Department of Energy: The Property Management System at the Rocky Flats
Plant Is Inadequate (Chapter Report, 03/01/94, GAO/RCED-94-77).
A recent audit of government-owned property at the Rocky Flat nuclear
weapons plant in Colorado has revealed nearly $30 million in missing
items that range from computers to forklifts, a problem attributed to
inadequate contractor management and poor Energy Department (DOE)
oversight. Contrary to departmental guidance, DOE has never investigated
the circumstances surrounding the missing property. Moreover, the
contractor's property management system is inadequate. The plant's
property tracking system database is incomplete and contains inaccurate
serial numbers for some items. Inappropriate changes have been made to
the database, including the deletion of entire records. Finally, the
controls over how plant property is retired are inadequate. GAO found
that DOE, contrary to its own regulations, has allowed the contractor to
operate without written property management procedures and has not
approved the contractor's property management system. In addition, DOE
has not ensured timely correction of previously flagged property
management weaknesses.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-94-77
TITLE: Department of Energy: The Property Management System at the
Rocky Flats Plant Is Inadequate
DATE: 03/01/94
SUBJECT: Federal property management
Property losses
Government owned equipment
Contract monitoring
GOCO
Research and development facilities
Inventory control systems
Contractor performance
Accountability
Contractor responsibility
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Cover
================================================================ COVER
Report to Congressional Requesters
March 1994
DEPARTMENT OF ENERGY - THE
PROPERTY MANAGEMENT SYSTEM AT THE
ROCKY FLATS PLANT IS INADEQUATE
GAO/RCED-94-77
Department of Energy
Abbreviations
=============================================================== ABBREV
DOE - Department of Energy
EG&G - EG&G-Rocky Flats, Inc.
GAO - General Accounting Office
ROCKWELL - Rockwell International, Inc.
Letter
=============================================================== LETTER
B-255689
March 1, 1994
The Honorable Mike Synar
Chairman, Environment, Energy,
and Natural Resources Subcommittee
Committee on Government Operations
House of Representatives
The Honorable David E. Skaggs
House of Representatives
The Honorable Ben Nighthorse Campbell
United States Senate
This report responds to your requests that we determine whether (1)
property is missing at Rocky Flats, (2) the onsite contractor has an
adequate property management system in place, and (3) the Department
of Energy (DOE) has been providing effective oversight of the
property management system. The plant is owned by DOE and is
operated by EG&G-Rocky Flats, Inc.
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days after the date of this
letter. At that time, we will send copies of this report to
appropriate congressional committees; the Secretary of Energy; and
the Director, Office of Management and Budget. We will also make
copies available to others upon request.
This work was performed under the direction of Victor S. Rezendes,
Director, Energy and Science Issues, who may be reached at (202)
512-3841. Major contributors to this report are listed in appendix
I.
Keith O. Fultz
Assistant Comptroller General
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
The poor management of government-owned property by the Department of
Energy (DOE) has been a continuing problem. In an April 1990 report,
GAO reviewed the property management system at DOE's Lawrence
Livermore Laboratory and found that the onsite contractor could not
account for over $45 million in government-owned property in its
custody.\1 In the 1990 report, GAO determined that one of the root
causes for the problems identified was that DOE had not provided
adequate oversight of the onsite contractor. Concerned that this
lack of oversight over government-owned property could also be
present in Rocky Flats' property management activities,
Representative David E. Skaggs--joined later by the Chairman,
Environment, Energy, and Natural Resources Subcommittee, House
Committee on Government Operations, and Senator Ben Nighthorse
Campbell--asked GAO to determine whether (1) property is missing at
Rocky Flats, (2) the onsite contractor has an adequate property
management system in place, and (3) DOE has been providing effective
oversight of the property management system.
--------------------
\1 Nuclear Security: DOE Oversight of Livermore's Property
Management System Is Inadequate (GAO/RCED-90-122, Apr. 18, 1990).
BACKGROUND
---------------------------------------------------------- Chapter 0:2
DOE's Rocky Flats Plant is a government-owned, contractor-operated
facility that was formerly dedicated to weapons-related activities
but is now undergoing environmental restoration, cleanup, and waste
management. The plant is currently operated by EG&G-Rocky Flats,
Inc., (EG&G) which took over the plant's operations from Rockwell
International, Inc., (Rockwell) on January 1, 1990. Government-owned
property in the plant's property tracking data base totaled about
$600 million as of September 1993. Under a 1991 modification to the
contract between DOE and EG&G, the Department can hold EG&G liable
for costs of replacing lost or "missing" property upon finding that
such a loss resulted from circumstances clearly within EG&G's
exclusive control and that the contractor's exercise of reasonable
care would have avoided the loss. Prior to this contract
modification, a finding of willful misconduct or a lack of good faith
by the contractor's managerial personnel was needed to hold the
contractor liable for missing property.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
A substantial amount of government-owned property at the Rocky Flats
Plant is missing. A 1991 EG&G inventory reported $33.5 million in
plant property was missing. Because of the amount, DOE directed EG&G
to conduct another inventory. This inventory, completed in September
1993, showed that $12.8 million in property was missing and that
another $16.5 million in property could not be physically located but
was not considered to be missing because EG&G said it had
documentation explaining the property's disposition. GAO found,
however, that the documentation for the $16.5 million in property was
incomplete and that EG&G may have to reclassify some of the items as
missing. GAO also noted in its review that DOE has never conducted,
contrary to departmental guidance, an investigation into the
circumstances surrounding the missing property.
EG&G's property management system is inadequate. The plant's
property tracking data base, set up by EG&G, is incomplete in that
some property was never entered into the data base. Also, the data
base contains inaccurate serial numbers for some property. There
have been inappropriate changes made to certain data in the data
base, including the deletion of entire records. Finally, there are
inadequate controls over how property is retired at the plant. As a
result, EG&G cannot accurately determine how much property actually
is present at the plant or has been lost or stolen.
Regarding DOE's oversight role, GAO determined that the Department,
contrary to its own regulations, has allowed EG&G to operate without
written property management procedures and has not approved EG&G's
property management system. In addition, DOE has not ensured timely
correction of previously identified property management weaknesses.
DOE officials cited the need to respond to unplanned requirements as
a reason for not taking certain actions. However, by enabling EG&G
to operate with an inadequate and informal property management
system, DOE cannot be assured that government-owned property at the
plant is properly accounted for.
PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4
A SUBSTANTIAL AMOUNT OF
PROPERTY AT THE PLANT IS
REPORTEDLY MISSING
-------------------------------------------------------- Chapter 0:4.1
Property inventories conducted in fiscal years 1989 and 1991 reported
that $2.8 million and $33.5 million, respectively, in plant property
were missing. A fiscal year 1993 inventory, which attempted to
improve upon the results of the 1991 inventory, showed that $12.8
million in property was missing. In addition, the inventory showed
that EG&G was unable to physically locate $16.5 million in property
but did not classify this property as missing because EG&G said that
it had documentation showing the property's disposition (i.e., the
sale of the property as scrap). GAO found that most of the
documentation was incomplete and that EG&G may have to reclassify
some of the $16.5 million in property as missing.
The missing property from the latest inventory included thousands of
pieces of computer-related equipment as well as numerous cameras,
pagers, radios, typewriters, and even heavy equipment such as
forklifts. DOE decided not to hold Rockwell liable for the $2.8
million in missing property from the 1989 inventory, in part, because
DOE Rocky Flats had not sufficiently funded property management
activities at that time. Regarding the 1991 inventory, DOE believes
that EG&G is not responsible for the missing property because there
is some uncertainty associated with the amount of property actually
on hand when plant operations transferred from Rockwell to EG&G in
1990. In regard to the 1993 inventory, DOE Rocky Flats told GAO that
it does intend to determine contractor liability for the property
missing. However, given DOE's past handling of contractor liability
and its consideration of mitigating circumstances, GAO is concerned
whether DOE will be able to hold EG&G accountable.
AN INADEQUATE PROPERTY
MANAGEMENT SYSTEM RENDERS
PROPERTY VULNERABLE TO LOSS
-------------------------------------------------------- Chapter 0:4.2
EG&G's property management system cannot adequately account for
government-owned property at the plant. To begin with, some property
has never been entered into the property tracking data base. For
example, certain items such as power hand tools have not been
consistently entered into the data base. Other items in the data
base contain inaccurate property data, which makes inventorying the
items difficult. For example, for 121 computer keyboards, the data
base contains records showing the same serial numbers as for other
keyboards in the data base.
