Department of Energy: Property Management Has Improved at DOE's Rocky
Flats Site (Letter Report, 12/28/95, GAO/RCED-96-39).
As of October 1995, the Energy Department (DOE) estimated that only $4.5
million worth of property was missing or could not be physically located
at its Rocky Flats facility in Colorado. This amount is considerably
lower than the $29.3 million cited in GAO's 1994 report (GAO/RCED-94-77)
primarily because DOE authorized the contractor to write off about $20.8
million in missing or "unlocated" property from the property records.
Generally, GAO found that DOE had improved property management at Rocky
Flats. For instance, DOE has acquired a new property-tracking system
more suited to property management. However, a major problem highlighted
in GAO's 1994 report has yet to be addressed: A large percentage of the
data in the site's property-tracking system are inaccurate.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-96-39
TITLE: Department of Energy: Property Management Has Improved at
DOE's Rocky Flats Site
DATE: 12/28/95
SUBJECT: Federal property management
Property losses
Government owned equipment
Contract monitoring
GOCO
Research and development facilities
Inventory control systems
Data integrity
Liability (legal)
Contractor performance
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Cover
================================================================ COVER
Report to the Chairman, Subcommittee on Energy and Power, Committee
on Commerce, House of Representatives
December 1995
DEPARTMENT OF ENERGY - PROPERTY
MANAGEMENT HAS IMPROVED AT DOE'S
ROCKY FLATS SITE
GAO/RCED-96-39
Property Management at Rocky Flats
(302150)
Abbreviations
=============================================================== ABBREV
DOE - Department of Energy
GAO - General Accounting Office
EG&G - EG&G-Rocky Flats, Inc.
Letter
=============================================================== LETTER
B-270444
December 28, 1995
The Honorable Dan Schaefer
Chairman, Subcommittee
on Energy and Power
Committee on Commerce
House of Representatives
Dear Mr. Chairman:
In March 1994, we reported that $29.3 million in property was either
missing from or could not be physically located at the Department of
Energy's (DOE) Rocky Flats Environmental Technology Site in
Colorado.\1 In addition, we reported that the contractor's property
management system at that site was inadequate. Responding to the
report's findings, DOE staff at Rocky Flats made a commitment to
correct the site's problems with property management. As requested,
we reviewed (1) the current status of the government-owned property
that is missing or cannot be located at the site and (2) the steps
that DOE/Rocky Flats officials have taken to improve property
management.\2
--------------------
\1 Department of Energy: The Property Management System at the Rocky
Flats Plant Is Inadequate (GAO/RCED-94-77, Mar. 1, 1994). As
discussed in the report, the contractor said that while some of the
property could not be physically located, it had documentation
explaining the property's disposition.
\2 Government-owned property as discussed in this report refers to
property of any kind or type that is in the custody of DOE or its
contractors and that is owned, rented, or leased by the government,
excluding real property such as land or buildings, special source
materials such as plutonium, precious metals, and spare parts.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
As of October 1995, DOE considered that only $4.5 million worth of
property was missing or could not be physically located at Rocky
Flats. This amount is considerably lower than the $29.3 million
reflected in our 1994 report primarily because DOE authorized the
contractor to write off about $20.8 million in missing or "unlocated"
property from the property records. A portion of the $20.8
million--about $13.0 million--was written off because it pertained to
unlocated property for which DOE accepted the contractor's
documentation explaining what had happened to the property. The
remainder of the $20.8 million--about $7.8 million--was written off
because it pertained to property that had been missing under a
previous contractor and for which the then-current contractor was not
liable.
Generally, we found that DOE has made strides in improving property
management at the Rocky Flats Site. For instance, DOE has acquired a
new property tracking system more suited to property management. DOE
has also given property management greater prominence by elevating it
from a branch to a division at the site. In addition, DOE has
incorporated specific performance measures into the contract for the
site that address many previously identified problems with property
management. However, DOE has not yet adequately addressed a
significant problem highlighted in our March 1994 report: A large
percentage of the data in the site's property tracking system are
inaccurate. Without accurate data on property, neither DOE nor its
contractor can determine how much property is present at the site and
how much has been lost or stolen.
