABLE TO THEFT
------------------------------------------------------------ Letter :5

Management and internal control inadequacies on the part of DOE and
EG&G have created an environment that is vulnerable to theft.  For
example, at the Rocky Flats Motor Vehicle Maintenance Shop,\4 DOE and
EG&G did not conduct required semiannual stock inventories and did
not maintain adequate inventory controls and documentation. 
Additionally, they allowed lax security involving the automated
ordering/inventory systems and the parts and supplies. 

EG&G did not conduct regular semiannual stock inventories as required
by the EG&G Procedures Manual.  Since 1991, only two inventories have
been conducted.  The two, in 1991 and 1994, identified discrepancies
of 68 percent and 60 percent, respectively, between inventory records
and physical counts.  DOE personnel did not consider that inventory
control regulations applied to numerous automotive items stored in
the Motor Vehicle Maintenance Shop parts department, e.g., batteries,
alternators, tires, oil filters, and seat cushions.  Thus, DOE did
not require EG&G to perform inventories. 

Because EG&G did not inventory stock regularly, automotive parts
could be easily ordered and even stolen without indication in the
contractor's records.  For example, in fiscal year 1993, according to
accounting records, the shop purchased over $196,000 worth of parts
or vehicle supplies from vendors.  For that year, purchases worth
$22,000, or approximately 11 percent of the total amount purchased,
were recorded in the inventory.  According to EG&G personnel, most of
the unrecorded purchases were installed on the vehicles for which
they were ordered.  Counter to plant procedures, the shop had no
invoices or file documentation for many of the vehicles, resulting in
no verification that all of the parts had been installed. 

With regard to security, unauthorized employees had access to the
shop's computerized ordering system.  In addition, shop employees
installed parts immediately after receiving them without first
entering them in the computerized inventory system or placing them in
the parts/supply room.  Further, sometimes the parts/supply room was
left open and unattended, enabling any employee to enter and take
parts at will.  For example, one employee told us he could walk into
the parts room and obtain parts for personal vehicles. 


--------------------
\4 The Motor Vehicle Maintenance Shop personnel maintain and repair
over 675 motorized vehicles and capital equipment, ranging from cars
and trucks to heavy construction and emergency equipment.  The shop
also issues related parts and petroleum fuels for all government
equipment at Rocky Flats. 


   CONTRACT-AWARD PROCEDURES ABUSE
------------------------------------------------------------ Letter :6

The environment of weak management and loose internal controls at the
Rocky Flats Motor Vehicle Maintenance Shop also provided the
opportunity for abuse of contract-award procedures.  In a joint
effort with the FBI, we discovered that an EG&G shop supervisor had
provided the incumbent supplier's unit prices to a competitor.  The
supervisor had no role in the contracting process and no authority to
access a database for ordering parts that the incumbent vendor
supplied EG&G.  At the time, both contractors were bidding on a
contract to supply the shop with automotive parts and supplies. 

During our investigation of this incident, the supervisor admitted to
us that, without authorization, he had abused contract-award
procedures by giving unit prices that the incumbent supplier charged
EG&G for automotive parts to a competing contractor prior to the
contract award.  Further, according to the supervisor, the competitor
used the information to structure a bid lower than the incumbent's
and was thus awarded the contract.  Although we traced the
incumbent's pricing information to the winning vendor's files, the
winning vendor denied using the information to structure its bid. 
The FBI continues to conduct a grand jury investigation of this
matter. 


   DOE AND EG&G REPORT
   IMPROVEMENTS
------------------------------------------------------------ Letter :7

Since the hearing that prompted this request, DOE and EG&G have
reported improvements in the physical security of property at the
Rocky Flats Plant.  The Rocky Flats Material Control Manager is now
controlling the ordering, stocking, and access to vehicle parts at
the Motor Vehicle Maintenance Shop.  A security official also has
reported that security police have increased site-wide random vehicle
stops and building patrols.  We have not evaluated the effectiveness
of changes reported by DOE and EG&G.  We are also aware that, as of
July 1, 1995, Kaiser-Hill will be the new contractor.  As DOE
transitions to the new contractor, it and the new contractor should
benefit from the experiences and problems we have found in the past. 


   METHODOLOGY
------------------------------------------------------------ Letter :8

We began our investigation on July 19, 1993, after being alerted to
the possibility of theft at the Rocky Flats Plant by GAO evaluators,
and concluded it on May 9, 1995.  We examined investigative files and
interviewed personnel of EG&G's Administrative Inquiries Unit to
determine how they dealt with missing property and theft issues.  We
also met with officials of DOE, DOE/OIG, and the FBI to obtain their
data and input on the relevance of theft at the plant. 

To obtain overall cost data and the value and quantities of recorded
inventories at the Motor Vehicle Maintenance Shop, we reviewed
accounting records and interviewed accounting personnel.  To
determine the accuracy of the inventory records, we obtained the
results of past inventories from accounting personnel.  We discussed
parts management procedures that were being used and should have been
used with personnel at the Motor Vehicle Maintenance Shop and at the
Rocky Flats Plant warehouse. 

Because we could not verify the complete Motor Vehicle Maintenance
Shop inventory, we selected a high-volume stock item and then
collected file data on purchases and recorded issuances.  We checked
vehicle files to locate work orders showing the use of that part to
determine whether the work orders corresponded to the number of
recorded issuances. 

Jointly with the FBI, we investigated the allegations of
contract-award abuse by interviewing and examining documents of all
witnesses and participants named in the contract negotiations and
alleged abuse. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to interested congressional
committees.  We will also make copies available to others upon
request.  If you have questions concerning this report, please
contact me or Deputy Director Donald Wheeler of my staff at (202)
512-6722. 

Richard C.  Stiener
Director


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I


   OFFICE OF SPECIAL
   INVESTIGATIONS, WASHINGTON,
   D.C. 
--------------------------------------------------------- Appendix I:1

William L.  Davis, III, Assistant Director for Regional
 Investigations
Barbara W.  Alsip, Communications Analyst


   DENVER REGIONAL OFFICE
--------------------------------------------------------- Appendix I:2

James H.  Solomon, Assistant Regional Manager
Clark B.  Hall, Assistant Director for Investigations
Paul S.  Begnaud, Senior Evaluator
Christopher M.  Pacheco, Senior Evaluator
Mark A.  McClarie, Staff Evaluator


   OFFICE OF THE GENERAL COUNSEL,
   WASHINGTON, D.C. 
--------------------------------------------------------- Appendix I:3

Barbara C.  Coles, Senior Attorney

*** End of document. ***