In addition, EG&G staff have made inappropriate deletions in and
erroneous changes to the property tracking data base. For instance,
EG&G during the past year has deleted over 500 items without
maintaining any historical records, including trailers,
computer-related equipment, cameras, typewriters, and overhead
projectors--items that are valued at about $1 million. GAO also
found that EG&G had not adequately restricted employee access to the
data base, which contributed to inappropriate changes to the data
base. For instance, GAO found that EG&G staff, through human error,
changed the acquisition cost of a welding tool from about $137,000 to
about $547,000. Such changes to the data base can misrepresent the
value and amount of government-owned property.
Finally, EG&G has retired property items from the tracking data base
without adequate controls in place to ensure that these retirements
were proper. GAO found, for example, that in 27 percent of the
missing property retirement cases from October 1990 to January 1993,
first-level supervisors apparently had not reviewed and approved the
property retirements. Such supervisory reviews serve as a control to
verify the appropriateness and validity of an item's retirement.
Moreover, in 4 of 78 cases reviewed, property items were apparently
inappropriately retired since documentation attached to the
retirement packages indicated that the missing items had been
transferred to other custodians or locations on the plant site.
DOE HAS NOT PROVIDED
EFFECTIVE OVERSIGHT OF THE
CONTRACTOR'S PROPERTY
MANAGEMENT SYSTEM
-------------------------------------------------------- Chapter 0:4.3
DOE's oversight of EG&G's property management system has been
ineffective in three areas. First, DOE has allowed EG&G, contrary to
departmental regulations, to operate without written procedures for
its various property management activities, including its property
tracking and retirement functions. Such procedures provide detailed
guidance to contractor staff on how specific activities are to be
conducted. Absent written procedures, problems--such as
inappropriate property retirements--have developed regarding these
activities.
Second, DOE has not approved EG&G's property management system.
Although DOE was required by departmental regulations to review and
approve/disapprove EG&G's property management system by the end of
1990, it still has not done so. A property management system is
designed to accurately account for and control government-owned
property. By not approving/disapproving the property management
system, DOE has neither sanctioned the system nor told EG&G what
aspects of the system need to be fixed.
Third, DOE has not ensured timely correction of property management
weaknesses identified in previous DOE reviews. For instance, DOE has
not ensured that EG&G adequately implemented corrective actions on 30
contractor deficiencies identified in a 1989 DOE review. In
addition, DOE has not taken corrective action on 9 of 22 deficiencies
in property management oversight cited in its Federal Managers'
Financial Integrity Act reports for 1991 and 1992.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5
To improve property management at the Rocky Flats Plant, GAO
recommends that the Secretary of Energy order an investigation, in
accordance with DOE guidance, of missing plant property from the
1989, 1991, and 1993 inventories and determine, among other things,
what happened to the missing property. Such an investigation would
then help DOE to determine whether the contractor could be deemed
liable for the missing property in accordance with the terms of the
plant contract. In addition, GAO is making a series of
recommendations aimed at having EG&G correct GAO-identified
weaknesses in its property management system. These include, among
other things, ensuring that the property tracking data base is
accurate and complete and that property retirements have been proper.
Furthermore, GAO is making several recommendations for improving DOE
oversight at the plant, including having EG&G develop written
procedures for its property management system.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6
GAO discussed the information in this report with DOE headquarters'
Director, Office of Property Management, and Director, Office of
Contractor Management and Administration; DOE Rocky Flats' Property
Administrator and Property and Information Management Branch Chief;
and EG&G-Rocky Flats' Assistant General Manager for Maintenance and
Plant Support, Controller, and Director of Logistics. GAO has
included their views where appropriate. In their comments, both DOE
and EG&G officials stressed that considerable progress has been made
in improving property management activities at Rocky Flats. These
officials said, for instance, EG&G has established a property
management organization, improved the receiving and tagging of
property, and begun to implement other improvements. Specifically,
EG&G in 1991 instituted a new property tracking data base and
conducted a comprehensive property inventory. These officials also
said that while EG&G still has much to accomplish in order to obtain
an approved property management system, there is a commitment by EG&G
to resolve property management problems in a constructive way and to
actively support DOE's quality initiatives by continuing to improve
performance. Although GAO recognizes that actions are under way to
improve property management, several basic problems such as the lack
of detailed property management procedures and inaccuracies in the
plant property tracking data base, need to be resolved in order to
have an effective property management system at the plant. As agreed
with your offices, GAO did not obtain written agency comments on a
draft of this report.
INTRODUCTION
============================================================ Chapter 1
The Department of Energy's (DOE) Rocky Flats Plant is a
government-owned, contractor-operated facility formerly dedicated to
weapons-related activities. Its mission today is focused on
environmental restoration, cleanup, and waste management. As of
September 30, 1993, government-owned property in the plant's property
tracking data base had an acquisition cost of about $600 million.\1
The property is located in about 300 buildings on an 11-square-mile
site and nearby facilities in Jefferson County, Colorado. The plant
is operated under contract by EG&G-Rocky Flats, Inc. (EG&G). Under
the contract, EG&G is responsible for managing government-owned
property at the plant, and DOE is responsible for overseeing and
ensuring the effective management of such property.
EG&G took over the plant's operations from Rockwell International,
Inc. (Rockwell) on January 1, 1990. Under the original contract
between DOE and EG&G, it was difficult to hold the contractor liable.
The contractor was liable for lost (e.g., missing property searched
for and determined to be unlocatable), damaged, or destroyed property
in its possession only if either of two conditions were present.
These conditions were (1) willful misconduct or a lack of good faith
on the part of the contractor's managerial personnel or (2) failure
on the part of the contractor's managerial personnel to take all
reasonable steps to comply with any appropriate written directive of
DOE's contracting officer to safeguard such property.
DOE modified the contract in August 1991 to include an avoidable cost
provision which, among other things, increased the contractor's
accountability for its own acts or omissions. Under the avoidable
cost provision, DOE holds the contractor liable for costs resulting
from the loss, damage, or destruction of property (1) when the loss,
damage, or destruction resulted from circumstances that were clearly
within the contractor's sole and exclusive control and (2) when the
exercise of reasonable care would have avoided the loss, damage, or
destruction. In addition, under this provision, the contractor is
liable for losses stemming from theft, embezzlement, or other
unauthorized use by any contractor personnel. According to DOE
regulations, the maximum amount for which a contractor could be held
liable would be limited to its base fee and award fee for one 6-month
rating period.\2
--------------------
\1 Government-owned property, as discussed in this report, refers to
property of any kind or type that is government-owned or -rented or
-leased in the custody of DOE or its contractors, excluding real
property such as land or buildings, special source materials such as
plutonium, precious metals, and spare parts.
\2 Under the contract between DOE and EG&G, EG&G is reimbursed for
all allowable costs and is entitled to earn a fixed amount (called
the base fee) and may receive an award fee based on its performance.
If the date of the loss of property is known, then the loss is
charged against the fee earned in that period. If the date of the
loss is unknown, then the loss is charged against the fee earned in
the period when the loss was reported.
DOE PROPERTY MANAGEMENT
REGULATIONS
---------------------------------------------------------- Chapter 1:1
The DOE Property Management Regulations (41 C.F.R. Chap. 109) set
forth the responsibilities and general policies that DOE must follow
in managing government-owned property. According to these
regulations, the objectives of DOE's property management program are
to provide (1) a system for effectively managing government property
in the custody or possession of DOE organizations and DOE contractors
and (2) uniform principles, policies, standards, and procedures for
economical and efficient management of government property.
DOE headquarters and its field offices share responsibility for
ensuring that these objectives are met. DOE headquarters is
responsible for developing an effective and efficient property
management program for the Department. This includes, among other
things, (1) establishing Department-wide policies, standards,
regulations, and procedures in accordance with applicable federal
laws and regulations and sound management practice and (2) reviewing,
evaluating, and improving property management functions and
procedures. Heads of field offices are responsible for
administering, within their organizations, a property management
program that provides for effective management of government property
consistent with DOE regulations. They are also responsible for
ensuring that an adequate property management system is in place,
whether property is DOE- or contractor-managed.
Subpart 109-1.51 of DOE's property management regulations provides
guidance on DOE's standards and practices to be applied in the
management of government-owned property. This subpart covers, among
other things, the identification and marking of government property,
the physical inventorying of property consistent with generally
accepted accounting procedures, and the retirement of property. For
example, the regulations require that the results of periodic
physical inventories be reconciled with property records.
EG&G'S PROPERTY MANAGEMENT
SYSTEM
---------------------------------------------------------- Chapter 1:2
DOE's property management regulations (subpart 109-1.52) prescribe
policies and responsibilities for the establishment, maintenance,
review, and appraisal of a contractor's program and system for the
management of government property. This regulation states that
contractors shall establish, maintain, and administer a system for
the effective management of government property consistent with the
terms of the contract and directives from the contracting officer.