BACKGROUND
------------------------------------------------------------ Letter :2
DOE's Rocky Flats Site is a government-owned, contractor-operated
facility that was formerly dedicated to weapons-related activities
but is now undergoing environmental restoration and cleanup. The
site is currently operated by Kaiser-Hill Company (Kaiser-Hill),
which took over the site's operations from EG&G-Rocky Flats, Inc.,
(EG&G) on July 1, 1995. The contract between Kaiser-Hill and DOE is
a performance-based arrangement in which fees are paid to the
contractor on the basis of its achieving certain measures by specific
milestone dates. For example, the contract states that as a
performance measure for fiscal year 1995, Kaiser-Hill will implement
an automated system capable of tracking property from its acquisition
to its retirement. Overall, the contract specifies 27 performance
measures to be implemented at the site in fiscal year 1995. New
performance measures can be established for each fiscal year.
In our March 1994 report on property management at Rocky Flats, we
presented the results of EG&G's September 1993 total inventory and
reconciliation of the government-owned property at the site. The
inventory showed that 4,827 items with an acquisition cost of $12.8
million were missing.\3 The inventory additionally showed that EG&G
officials could not physically locate 871 items with an acquisition
cost of $16.5 million. EG&G said it had documentation explaining why
the property could not be located. We reported, however, that the
documentation was incomplete and that EG&G might have to reclassify
some of the unlocated property as missing.
We also found a number of problems with the adequacy of EG&G's
property management system. For instance, inappropriate changes had
been made to data in the site's property tracking system, including
the deletion of entire records. Also, the contractor had inadequate
controls over how property was retired at the site. We reported that
as a result, EG&G could not accurately determine how much property
was actually present at the site and how much had been lost or
stolen. In our report, we made a number of recommendations to
improve property management at Rocky Flats. Subsequently, DOE said
it concurred with and was taking action in response to each of the
recommendations.
--------------------
\3 The missing or unlocated items included computer equipment such as
monitors and keyboards, shop equipment such as lathes and drill
presses, electronic equipment such as radios and pagers, and heavy
equipment such as forklifts and a semitrailer.
THE AMOUNT OF MISSING OR
UNLOCATED PROPERTY AT ROCKY
FLATS HAS CHANGED
------------------------------------------------------------ Letter :3
As of October 1995, DOE considered that only $4.5 million in property
was missing or could not be physically located, which is considerably
lower than the $29.3 million we previously reported. The primary
reason for this change is that DOE authorized EG&G to write off about
$20.8 million in missing or unlocated property from the records.
Table 1 summarizes the reasons why the amount of missing or unlocated
property reported at the Rocky Flats Site has changed. The most
significant reason is the write-off. As the table shows, in April
1994 DOE authorized EG&G to write off $13.0 million in property after
accepting EG&G's documentation as to why the property could not be
located.\4
Table 1
Changes to DOE'S Missing Property
Inventory Since March 1994 (as of
October 1995)
Amount
(Dollars in
millions)
-------------------------------------------------------- ------------
Property we reported as missing or unlocated in our $29.3
March 1994 report
Amount of unlocated property that DOE, in April 1994, -13.0
authorized EG&G to write off the property records
Amount of missing property that DOE, in February 1995, -7.8
authorized EG&G to write off the property records
Amount of missing property found during 1994 and 1995 -6.0
Amount of additional property identified as missing as a + 2.0
result of two 1995 inventories
======================================================================
Total amount of property that DOE considered missing as $ 4.5
of October 1995
----------------------------------------------------------------------
Note: As of October 1995, according to DOE officials, the
government-owned property at the site had a value of about $630
million.
According to EG&G officials, the contractor spent hundreds of staff
hours researching and obtaining supporting documentation to show what
had happened to the property that could not be located. The
documentation consisted of information taken from the property
records and/or obtained from EG&G site property custodians, who
provided written statements attesting to the whereabouts of the
unlocated property. For example, in one case the documentation
explaining a missing television monitor showed that the monitor had
been sold at auction. In another case, the documentation explaining
a missing video cassette recorder was a statement by a property
custodian saying that the recorder had been stolen about 5 years
earlier. After an extensive review of EG&G's documentation, DOE
authorized the contractor to write off 782 of the 871 items of
unlocated property, worth $13.0 million, from the property records.\5
In a few cases in which complete documentation was not available, DOE
officials said they had used their best judgment to determine whether
the documentation that EG&G provided was sufficient.
In February 1995, DOE authorized EG&G to write off a total of about
$7.8 million in missing property from the records. The property in
question had been missing under the previous contractor, and
according to DOE, EG&G was not liable for it. DOE/Rocky Flats
officials pointed out that a December 1989 agreement between DOE and
EG&G stipulated that EG&G's liability for the missing property would
not commence until after a 1991 baseline inventory had been
completed. In our 1994 report on property management at Rocky Flats,
we reported that although it might not be possible to prove the
contractor's liability for the property that was missing before 1991,
by investigating the missing property, DOE could help determine when
and under what circumstances the property had been lost and whether
some of the missing property had been stolen. However, DOE never
conducted an investigation to determine the root causes of why the
property was missing.\6
Other changes have occurred in the amount of inventory reported
missing at Rocky Flats. Specifically, EG&G reported that it had
found $6 million worth of the missing property since 1993.