Furthermore, this regulation states that contractors shall maintain
their property management systems in writing on a current basis.
DOE regulations require that contractors' and any subcontractors'
property management systems provide for, among other things, adequate
records (e.g., property tracking data base), written procedures, and
periodic physical inventories. The property management systems are
also required to provide for a retirement work order procedure to
account for property that is worn out, lost, stolen, destroyed,
abandoned, or damaged beyond economical repair.
EG&G, under its contract with DOE, is required to establish and
maintain a property management system that completely and accurately
accounts for and controls government property in its possession.
Items are accounted for and controlled at the plant in the following
manner. Upon its arrival at the plant, an item is supposed to be
affixed with a property identification tag containing the item's
assigned identification number. Information on the item is then
supposed to be entered into EG&G's computerized property tracking
data base. For each item, the data base should contain data such as
the item's identification number, description, serial number,
purchase order number, acquisition cost, location, and property
custodian.\3
Various EG&G offices and personnel play different roles in managing
property at the plant. EG&G's property accounting office is
responsible for determining which items are to be tracked and for
entering newly acquired property and property retirements in the data
base. The property management office is responsible for tagging
property items, conducting and reconciling property inventories,
tracking items as they move around the plant, and disposing of items
approved for retirement. Property custodians are responsible for
managing property items assigned to their custody and reporting any
property transfers to the property management office. The security
office gathers information regarding occurrences of lost or stolen
property and reviews property retirement documents to determine
whether a further inquiry is warranted.
--------------------
\3 Property custodians are appointed by contractor management and are
responsible for the physical control of government-owned property
assigned to their custody.
CATEGORIES OF PROPERTY
---------------------------------------------------------- Chapter 1:3
Government-owned property at the plant is placed in basically three
categories--capital, sensitive, and administratively controlled
equipment. These three categories of property are defined as
follows:
Capital equipment refers to property with an acquisition cost of
$5,000 or more and a useful life of 2 years or more. Examples
of property in this category include lathes and vehicles.
Sensitive equipment refers to property that, regardless of cost, is
considered susceptible to being taken for personal use or can be
readily converted to cash. Among the types of items considered
sensitive are firearms, computer-related equipment, photographic
equipment, binoculars, and calculators.
Administratively controlled equipment refers to property with an
acquisition cost of $1,000 to $4,999 that does not meet the
definition of sensitive equipment.\4 Examples of property in
this category include pumps and safes.
EG&G is not required to track items under $1,000 that do not meet the
definition of sensitive property.
--------------------
\4 DOE officials at Rocky Flats require EG&G to track property in the
$1,000 to $4,999 range.
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:4
In November 1992, Representative David Skaggs asked us to examine
property management at the Rocky Flats Plant, including determining
whether (1) property is missing at Rocky Flats, (2) the on-site
contractor has an adequate property management system in place, and
(3) DOE has been providing effective oversight of the property
management system.\5 Subsequently, the Chairman, Environment, Energy,
and Natural Resources Subcommittee, House Committee on Government
Operations, and Senator Ben Nighthorse Campbell joined as requesters.
We performed our work at DOE headquarters, the Albuquerque Operations
Office, and the Rocky Flats Plant. As agreed with the requesters, we
focused our review on three categories of government property:
capital, sensitive, and administratively controlled equipment--the
three categories of equipment maintained in the plant's property
tracking data base. We did not include special source materials such
as plutonium because of the unique requirements and accounting system
associated with this material. In addition, we did not include
precious metals in our review because (1) DOE was reviewing EG&G's
management of this material and (2) a recent internal audit report
determined that there were no significant problems in this area.
To determine if there is property missing at the plant, we reviewed,
analyzed, and discussed with DOE, EG&G, and Rockwell officials the
results of Rockwell's 1989 physical inventory and EG&G's fiscal years
1991 and 1993 physical inventories. Additionally, we obtained
computer tapes of EG&G's property tracking data base at various
points in time to (1) determine the completeness and accuracy of data
base records and (2) identify and analyze changes made to the data
base.
To assess the adequacy of the contractor's property management
system, we reviewed, analyzed, and discussed with DOE, EG&G, and
Rockwell officials (1) GAO standards for internal controls in the
federal government,\6 (2) DOE property management regulations, and
(3) the current contract for management and operation of the plant.
We also reviewed applicable DOE Inspector General reports and EG&G
internal audit reports. In addition, we selected purchase orders and
property disposal records to review for completeness, accuracy, and
consistency with DOE and EG&G guidance.
To assess the adequacy of DOE's oversight of the plant's property
management system, we interviewed DOE, EG&G, and Rockwell officials
and examined DOE's 1989 property management review. In addition, we
analyzed DOE's fiscal years 1991 and 1992 annual statements and
reports required by the Federal Managers' Financial Integrity Act of
1982 and the status of DOE's corrective actions.
We discussed the facts presented in the report with DOE headquarters
and Albuquerque officials and local DOE and EG&G Rocky Flats
officials and incorporated their views where appropriate. However,
as requested, we did not obtain written agency comments on a draft of
this report from DOE or other parties. We conducted our review from
November 1992 to December 1993 in accordance with generally accepted
government auditing standards.
--------------------
\5 In our report entitled Nuclear Security: DOE Oversight of
Livermore's Property Management System Is Inadequate,
(GAO/RCED-90-122, Apr. 18, 1990), we reviewed the property
management system at DOE's Lawrence Livermore Laboratory and found
that the onsite contractor could not account for over $45 million in
government-owned property in its custody. We determined that one of
the root causes for the problems identified was that DOE had not
provided adequate oversight of the onsite contractor.
\6 Standards for Internal Controls in the Federal Government, U.S.
General Accounting Office, (June 1983).
A SUBSTANTIAL AMOUNT OF PROPERTY
AT THE PLANT IS REPORTED MISSING
============================================================ Chapter 2
A substantial amount of government-owned property at the Rocky Flats
Plant is missing. The precise amount is unknown because inventories
at the plant have shown different amounts of missing property. A
1989 inventory reported that $2.8 million in property was missing. A
1991 inventory reported that $33.5 million in property was missing.
Because of the substantial amount of property missing from the 1991
inventory, among other reasons, DOE directed EG&G to conduct another
inventory, which was completed in September 1993. This inventory
showed $12.8 million in missing property. Furthermore, EG&G was
unable to physically locate an additional $16.5 million in property
but said that it had documentation indicating the property's
disposition.\1
DOE has not pursued contractor liability for any missing property at
Rocky Flats. For instance, DOE has decided, without conducting a
detailed investigation, not to pursue holding Rockwell or EG&G liable
for any portion of the missing property from the 1989 and the 1991
inventories. Such an investigation might have helped to determine
root causes for the missing property as well as assign liability.
Without such an investigation, DOE may not be able to hold anyone
accountable for the missing property. While DOE officials said that
the Department does intend to pursue holding EG&G liable for property
that becomes missing subsequent to the 1991 inventory, we believe
that, given its past handling of contractor liability and its
consideration of mitigating circumstances, there is some uncertainty
whether DOE will be able to hold EG&G accountable.
--------------------
\1 The missing properties from the various inventories are not
additive since some of the missing property was carried over from one
inventory to another.
1989 AND 1991 PLANT INVENTORIES
REPORTED MILLIONS OF DOLLARS
WORTH OF MISSING PROPERTY
---------------------------------------------------------- Chapter 2:1
1989 INVENTORY
-------------------------------------------------------- Chapter 2:1.1
In 1989, Rockwell, the former operating contractor at Rocky Flats,
conducted a property inventory before transferring plant management
to EG&G. The inventory was conducted by Rockwell property
custodians, who were given lists of property for which they were
responsible and asked to verify that the property was at the plant.
Custodians were also asked to make a list of items that they found in
their areas that were not on their property list. In addition,
custodians were asked to report discrepancies between the items found
and the items on their lists to the property accounting office which
was responsible for reconciling and adjusting the property records.
At the conclusion of the 1989 inventory, Rockwell reported that it
could not locate a total of 1,534 items, with an acquisition cost of
over $2.8 million. Table 2.1 summarizes these inventory results.
Table 2.1
Summary of Missing Property Reported in
Rockwell's Fiscal Year 1989 Inventory
(Dollars in millions)
Number Number
of Acquisitio of Acquisitio
Equipment category items n cost items n cost
-------------------- ------ ---------- ------ ----------
Capital \ 15,787 $325.6 88 $0.6
Administratively 25,223 34.6 1,446 2.2
controlled and
sensitive\a
============================================================
Total 41,010 $360.2 1,534 $2.8
------------------------------------------------------------
\a Rockwell did not report administratively controlled and sensitive
equipment separately.