Furthermore, as a result of two 1995 inventories, EG&G determined
that about $2 million in additional property was missing.\7 The first
inventory, completed in February 1995, reviewed sensitive equipment
at the site--those items susceptible to being taken for personal use
or readily converted to cash, such as computers and photographic
equipment. The inventory determined that $1.3 million in sensitive
property was missing. The second inventory, completed in June 1995,
reviewed capital equipment at the site--those items costing $5,000 or
more and having a useful life of 2 years or more, such as lathes.
The June inventory determined that $0.7 million in capital property
was missing.
--------------------
\4 DOE's contract with EG&G authorized DOE's contracting officer to
determine whether EG&G had complied with the contract's requirements
in its accounting for the government-owned property and whether the
contractor could or should be held accountable for any missing
property. By accepting EG&G's documentation as to the whereabouts of
the unlocated property and directing the contractor to write off the
balance of the missing property, DOE effectively released EG&G from
further liability for the loss of this property.
\5 DOE also reviewed deletions of property from the records and
placed about 100 deleted items back on the records. In addition, DOE
reviewed records of property that had been retired; it rejected the
retirement of 208 items and placed them back on the records.
\6 DOE/Rocky Flats officials did refer the matter to DOE's Office of
Inspector General, which conducted an investigation of eight property
items stolen from Rocky Flats during 1994-95. The office was not
able to recover the stolen items or determine who had stolen them.
DOE also conducted a validation of EG&G's September 1993 inventory.
DOE officials believe this was sufficient to understand the root
cause of the problems with property management at the site.
\7 Both 1995 inventories were validated by a team composed of EG&G
internal auditors and DOE/Rocky Flats personnel.
DOE/ROCKY FLATS HAS IMPROVED
PROPERTY MANAGEMENT
------------------------------------------------------------ Letter :4
Since we issued our 1994 report, DOE has taken several steps to
improve property management at Rocky Flats. DOE has acquired a new
property tracking system more suited to property management. In
addition, DOE has given property management greater prominence by
elevating it from a branch to a division at the site. DOE also has
implemented most of the recommendations contained in our March 1994
report. Finally, DOE has incorporated specific performance measures
into its contract with Kaiser-Hill to address problems with property
management.\8
--------------------
\8 DOE/Rocky Flats also implemented a policy of individual financial
accountability for all of the sensitive property and established a
regulatory requirement for baseline acceptance and close-out
inventories at the site.
DOE'S IMPLEMENTATION OF OUR
RECOMMENDATIONS
---------------------------------------------------------- Letter :4.1
In our 1994 report, we made seven recommendations aimed at having DOE
either (1) require EG&G to correct the weaknesses we identified in
its property management system or (2) improve its oversight of
property management at the site. In response to our report, DOE
agreed to fully implement our recommendations. As shown in table 2,
three of the recommendations have been fully implemented and four
have been partially implemented.
Table 2
Status of DOE'S Implementation of Our
Recommendations
Our recommendation DOE's response
---------------------------------------- ----------------------------
Revise, with DOE's guidance, the Fully implemented. EG&G
criteria at the site for what should be completed a review of the
in the tracking system so that all of criteria used to identify
the sensitive equipment is included in sensitive items and issued a
the system. revised list of the items
that would be controlled as
sensitive property. DOE
approved this list in May
1994.
Institute system-level edits into the Fully implemented. DOE
system to limit and prevent unauthorized acquired a new tracking
access. system that has the
appropriate system-level
edits. The system is due to
be fully operational by the
end of calendar year 1995.
Develop guidance specifying the roles Fully implemented. EG&G
and responsibilities of the property implemented a requirement
management staff in retiring property. that staff obtain the
approval of both the
property accounting
supervisor and the property
management supervisor before
retiring any item.
Order an investigation, in accordance Partially implemented. In
with DOE's guidance, of the property January 1994, DOE requested
missing from the site and determine, its Office of Inspector
among other things, what happened to the General to initiate an
missing property. investigation of the
property losses. The office
investigated the theft of
eight items but was unable
to recover the items or
determine who had stolen
them.
Place a higher priority on overseeing Partially implemented. DOE
property management at the site. Doing completed an analysis that
so could necessitate adjusting DOE's identified a need for seven
staff levels at the site as well as additional property
setting milestones for improving DOE's management employees. As a
oversight. result, DOE hired two
federal employees and two
support service contractor
employees to oversee the
contractor's property
management.
Require EG&G to immediately develop Partially implemented. EG&G
written procedures for its property developed detailed
management operations and submit its procedures for property
procedures to DOE for review and management and submitted
approval. those procedures to DOE for
review and approval.
Contractor officials said
they hope to have DOE's
approval within 18 months,
or by the end of calendar
year 1996.
Undertake, to the extent practical, a Partially implemented. Some
study of the historical records at the inaccuracies in the tracking
site to identify and include all system's data have been
appropriate property in the site's corrected. However, problems
property tracking system and to correct with the accuracy of the
inaccuracies in the system as necessary. data remain. DOE estimated,
in its validation of EG&G's
1995 inventory of sensitive
items, that 30 percent of
the records sampled had one
or more inaccurate data
fields.
----------------------------------------------------------------------
We are concerned with DOE's failure to fully implement one
recommendation directed at correcting incomplete or inaccurate data
in the current property tracking system. In our March 1994 report,
we provided a number of examples of incomplete or inaccurate data in
the system. For instance, the system contained records for 121
computer keyboards that had the same serial number as other keyboards
in the system. We reported that without properly entered serial
numbers, the contractor could not accurately identify, and thereby
account for, the government-owned property at the site. Therefore,
we recommended that DOE require the contractor to correct the
deficiencies resulting from incomplete or inaccurate data as
necessary. DOE agreed with us but has not fully implemented the
recommendation.
According to DOE/Rocky Flats and contractor officials, considerable
time and attention have been spent on correcting the incomplete or
inaccurate data in the system. These officials pointed out that the
problem of incomplete or inaccurate data will be corrected when
Kaiser-Hill completes a property inventory within the first 6 months
of fiscal year 1996. However, we do not believe that completing a
property inventory will, by itself, correct the problem. We noted in
our March 1994 report that some property items that had not been
entered into the site's property tracking system may now be missing.
In addition, the acquisition cost listed in the system for other
property items was inaccurate. It is unclear how a property
inventory will identify missing property items that have not been
entered into the system. Likewise, it is unclear how a property
inventory will confirm whether the acquisition cost listed in the
system for individual property items is correct. In our view, a
check of the historical records is the only way to correct these
inaccuracies.
PERFORMANCE MEASURES
INCLUDED IN THE CONTRACT FOR
THE SITE
---------------------------------------------------------- Letter :4.2
The contract between DOE and Kaiser-Hill for the Rocky Flats Site is
designed to contain performance measures, so that a fee is paid when
certain results are achieved. The performance measures are intended
to define very specific goals, tasks, and timetables for the work to
be completed at the site. DOE has instituted these measures in an
attempt to establish a direct relationship between a contractor's
performance and the entire fee received.\9
While the contract between DOE and Kaiser-Hill contains performance
measures related to improving overall property management at Rocky
Flats, DOE has not developed specific plans to correct the
significant problem of inaccurate data in the site's property
tracking system.
The contract between DOE and Kaiser-Hill contains performance
measures for property management for 2 consecutive years. For fiscal
year 1995, the contract specifies that, among other things, the
contractor will implement an automated system capable of tracking
property from acquisition to retirement. In addition, the contractor
will develop the policies and procedures associated with that system
and provide a minimum of 8 hours of training to all property
management personnel. For fiscal years 1996 through 1999, the
contract as of December 1, 1995, specifies that the contractor will
hold property losses to less than $1 million a year. Starting in
fiscal year 2000, the contract specifies that the contractor will
hold property losses to less than $200,000 annually. These
performance measures will be renegotiated each year.
To determine the amount of the property losses incurred, DOE needs
accurate data on the property that is present at the site and its
value. However, inaccurate data in the site's property tracking
system could preclude DOE from precisely determining its property
losses. We reported on inaccuracies in these data in our March 1994
report, and DOE highlighted the problem of inaccuracies in the data
in an August 1995 draft "issues and concerns" memorandum that it
plans to finalize and transmit to Kaiser-Hill. By issuing this
memorandum, DOE intends to alert the contractor to its specific
concerns about matters in need of resolution.