These missing items included, among other things, about 150
computers, 140 printers and plotters, 120 personnel pagers, and
various typewriters, calculators, cameras, radios, and bicycles.
According to the terms of the agreement transferring property from
Rockwell to EG&G, DOE authorized Rockwell to remove, or write off,
the $2.8 million worth of missing property from the inventory records
before the property transfer. As of January 1993, neither Rockwell
nor EG&G had written off about 45 percent of the missing items.\2
--------------------
\2 This estimate was derived by comparing a random sample of items
reported missing with EG&G's property tracking data base.
1991 INVENTORY
-------------------------------------------------------- Chapter 2:1.2
The agreement transferring property from Rockwell to EG&G also
required EG&G to conduct a complete inventory of property during the
first 2 years of its contract. The inventory began in December 1990
and was performed by EG&G property custodians, who completed the
results of their respective inventories by the end of September 1991.
The inventory reconciliation, which involved matching inventory
results with the accounting records and searching for missing items,
began in late September 1991 and continued through March 1992.
As a result of the inventory and reconciliation efforts, EG&G
reported that it could not locate a total of 5,956 items, or 11
percent of the items in the inventory. This missing property had an
acquisition cost of $33.5 million.\3 Table 2.2 summarizes these
inventory results.
Table 2.2
Summary of Missing Property Reported in
EG&G's Fiscal Year 1991 Inventory
(Dollars in millions)
Number Number
of Acquisitio of Acquisitio
Equipment category items n cost items n cost
-------------------- ------ ---------- ------ ----------
Capital 8,042 $380.4 572 $18.0
Administratively 18,127 82.4 2,605 12.1
controlled
Sensitive 28,612 39.2 2,779 3.4
============================================================
Total 54,781 $502.0 5,956 $33.5
------------------------------------------------------------
This missing equipment included about 1,400 items of computer-related
equipment, 780 items of laboratory equipment, 710 items of process
equipment such as hoists and furnaces, and 350 items of shop
equipment such as lathes and drill presses. In addition, the list of
missing equipment included forklifts, an air compressor, a photo
copier, and a boat. Because of various reasons, including the
substantial amount of missing property, the belief that more untagged
equipment should have been located, the uneasiness with property
custodians performing the inventory, and the need to update
inaccurate and incomplete information in the data base, DOE directed
EG&G to conduct another inventory.
Both DOE and EG&G officials said they believed that most of the
missing property in the 1991 inventory was probably misplaced as a
result of undocumented property transfers and expressed confidence
that the new inventory would locate most of these items. However,
during our review, several EG&G plant employees informed us that they
were certain that some property at the plant had been stolen. As a
result, we are conducting a separate review of the possibility of
property thefts.\4
--------------------
\3 EG&G also found about $3.2 million in property not previously
listed in the property tracking data base.
\4 This review is scheduled to be completed in early 1994.
RESULTS OF 1993 INVENTORY AGAIN
SHOWS MILLIONS OF DOLLARS WORTH
OF MISSING PROPERTY
---------------------------------------------------------- Chapter 2:2
EG&G began the follow-on building-to-building inventory in July 1992,
using inventory personnel from the plant's property management office
to conduct the inventory instead of property custodians. The
inventory was completed in May 1993, and the inventory reconciliation
completed in September 1993. This latest inventory by EG&G reported
that 4,827 items with an acquisition cost of $12.8 million are
missing.\5 Additionally, the inventory shows EG&G officials could not
physically locate $16.5 million worth of property. EG&G said that it
had documentation explaining the property's disposition, but the
documentation had not yet been reviewed by DOE. We found that the
documentation was incomplete and that EG&G may have to reclassify
some of the property as missing.
Table 2.3
Summary of Missing Property Reported in
EG&G's Fiscal Year 1993 Inventory
(Dollars in millions)
Number Number
of Acquisitio of Acquisitio
Equipment category items n cost items n cost
-------------------- ------ ---------- ------ ----------
Capital 8,460 $416.7 267 $5.3
Administratively 21,457 99.2 1,641 4.4
controlled
Sensitive 46,655 60.0 2,919 3.1
============================================================
Total 76,572 $575.9 4,827 $12.8\a
------------------------------------------------------------
\a According to the inventory report the $12.8 million represents
$8.9 million in property still missing from prior inventory and $3.9
million that has become missing since the 1991 inventory was
completed.
These 4,827 missing items spanned several different categories of
equipment. The items included over 1,800 pieces of computer
equipment such as monitors and keyboards. The items also included a
wide variety of laboratory and shop equipment such as balances,
hoists, lathes, and drill presses. Numerous cameras, pagers, radios,
desks, and typewriters are also missing. Finally, some heavy
equipment such as forklifts and a semi-trailer are missing. DOE
plans to verify the inventory results, including the supporting
documentation, by February 14, 1994.
The 1993 inventory also showed that EG&G could not physically locate
871 items with an acquisition cost of $16.5 million. However, the
inventory report indicates that documentation is available showing
what happened to these items. Table 2.4 shows the disposition of the
871 items.
Table 2.4
Summary of Property Not Physically
Located But Disposition Documented
(Dollars in millions)
Number
of Acquisitio
Disposition category items n cost
---------------------------------------- ------ ----------
Auction/public sale 91 $1.3
Not available for inventory due to its 61 4.4
location in radiologically hazardous
part of the plant
Transferred to another facility 118 2.9
Cannibalized, scrapped, or disposed of 234 3.6
as radioactive waste
Returned to vendor 44 3.6
Other (i.e., duplicative items or 323 0.7
reported missing before inventory)
============================================================
Total 871 $16.5
------------------------------------------------------------
Because of the substantial value of the equipment, we attempted to
verify the supporting documentation. The EG&G official responsible
for compiling the documentation told us that only 135 of the 871
items had completely documented dispositions--all the supporting
documentation was available, and the documentation was reviewed and
approved by EG&G.\6 This EG&G official also said that documentation
is still being gathered to support the disposition of many of the
items. Furthermore, the official added that, once all the
documentation is compiled, it must be approved first by EG&G and then
DOE. The official believes that some of the documentation may not be
accepted by DOE and, if so, the equipment may have to be reclassified
as missing.
--------------------
\5 EG&G also found about $6.9 million in property not previously
included in the property tracking data base.
\6 In reviewing several of the items for which EG&G claimed to have
completely documented dispositions, we found that only one EG&G
person had attested to the items' final disposition. The DOE Rocky
Flats property and information management branch chief told us that
he would expect EG&G to also locate a DOE official who could
corroborate the items' final disposition.
LIABILITY FOR LOST PROPERTY
---------------------------------------------------------- Chapter 2:3
DOE's contracts with Rockwell and EG&G contain provisions for
determining the contractors' liability for lost property at the Rocky
Flats Plant. In this regard, before April 1, 1991, both contractors
were liable for lost property only if either of two conditions were
present. Those conditions were either willful misconduct or lack of
good faith on the part of the contractor's managerial personnel, or
the failure of the contractor's managerial personnel to take all
reasonable steps to comply with written DOE directives. Under the
avoidable cost rule incorporated in EG&G's contract in August 1991,
but with an effective date of April 1, 1991, DOE could hold the
contractor liable for costs stemming from property losses when the
loss resulted from circumstances clearly within the contractor's sole
and exclusive control and when exercising reasonable care would have
avoided the loss. This liability includes losses caused by theft by
any contractor personnel.
Despite these provisions, DOE has not pursued contractor liability
for any missing property. For instance, DOE decided, without
conducting a comprehensive investigation, to write off and not pursue
holding Rockwell liable for missing property associated with the 1989
inventory. Similarly, DOE has not attempted to hold EG&G liable for
any missing property stemming from the 1991 inventory. Regarding the
1993 inventory, DOE plans to pursue contractor liability more
closely.
ROCKWELL LIABILITY FOR THE
1989 INVENTORY
-------------------------------------------------------- Chapter 2:3.1
DOE authorized Rockwell to write off the $2.8 million in property
reported missing from the contractor's 1989 inventory but did not
determine whether the missing property was indeed lost and, if so,
who was responsible. DOE Rocky Flats officials offered us two
rationales to explain the DOE action. First, DOE Rocky Flats
officials said that, at that time, the plant's mission was focused on
production, often at the expense of other plant activities, and,
therefore, DOE did not warn Rockwell to correct property management
weaknesses known to exist.\7 Second, DOE Rocky Flats officials told
us that because of the plant's emphasis on production and budgetary
constraints, DOE may not have adequately funded or staffed the
contractor's property management program.
Conversely, DOE officials in Albuquerque, who were responsible prior
to August 1991 for property management at Rocky Flats, offered a
different view regarding contractor operations at the plant.