DOE's memorandum, however, does not rank the issues and concerns
listed or establish a timetable for correcting them. Therefore, it
is difficult to determine the significance that DOE has assigned to
any of the issues and concerns, including the problem of inaccurate
data. In our view, the presence of inaccurate data in the site's
property tracking system is a significant problem. DOE/Rocky Flats
officials advised us that, in their opinion, the percentage of
inaccurate data on sensitive items in the system is as high as 30
percent. We believe that having accurate data is critical to being
able to determine what property is present at the site and whether
the contractor has held property losses to the levels prescribed in
the contract's performance measures.
--------------------
\9 Historically, under cost-plus-award-fee contracts, DOE did not use
objective criteria for the fees it awarded contractors but instead
determined the fee portion of payments under the contract on the
basis of subjective judgment, leaving open the possibility for abuse.
CONCLUSIONS
------------------------------------------------------------ Letter :5
While DOE has taken a number of steps to improve property management
at Rocky Flats, the Department was not fully responsive to the
recommendations in our March 1994 report, particularly the
recommendation to correct the inaccurate data in the site's property
tracking system. DOE needs accurate data to determine whether the
contractor has met the performance measures contained in the site
contract.
AGENCY COMMENTS
------------------------------------------------------------ Letter :6
We provided DOE with a draft of this report for its review and
comment. The draft report included a proposed recommendation to the
Secretary of Energy to develop a plan and a timetable for correcting
the inaccuracies in the data in the site's property tracking system.
DOE officials, including the Director, Office of Contractor
Management and Administration, and the Rocky Flats Site's Group
Leader, Property and Information Management Division, generally
concurred with the findings contained in this report. In our
discussion, they stressed that they had taken numerous actions to
improve property management at the site. They also pointed out that
they had recently reached agreement with Kaiser-Hill on a new
performance measure for the site that should help address the
concerns that resulted in our proposed recommendation. On December
5, 1995, DOE and Kaiser-Hill approved the following new performance
measure for fiscal year 1996: "Complete baseline inventories . . .
and update all records with complete and accurate information." In
our view, implementing this performance measure should help correct
the inaccuracies in the data in the site's property tracking system.
As a result, we deleted our proposed recommendation.
---------------------------------------------------------- Letter :6.1
We performed our work at DOE's headquarters and Rocky Flats Site from
June through December 1995 in accordance with generally accepted
government auditing standards. Additional information on the scope
and methodology of our review is presented in appendix I.
As arranged with your office, we plan no further distribution of this
report until 7 days after the date of this letter. At that time, we
will send copies to the Secretary of Energy; the Director, Office of
Management and Budget; and other interested parties. We will also
make copies available to others on request.
Please call me at (202) 512-3841 if you or your staff have any
questions. Major contributors to this report are listed in appendix
II.
Sincerely yours,
Victor S. Rezendes
Director, Energy and
Science Issues
OBJECTIVES, SCOPE AND METHODOLOGY
=========================================================== Appendix I
In March 1995, the Chairman of the Subcommittee on Energy and Power,
House Committee on Commerce, asked us to follow up on the problems
with property management at the Department of Energy's (DOE) Rocky
Flats Environmental Technology Site that we had described in a March
1994 report. As agreed, we reviewed (1) the current status of the
government-owned property that is missing or cannot be located at the
site and (2) the steps DOE/Rocky Flats officials have taken to
improve property management.
We performed our work from June through December 1995 at DOE's
headquarters and Rocky Flats Site. This work was done in accordance
with generally accepted government auditing standards.
To determine the current status of missing or unlocated
government-owned property at the site, we reviewed various sources of
information, including the contractor's property inventory reports,
computer tapes listing equipment in the plant's property tracking
system, and DOE/Rocky Flats' validation of the contractor's property
inventory. In addition, we discussed this information with DOE/Rocky
Flats and contractor personnel. We did not, however, verify the
accuracy of the total of missing or unlocated property currently
reported as missing because of the lack of available supporting
documentation.
To determine what steps DOE/Rocky Flats officials have taken to
improve property management, we reviewed several documents, including
DOE/Rocky Flats' corrective action plan for property management,
DOE's Darts Status Report listing the actions DOE has taken in
response to the recommendations in our March 1994 report, and the new
contract for the site between DOE and Kaiser-Hill. We also discussed
these documents with DOE/Rocky Flats personnel.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C.
Bernice Steinhardt, Associate Director
William F. Fenzel, Assistant Director
Robert J. Baney, Evaluator-in-Charge
DENVER REGIONAL OFFICE
Christopher M. Pacheco, Staff Evaluator
*** End of document. ***