Specifically, these officials disagreed that Rockwell's property
management program may not have been adequately funded. The
officials said that DOE contractors are given a block of funds to
manage and achieve DOE's mission. In addition, according to the
officials, if Rockwell chose not to adequately fund property
management, it would have been an arbitrary decision on Rockwell's
part to which the Albuquerque Field Office would not have agreed.
Furthermore, these officials believed that Rockwell's property
management activity had been adequately staffed.
In our view, DOE actions were contrary to departmental guidance.
When a significant amount of property is missing, an investigation is
to be conducted to determine the root causes. Such an investigation
could then be used in attempting to establish liability. DOE
admitted, however, that it did not investigate and determine that the
missing property was indeed lost and, if so, who was responsible for
the loss. Failure to make such a determination has impacted DOE's
ability to evaluate Rockwell's potential liability.
--------------------
\7 Under the terms of the contract, DOE must first warn the
contractor of weaknesses and allow the contractor an opportunity to
implement corrective action before imposing liability.
CONTRACTOR LIABILITY FOR THE
1991 INVENTORY
-------------------------------------------------------- Chapter 2:3.2
Similarly, DOE did not pursue contractor liability for the $33.5
million in property missing from the 1991 inventory. DOE Rocky Flats
officials told us that Rockwell's liability effectively ended with
the completion of its 1989 inventory, which DOE had accepted, and
EG&G's liability did not commence until the completion of its
baseline inventory in September 1991. Furthermore, DOE officials
said that they had several problems with the 1991 inventory,
including questions about whether the missing property was really
lost or rather simply misplaced on the plant site. As a result, the
officials decided to conduct another inventory.
In our view, however, a comprehensive DOE investigation, as required
by DOE guidance, could have proven worthwhile. Before April 1991,
DOE bore the risk for lost property unless it could show that an
onsite contractor was liable under the limited standard of its
contract. After April 1, 1991, under the avoidable cost provision,
EG&G could be held liable for the costs of lost, damaged, or
destroyed property if it could be determined that the loss, damage,
or destruction resulted from EG&G's failure to exercise reasonable
care under circumstances clearly within EG&G's exclusive control, or
from employee theft.
Although it might not have been possible to prove contractor
liability for the costs of lost property at Rocky Flats between 1989
and April 1991, an investigation could have helped to determine when
and under what circumstances the property was lost and whether some
of the missing property was stolen, as several people at the plant
believe. At a minimum, because each contractor was responsible for
the appropriate control and disposition of government-owned property
at the plant during the terms of their contracts, information on how
the contractors had carried out their responsibilities in the past
could have been useful to DOE in future liability determinations.
EG&G LIABILITY FOR THE 1993
AND SUBSEQUENT INVENTORIES
-------------------------------------------------------- Chapter 2:3.3
DOE officials told us that they do intend to hold EG&G liable under
the avoidable cost rule for missing property from the 1993 and
subsequent inventories. Under this rule, DOE should determine
whether EG&G could have avoided these property losses. This
determination will be based on DOE's evaluation of all factors that
contributed to contractor liability, including poor internal controls
and procedures, and if reasonable precautions were taken. The DOE
contracts and services director also said, however, that DOE will
consider some of the same mitigating circumstances that have
precluded the Department from pursuing contractor liability in the
past. Those circumstances included the adequacy of DOE funding for
property management.
DOE Rocky Flats officials told us that this would be the first time
that the avoidable cost provision had been applied to Rocky Flats
property losses identified through an inventory. According to DOE
regulations, the maximum amount for which EG&G could be held liable
would be limited to the amount of its base fee and award fee for the
6-month rating period in which the loss occurred.\8
--------------------
\8 If the property loss occurred, for example, between October 1,
1992, to March 31, 1993, EG&G's maximum liability would be limited to
its base fee of $4.7 million, and its award fee of $1.4 million.
CONCLUSIONS
---------------------------------------------------------- Chapter 2:4
Three recent inventories at Rocky Flats have reported that a
substantial amount of government-owned property is missing. In 1989,
$2.8 million in property was reported missing, an amount that
increased to $33.5 million in 1991. The plant's most recent
inventory indicates that $12.8 million is missing, and an additional
$16.5 million could not be physically located. In our view, while it
is clear that millions of dollars of equipment is missing, the
precise amount has not yet been determined.
DOE has decided not to pursue holding either Rockwell or EG&G liable
for the costs of missing property from the 1989 or the 1991
inventories, or to attempt to establish what led to the losses of
property. Such DOE decisionmaking, in our view, is contrary to DOE
regulations and good management practices.
More recently, DOE has indicated that it does intend to hold EG&G
liable for the costs of missing property from the 1993 and subsequent
inventories. However, given past DOE decisionmaking on contractor
liability and its consideration of mitigating circumstances, we are
concerned whether DOE will be able to hold the contractor
accountable. In our view, DOE needs to take aggressive action to
determine what happened to the missing property. We believe that
this is critical because several people at the plant believe that
some of the property may have been stolen.
RECOMMENDATION
---------------------------------------------------------- Chapter 2:5
To improve property management at the Rocky Flats Plant, we recommend
that the Secretary of Energy order an investigation, in accordance
with DOE guidance, of missing plant property and determine, among
other things, what happened to the missing property. Such an
investigation can then be used to determine whether the contractor
could be deemed liable in accordance with the terms of the contract.
INADEQUATE PROPERTY MANAGEMENT
SYSTEM RENDERS PLANT PROPERTY
VULNERABLE TO LOSS
============================================================ Chapter 3
EG&G's property management system has major management control
weaknesses that have allowed government-owned property to become
missing. First, EG&G has not entered complete and accurate property
data into its tracking data base. Second, EG&G has inappropriately
deleted and erroneously changed data in its tracking data base.
Third, EG&G has retired property items from the tracking data base
without adequate controls in place to ensure that these retirements
have been proper. Taken together, these weaknesses preclude EG&G
from accurately determining how much property exists at the plant or
has been lost.
EG&G'S PROPERTY TRACKING DATA
BASE IS INCOMPLETE AND
INACCURATE
---------------------------------------------------------- Chapter 3:1
Our review found that EG&G's property tracking data base contains
incomplete and inaccurate data. Certain property items were never
entered into the data base. In addition, certain records in the data
base contain data errors and omissions. As a result of these data
base problems, EG&G cannot adequately account for the
government-owned property on hand.
CERTAIN PROPERTY ITEMS WERE
NEVER ENTERED INTO THE
TRACKING DATA BASE
-------------------------------------------------------- Chapter 3:1.1
EG&G has not entered all the property into its data base that DOE
requires it to track. We found that property was not entered into
the data base because EG&G property accounting staff (1) relied on
inaccurate information from other EG&G employees about items' useful
lives, (2) erroneously assumed that other systems existed at the
plant to track property, and (3) unilaterally made exceptions to the
DOE dollar thresholds for items to be tracked. By not entering all
property required for tracking into its data base, EG&G understates
the amount and value of property that it is responsible for.
First, EG&G property accounting staff did not track certain property
items because they received inaccurate information from other EG&G
employees regarding the items' useful lives. As discussed in chapter
1, DOE requires that capital property at the Rocky Flats Plant be
tracked if it is valued at $5,000 or more with a useful life of at
least 2 years. We identified, however, items that met DOE tracking
criteria but were not in the tracking data base. This included, for
example, germanium detectors\1
purchased for between $7,600 and $56,500 and borescopes\2
purchased for between $5,400 and $31,200.\3
For these and other examples, EG&G property accounting staff
explained that they did not know what the items were and relied on
other EG&G employees who told them the items' useful lives did not
exceed 2 years. When we contacted the users of these items, however,
we found that the items' useful lives did in fact exceed 2 years.
For example, we identified several examples where germanium detectors
and borescopes have been in active use for between 2 to 7 years.
EG&G's financial accounting manager told us he was unaware of this
condition and said that EG&G needed to correct this problem.
Second, EG&G property accounting staff did not enter certain property
items into the property tracking data base because the EG&G staff
erroneously believed that other systems existed at the plant to
adequately track and account for the property. Specifically, EG&G
property accounting officials did not track certain sensitive items
such as power hand tools based on their belief that these tools were
tracked within individual EG&G departments. However, we discovered
that power hand tools were not being effectively tracked at the
plant. For example, one EG&G department official told us that
although power hand tools were locked in a tool crib in his
department, there was no system in place for tracking the tools.
This EG&G official indicated that everyone in the work group had a
key to the tool crib and that there were no sign-out procedures for
the tools.
Third, EG&G property accounting staff did not enter certain property
items into the property tracking data base because the staff
unilaterally established a higher dollar threshold for these items
than required by DOE regulations. For example, EG&G staff does not
track computer operating software under $10,000 even though DOE
regulations require all computer operating software over $5,000 to be
tracked. Neither EG&G nor DOE officials could explain EG&G's
deviations from DOE regulations.
After we brought these examples of property not entered into the data
base to DOE's attention, DOE officials responded that they would
require EG&G to take corrective actions in this area. Specifically,
DOE officials said that they would direct EG&G to develop written
procedures for entering items into the property tracking data base
consistent with DOE requirements and subject to DOE's review and
approval. DOE officials also said that they would require EG&G to
both improve the security of its tool cribs and enforce sign-out
procedures for power hand tools. Furthermore, DOE officials said
that, in the future, EG&G will be requested to integrate the property
tracking data base with other plant systems. However, we believe
that DOE should go further. Specifically, DOE needs to be more
prescriptive so that EG&G tracks power hand tools and other sensitive
equipment, because of their susceptibility to theft, and that EG&G
also enters all other items valued over $1,000 into its property
tracking data base unless specifically exempted by DOE. In addition,
we believe that DOE needs to see to it that EG&G, to the extent
practical, reconciles the data already existing in its tracking data
base with other plant information, such as purchase order records, to
ensure that the data base is complete.
--------------------
\1 A germanium detector is a component of a device that measures
radioactivity.
\2 A borescope is a device with a prism or mirror used to inspect a
cavity.
\3 Plant payment records since 1986 for selected manufacturers
indicate that 15 borescopes and 42 germanium detectors valued at $1.2
million had been purchased but not entered into the property tracking
data base.
CERTAIN DATA IN THE TRACKING
DATA BASE ARE INACCURATE
-------------------------------------------------------- Chapter 3:1.2
EG&G's property tracking data base also contains inaccurate data.
Certain items in the data base contain no serial numbers, while other
items have identical serial numbers. Without accurate data in the
data base, EG&G cannot accurately identify and, thereby, account for
government-owned property at the plant.
EG&G's data base contains certain items with no serial numbers. For
example, we noted that 3,682 items (8.4 percent) of computer and
computer-related equipment and 173 vehicles and heavy equipment (35.5
percent) lacked serial numbers. This can create problems when
attempting to identify the property and the custodian to whom the
property had been assigned. For instance, if EG&G located an item of
property that had been left abandoned on the plantsite with its
identification tag missing and no serial number on the item in the
data base, EG&G would have difficulty determining accountability.
DOE officials told us that this problem was a result of inadequate
EG&G staff training as well as a history of poor data base management
at the plant. EG&G officials explained that these missing serial
numbers were the result of staff errors. Additionally, we identified
another cause: the lack of system-level edits to preclude items from
being entered into the data base without serial numbers. Such edits
highlight for data entry personnel that an omission exists in a data
field, invalidating any attempt to enter that item into the data
base.
In addition, the data base contains similar items having identical
serial numbers. For example, the data base contains records for 121
computer keyboards that have the same serial number as other
keyboards in the data base. Identical serial numbers also existed
for 34 personal computers, 58 pagers, and 71 printers and plotters.\4
Without properly entered serial numbers, EG&G cannot accurately
distinguish between similar items of untagged property for
accountability purposes.
In identifying causes for this problem, DOE officials again cited
lack of EG&G staff training and years of poor data base management.
EG&G officials told us that they assume that these duplicated serial
numbers were the result of items being duplicatively tagged and
entered into the data base by mistake. We noted again, however, that
the lack of system-level edits in the system to screen for duplicate
serial number entries was a contributing factor.
After we brought these matters to DOE's attention, DOE officials said
that these matters have been longstanding problems at the plant and
that they require further EG&G attention. Therefore, DOE officials
have directed EG&G to provide more training for its staff and develop
a plan to implement system-level edits for all essential data fields
in the property tracking data base. DOE officials said that they
would wait until the completion of EG&G's 1993 inventory to evaluate
the extent of the missing and duplicate serial numbers before
deciding what action to require EG&G to take. In our view,
sufficient information exists attesting to the inaccuracy of data in
the property tracking data base.
--------------------
\4 For these examples, we counted only items that originated from the
same manufacturer, since these items would have been assigned unique
serial numbers.
EG&G HAS MADE INAPPROPRIATE
CHANGES TO THE PROPERTY
TRACKING DATABASE
---------------------------------------------------------- Chapter 3:2
EG&G has inappropriately changed data in the property tracking data
base. Specifically, we found that entire property records have been
deleted from the data base and that inappropriate changes have been
made to serial numbers, acquisition costs, and the number of items
included in the 1993 inventory. As a result of these changes, EG&G
has further compromised the accuracy and completeness of the data
base.
PROPERTY RECORDS WERE
DELETED FROM THE TRACKING
DATA BASE
-------------------------------------------------------- Chapter 3:2.1
EG&G officials deleted entire property records from the property
tracking data base. According to GAO's Standards for Internal
Controls in the Federal Government,\5 under no circumstances should
items be deleted from the data base--that is, erased without
preserving a historical record of the item. By not preserving a
historical record of these items, EG&G cannot account for each and
every property item it has purchased for DOE.
During our review, we discovered that EG&G had deleted property items
over the history of the property tracking data base. One EG&G
property accounting official said that he had been routinely deleting
duplicate property items from the data base--that is, items
inadvertently tagged with two property numbers. We noted, however,
one instance where this EG&G official erroneously assumed that the
two items in the data base were duplicate items when, in fact, one
was actually a television monitor and the other was a computer
printer. Without any further research or inquiry, this EG&G official
deleted the television monitor from the data base.
Initially, EG&G officials told us that they did not consider making
deletions a problem and defended their use as a routine transaction
for eliminating certain property items from the data base.
Subsequently, however, they decided to stop the staff practice of
deleting items from the data base and instead require them to retire
the items to a historical retirement file. These EG&G officials
estimated that they had deleted 529 items, including trailers,
computer-related equipment, cameras, typewriters, and overhead
projectors between July 1992 and October 1993. These items are
valued at about $1 million.\6
--------------------
\5 Standards for Internal Controls in the Federal Government, U.S.
General Accounting Office, (June 1983).
\6 We could not estimate the precise extent of property deletions
because EG&G did not preserve copies of the data base files before
September 1992.
OTHER INAPPROPRIATE CHANGES
HAVE BEEN MADE
-------------------------------------------------------- Chapter 3:2.2
A good data base will contain system controls to provide reasonable
assurance that all information in the data base is complete, valid,
and reliable. These controls usually include procedures that apply
to the overall data base, such as restrictions on access, to reduce
the risk of unauthorized and inappropriate data base modification.
We found, however, that EG&G's property tracking data base had few
system controls in place. For instance, we found that EG&G had not
adequately restricted employee access to its property tracking data
base, thereby creating a situation where as many as 46 staff had the
capability to edit and even delete property records.\7 As a result,
we noted that inappropriate changes occurred to serial numbers,
acquisition costs, and the number of items in EG&G's 1993 baseline
inventory.
First, we found that EG&G staff inappropriately changed the serial
numbers of certain items in the data base. For example, we noted
that 42 items that had serial numbers in September 1992 no longer had
them in September 1993. EG&G's property management manager explained
to us that perhaps inventory personnel removed these serial numbers
because they recognized them as model numbers but could not locate
the serial numbers on the property. Additionally, we found that 118
items that were not located during the 1993 inventory had their
serial numbers changed during the course of the inventory. Without
physically locating these items, EG&G could not verify the accuracy
of these changes.
Second, we found that EG&G staff made various changes to items'
acquisition costs. For example, two Bernoulli boxes with identical
descriptions that previously lacked acquisition costs were assigned
costs of $12,015 and $2,015, respectively.\8 In addition, several
items described as "IBM keyboards" lacking acquisition costs were
assigned different costs ranging from $75 to $1,200. When we
discussed these examples with EG&G property accounting officials,
they told us that these examples appeared to be the result of
erroneous entries. We also noted that the acquisition cost of a
welder increased from $137,442 to $547,311. We discussed this
condition with the item's property custodian, who told us that he was
unaware of any recent improvements that had been made to the welder
that would justify such an increase. In fact, he said that the
welder had not even been in use since October 1989 when production
activities ceased at the plant.
Third, we found that EG&G staff inappropriately changed the universe
of items it was attempting to locate during the 1993 inventory. At
the beginning of the inventory, EG&G designated 76,572 items as being
in the inventory. During the inventory process, however, EG&G staff
for no known reason eliminated 148 items with an acquisition cost of
$1.2 million as being eligible for inventory. Although EG&G
attempted to correct this inappropriate change, it could not
completely do so because it had not maintained a copy of the data
base record at the beginning of the inventory.
After we alerted DOE officials to these problems, they said that they
would specifically look into these items to determine why these
erroneous changes occurred. In addition, DOE officials said that
they would start performing an independent verification of EG&G's
inventory results which they hoped would be completed by February 14,
1994.
--------------------
\7 After we raised this issue with EG&G officials, they have somewhat
limited edit access to the data base.
\8 A Bernoulli box is an external computer component with a removable
hard drive.
EG&G HAS INADEQUATE CONTROLS
OVER PROPERTY RETIREMENTS
---------------------------------------------------------- Chapter 3:3
Our review also showed that EG&G lacks adequate controls over
property retirements. For instance, first-level supervisors did not
always sign retirement work orders for property items, which
indicates that these supervisors may not have reviewed the
appropriateness of the retirements. Furthermore, no EG&G office is
reviewing the overall completeness and accuracy of the retirement
work order package before the items are retired. As a result, EG&G
cannot be assured that retirements of government-owned property are
appropriately conducted.
According to EG&G policy, when an item is determined to be missing,
the property custodian is to immediately report this to his or her
first-line supervisor and to the security office. Then, the
custodian is to look for the property and to prepare a retirement
work order if the item is not located. In accordance with DOE
regulations, the work order is to be signed by the first-line
supervisor. The first-level supervisory review serves as a control
to verify the appropriateness and validity of the item's retirement.
The work order, in accordance with plant policy, is then routed
through the security office and the property management office. The
security office is to review the work order to determine if further
inquiry is warranted (e.g., if theft is suspected, the matter is
supposed to be referred to DOE's security office which, in turn, is
supposed to report it to both the DOE Inspector General's office and
the Federal Bureau of Investigation). After having circulated
through the different offices, the final retirement work order
package is to be forwarded to the property accounting office, which
transfers the item's record from the data base's active file to the
retirement file.
To determine the extent of first-level supervisory review over
property retirements, we reviewed the retirement work orders for all
78 property items that were retired under the missing category
between October 1990 (the beginning of the current property tracking
data base) and January 1993.\9 Of the 78 retirement work orders, 21
(27 percent) did not have first-level supervisory signatures as
required by DOE regulations. EG&G's Controller said that this
problem may have resulted from a lack of attention on the part of
these custodians and their supervisors to property management
activities.
Not only was the first-level supervisory review over property
retirement work orders not always occurring, but we also noted that
no EG&G office performs an overall review of the accuracy and
completeness of each retirement work order package before an item is
retired. This overall review is important because as the retirement
work order package circulates through the different offices (property
management, security, and property accounting), new information on
the item's whereabouts may be added to the work order package that
could change the item's retirement status.
For example, we identified four specific cases in which property
items appeared to have been inappropriately retired due to the lack
of an overall review of the items' retirement work order packages.
In all four cases, the property items were retired, even though
documentation attached to the retirement packages indicated that the
missing items had been transferred to other custodians or locations.
In none of the four cases was there any documentation indicating that
someone had checked to verify whether or not the property had indeed
been transferred as stated. By performing overall reviews of items'
retirement documentation packages, EG&G can potentially prevent items
from being inappropriately retired.
One reason why this overall review is not being performed is because
EG&G lacks detailed written procedures outlining the responsibility
of different departments. As a result, confusion exists among these
different departments over which office is responsible for performing
this review. Property accounting officials said that as long as the
retirement package contains a security official's signature, they do
not review it for completeness or accuracy; they assume that the
security office has done so. Security officials, however, said that
they have never reviewed retirement packages for completeness or
accuracy; rather, they see their review role as determining whether
the circumstances seem suspicious and thus warrant their in-depth
investigation. Property management officials told us that they were
not performing this review either and were unaware that this overall
review was not being performed. Both DOE and EG&G officials agreed
with us that another cause was the lack of written procedures clearly
outlining the responsibilities of the different offices involved in
the property retirement process.
--------------------
\9 These 78 missing items were already known to be missing and do not
include items reported missing during the 1991 and the 1993
inventories.
CONCLUSIONS
---------------------------------------------------------- Chapter 3:4
Overall, EG&G has improved property management activities at Rocky
Flats but its lack of system controls prevents EG&G from adequately
accounting for government-owned property at the plant. Some items
are never entered into the plant's property management data base.
Some data in the data base are inaccurate. Furthermore, items have
been deleted from the data base and other data have been
inappropriately changed. Finally, confusion exists among plant
personnel regarding their responsibilities in retiring property.
Taken together, these control weaknesses have rendered
government-owned property at the plant vulnerable to loss.
To correct these problems, DOE needs to see to it that EG&G takes
action in several areas. First, EG&G must ensure that all sensitive
items, and those costing more than $1,000, purchased for the
government at the plant are included in the plant data base. To
accomplish this, EG&G will likely have to go back several years
through the plant's historical records (e.g., purchase orders) to
determine which items were not entered into the data base and then
enter them. Additionally, DOE needs to revise its criteria at the
plant regarding what should be in the data base. For example, power
hand tools and other sensitive equipment should be included in the
data base. Furthermore, uncertainties over any equipment's 2-year
useful life should be resolved by including any equipment costing
more than $1,000 in the data base. Second, EG&G must correct the
inaccurate data in the data base. This will probably necessitate a
detailed review of all data in the system to ensure that it is
accurate.
Third, EG&G needs to institute system-level edits into the system to
prevent deletions and/or inappropriate changes to the data base.
Such checks and edits within the system would limit access as well as
prevent certain keypunch errors. In our view, such internal controls
are critical to safeguarding the data in the system. Finally, EG&G
needs to correct the confusion among plant personnel regarding their
role in retiring property. In doing so, the roles and
responsibilities should be clearly delineated and understood by EG&G
staff.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 3:5
To improve EG&G's property management system and ensure that the
plant's data base accurately reflects the government-owned property
at the plant, we recommend that the Secretary of Energy require EG&G
to:
Undertake, to the extent practical, a study of historical records
at the plant to identify and include all appropriate property
into the plant's property data base, and correct data base
inaccuracies as necessary.
Revise, with DOE guidance, the criteria at the plant for what
should be in the data base so that all sensitive equipment is
included in the data base. Furthermore, the 2-year useful life
criteria that exempts certain equipment should be dropped except
in special cases.
Institute system-level edits into the system to limit and prevent
unauthorized access. Such edits would also help prevent errors
from entering the system.
Develop guidance specifying the roles and responsibilities of
property management staff in retiring property.
DOE HAS NOT PROVIDED ADEQUATE
OVERSIGHT OF THE CONTRACTOR'S
PROPERTY MANAGEMENT SYSTEM
============================================================ Chapter 4
DOE's oversight of EG&G's property management system has been
ineffective in three areas reflecting the low priority that DOE has
assigned to property management at Rocky Flats. First, DOE has
allowed EG&G, contrary to departmental regulations, to operate
without detailed written procedures for its different property
management activities, including its property tracking, inventory,
and retirement functions. Second, DOE has not reviewed EG&G's
property management system within the first year of the contract, as
specified in departmental regulations. Third, DOE has not ensured
timely correction of property management weaknesses identified in
previous DOE reviews. This lack of oversight which enables EG&G to
operate with an inadequate and informal property management system
precludes DOE from ensuring that government-owned property at the
plant is properly accounted for.
DOE HAS ALLOWED EG&G TO OPERATE
WITHOUT DETAILED WRITTEN
PROPERTY MANAGEMENT PROCEDURES
---------------------------------------------------------- Chapter 4:1
DOE regulations require that a contractor develop written procedures
as an essential component of its property management system. The
written procedures provide detailed guidance to contractor staff on
how specific activities, such as property tracking, inventorying, and
retirement, are to be conducted. The procedures also provide both
the contractor and DOE a means of ensuring that all property items
are completely, accurately, and consistently accounted for--from
their acquisition to their retirement. According to a DOE official,
such procedures should be developed within the first several months
after a contract is initiated. However, DOE has allowed EG&G to
proceed with property management operations at Rocky Flats for nearly
4 years without detailed written procedures in place.
Soon after EG&G's contract began, DOE required EG&G to develop
written property management procedures, and EG&G agreed to do so no
later than September 1990. However, DOE Rocky Flats officials told
us that over the course of EG&G's contract period, DOE has requested
but not insisted that EG&G complete the procedures. DOE's reasoning
has been that EG&G lacked sufficient staff resources to both develop
these procedures and complete other higher-priority activities such
as property inventories. Furthermore, DOE Rocky Flats officials told
us that they did not ask EG&G to increase its property management
staff to write procedures because plant priorities emphasized
increasing funds for other programs, such as environmental health and
safety activities, while reducing costs in administrative activities,
including property management.
Because DOE has allowed EG&G to continue property management
operations without written procedures in place, problems have
developed. For instance, as previously discussed, no one at EG&G
performs an overall review of the accuracy and completeness of
retirement work order packages before items are retired. Without
performing these overall reviews, EG&G cannot ensure that items'
retirements are appropriate and justified. The lack of written
procedures which clearly delineates responsibilities among plant
personnel was a contributing cause to this condition.
DOE HAS NOT REVIEWED EG&G'S
PROPERTY MANAGEMENT SYSTEM
---------------------------------------------------------- Chapter 4:2
DOE regulations also require DOE to review the contractor's property
management system within 1 year of the beginning of the contract.
The purpose of this review is to determine whether this system
adequately protects, maintains, utilizes, and disposes of
government-owned property in accordance with federal regulations and
DOE directives. Following this review, if DOE does not approve the
contractor's property management system, then DOE is required to
advise the contractor in writing of deficiencies and to establish a
time schedule for completing corrective actions.
DOE Rocky Flats had reviewed Rockwell's property management system as
late as 1989 but had not begun performing a similar review of EG&G's
system until February 1993, more than 2 years after it was required
to have completed it. According to the DOE Rocky Flats property and
information management branch chief, DOE had planned to but did not
review EG&G's property management system earlier for several reasons,
including a lack of DOE staff. This official said that DOE Rocky
Flats requested staff assistance as early as December 1990 but did
not get any additional staff resources until late 1992. As a result,
DOE Rocky Flats began the review in February 1993 and expects to
complete it in March 1994.
Because DOE's review of EG&G's property management system has not yet
been completed, the Department cannot be certain that it is fully
aware of the weaknesses associated with that system. If DOE had
performed this review earlier, it could have identified sooner the
property management areas needing improvement. In addition,
performing a review of the property management system earlier would
have demonstrated to EG&G that DOE was concerned about adequate
property management at the plant.
CORRECTIVE ACTIONS TO IMPROVE
PROPERTY MANAGEMENT HAVE NOT
BEEN TIMELY
---------------------------------------------------------- Chapter 4:3
DOE has not ensured the timely correction of property management
weaknesses identified in previous DOE reviews. First, DOE has not
ensured that EG&G correct weaknesses identified in DOE's 1989
property management system review. Second, DOE has not corrected its
own property management oversight weaknesses identified in its
Federal Managers' Financial Integrity Act (FMFIA) reports. As a
result, longstanding property management deficiencies at Rocky Flats
have continued.
CONTRACTOR DEFICIENCIES HAVE
GONE UNCORRECTED
-------------------------------------------------------- Chapter 4:3.1
DOE has not ensured that EG&G adequately implemented the corrective
actions required in response to DOE's 1989 property management review
of Rockwell, the previous onsite contractor. In the 1989 review, DOE
made 30 recommendations related to property management weaknesses and
required EG&G to implement the related corrective actions after it
assumed operation of the plant. These recommendations spanned
numerous aspects of property management operations, such as the
tagging of government property, physical inventories, and property
tracking practices. EG&G initially expected to implement these
recommendations in 1990.
Since 1990, EG&G reported to DOE that it implemented 20 of the 30
recommendations, with 10 recommendations still in process.\1 The
in-process recommendations include implementing a system for tracking
property deliveries from the warehouse to the recipient and ensuring
that all employees were aware of their responsibilities for the care
of government-owned property. As of November 1993, DOE Rocky Flats
has not established any deadline for completing these open
recommendations but rather intends to repeat the open recommendations
in interim reports as it completes the on-going property management
system review. According to the DOE Rocky Flats property and
information management branch chief, DOE did not insist that EG&G
complete the open recommendations earlier because EG&G did not have
sufficient staff to address both the open recommendations and other
higher-priority property management activities such as conducting the
1993 inventory.
In reviewing the recommendations that EG&G claimed to have
implemented, we found that some of these were not adequately
completed. For example, responding to DOE's recommendations, EG&G
claimed to have (1) implemented appropriate system-level checks and
edits in its property tracking data base to prevent erroneous
entries; (2) ensured that all equipment requiring tracking was
tagged, with their serial numbers recorded in the property data base;
and (3) ensured that all property management, accounting, and other
personnel directly involved in property management-related activities
were properly trained. As discussed in chapter 3, serious
deficiencies continue to exist in these areas.
DOE officials told us that they have become aware, either through our
review or their own initiative, that some recommendations have not
been adequately completed. For that reason, DOE plans to require in
its interim reports that EG&G develop corrective actions and
timetables for completing those actions.
--------------------
\1 One of the 10 in-process recommendations requires EG&G to retire
items not located in the 1991 inventory. However, DOE subsequently
directed EG&G not to retire this category of missing property until
the end of the 1993 inventory cycle.
DOE DEFICIENCIES HAVE GONE
UNCORRECTED
-------------------------------------------------------- Chapter 4:3.2
DOE also has not taken adequate corrective action on deficiencies
cited in its FMFIA reports for 1991 and 1992. These reports
documented DOE's own assessment of whether its system of internal and
administrative controls complied with standards prescribed by us. In
each of these reports, DOE noted material internal control weaknesses
in its property management oversight activities at the Rocky Flats
Plant. Cumulatively, in its 1991 and 1992 FMFIA reports, DOE
identified 22 corrective actions needed to improve its oversight of
property management activities. These included, for example, hiring
additional DOE staff to ensure adequate oversight and conducting
follow-up DOE reviews to verify the completion of contractor
corrective actions.
As of November 1993, DOE reported that 13 of these corrective actions
had been completed and cited a lack of DOE staff resources as its
primary reason for not completing the remaining 9. DOE has slipped
its target completion dates for some corrective actions four times;
it estimates that it will complete the remaining nine corrective
actions by June 1994. These remaining corrective actions include
completing follow-up activities to its 1989 property management
review and developing and implementing a system for tracking all open
audit recommendations to resolution. Some of these corrective
actions, had they been completed on time, would have helped DOE
detect the many property management problems at the plant and oversee
EG&G's progress in resolving them.
CONCLUSIONS
---------------------------------------------------------- Chapter 4:4
DOE has made progress in improving the Rocky Flats Plant's property
management system, but the Department still has not provided adequate
oversight of that system. Not only has DOE allowed EG&G to operate
for nearly 4 years without detailed written procedures and an
approved property management system, but it has also not ensured
timely corrective action on previously identified property management
weaknesses. As a result, longstanding property management
deficiencies at the plant have continued, thereby fostering an
environment where government-owned property cannot be adequately
accounted for.
In order to improve DOE's oversight of property management at the
plant, DOE must give higher priority to resolving the property
management problems at the plant. DOE officials told us that one of
the primary reasons for these problems has been a lack of EG&G staff
and that staff increases were not feasible because of higher DOE
commitments to environmental health and safety issues over
administrative activities. In our view, the underlying problem is
not necessarily a lack of EG&G staff. A lack of commitment from DOE
to properly oversee property management appears to be the more
fundamental problem. DOE, in our view, could have exercised greater
oversight. For instance, DOE could have directed EG&G to focus its
attention on fixing those problems that were less staff intensive
such as developing written procedures. Furthermore, DOE could have
required EG&G to have sufficient inventory procedures in place before
conducting property inventories. Finally, DOE could have set
milestones for EG&G to complete corrective actions. Without a strong
commitment by DOE to establish an effective property management
system, problems such as those in this report are likely to continue.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 4:5
To improve DOE's oversight of property management at the Rocky Flats
Plant, we recommend that the Secretary of Energy direct DOE Rocky
Flats management to
place a higher priority on overseeing property management
activities at the plant. This may necessitate adjusting DOE
staff levels at the plant as well as setting milestones for
improving DOE's oversight and
require EG&G to (1) immediately develop written procedures for its
property management system, (2) submit its property management
system to DOE for review and approval, and (3) complete
corrective action on previously identified contractor property
management deficiencies.
MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I
RESOURCES, COMMUNITY, AND
ECONOMIC DEVELOPMENT DIVISION,
WASHINGTON, D.C.
--------------------------------------------------------- Appendix I:1
Jim Wells, Associate Director
William F. Fenzel, Assistant Director
Robert J. Baney, Assignment Manager
OFFICE OF GENERAL COUNSEL
WASHINGTON, D.C.
--------------------------------------------------------- Appendix I:2
Susan W. Irwin, Attorney
DENVER REGIONAL OFFICE
--------------------------------------------------------- Appendix I:3
James H. Solomon, Assistant Manager for Planning and Reporting
Cynthia S. Rasmussen, Evaluator-in-Charge
Christopher M. Pacheco, Senior Evaluator
Felicia A. Turner, Senior Computer Specialist
Douglas C. Hsu, Evaluator