oversight

Cooperative Threat Reduction: Review of DOD's June 1997 Report on Assistance Provided

Published by the Government Accountability Office on 1997-09-05.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   United States General Accounting Office

GAO                Report to Congressional Committees




September 1997
                   COOPERATIVE
                   THREAT REDUCTION
                   Review of DOD’s
                   June 1997 Report on
                   Assistance Provided




GAO/NSIAD-97-218
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      National Security and
      International Affairs Division

      B-277556

      September 5, 1997

      The Honorable Strom Thurmond
      Chairman
      The Honorable Carl Levin
      Ranking Minority Member
      Committee on Armed Services
      United States Senate

      The Honorable Floyd Spence
      Chairman
      The Honorable Ronald Dellums
      Ranking Minority Member
      Committee on National Security
      House of Representatives

      Section 1206 of the National Defense Authorization Act for Fiscal Year
      1996 requires the Department of Defense (DOD) to report annually on
      Cooperative Threat Reduction (CTR) assistance provided to Belarus,
      Kazakstan, Russia, and Ukraine. The legislation requires that DOD’s report
      (1) list CTR assistance provided before the date of the report, (2) describe
      the current location and condition of the assistance provided, (3) make a
      determination about whether CTR assistance has been used for the
      purposes intended, and (4) list CTR audit and examination activities to be
      carried out during the next fiscal year. While the legislation specifies that
      DOD submit its annual report on CTR assistance deliveries no later than
      January 31 of each year until the program ends, DOD did not issue its
      January 1997 report, covering calender year 1996, until June 25, 1997.

      The legislation also requires our office to assess DOD’s annual report and
      provide our results to Congress within 30 days. Accordingly, we have
      reviewed DOD’s latest report to determine whether it (1) contained current
      and complete data on CTR assistance deliveries, including the current
      location and condition of the assistance provided; (2) described how
      CTR-provided assistance was accounted for and used; (3) included an
      overall determination of whether the assistance was used for its intended
      purposes; and (4) provided a listing of future audit and examination
      activities. We have previously reported on DOD’s first two annual CTR
      reports.1


      1
       See Weapons of Mass Destruction: DOD Reporting on Cooperative Threat Reduction Assistance Can
      Be Improved (GAO/NSIAD-95-191, Sept. 29, 1995) and Weapons of Mass Destruction: DOD Reporting
      on Cooperative Threat Reduction Assistance Has Improved (GAO/NSIAD-97-84, Feb. 27, 1997).



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                       Under a 1991 congressional authorization, DOD provides assistance to the
Background             newly independent states of Belarus, Kazakstan, Russia, and Ukraine to
                       help them (1) destroy their weapons of mass destruction, (2) safely store
                       and transport the weapons in connection with their destruction, and
                       (3) reduce the risk of such weapons proliferation. Most CTR assistance is
                       provided in the form of goods and services, including equipment, logistics
                       support, materials, and training. Between fiscal years 1992 and 1997,
                       Congress has authorized over $1.8 billion to help DOD achieve CTR
                       objectives. As of July 1997, DOD had obligated over $1.4 billion of these
                       funds. Because DOD is responsible for reporting on the efforts made by the
                       United States to ensure that CTR assistance is appropriately used, its report
                       also includes some information on the science and technology centers2
                       and the nuclear material control, accounting, and physical protection
                       (MCA&PP) projects3 being implemented by the Departments of State and
                       Energy, respectively.


                       DOD’s June 1997 report (1) listed CTR equipment delivered by DOD and
Results in Brief       provided information on the location and condition of the equipment,
                       (2) described how such assistance was accounted for and used, (3) made
                       an overall determination that the assistance provided by DOD was
                       appropriately used, and (4) listed DOD’s future audit and examination
                       activities. However, we found that DOD’s report lacked detailed
                       information in the following areas:

                   •   The report did not contain specific data on some CTR-funded projects; for
                       example, information on the CTR-funded cash grant that DOD provided
                       directly to the Ukrainian Ministry of Defense was excluded. Also, the
                       report did not describe the types and values of CTR-funded assistance
                       managed by the Departments of State and Energy. Through 1996, such
                       assistance amounted to nearly $50 million for over 200 projects at the
                       international science centers, and over $43 million for a variety of MCA&PP
                       projects at 19 sites.
                   •   The report did not thoroughly describe how DOD accounted for CTR
                       assistance provided through the Departments of State and Energy. For
                       example, audits by the Defense Contract Audit Agency (DCAA) help

                       2
                        The International Science and Technology Center (ISTC) in Moscow, with branches in Belarus and
                       Kazakstan, and the Science and Technology Center of Ukraine (STCU) were established to provide
                       peaceful employment opportunities to weapons scientists and engineers involved with producing
                       weapons of mass destruction.
                       3
                        Until merged in fiscal year 1996, both the CTR-funded government-to-government program and the
                       Department of Energy’s lab-to-lab initiative provided assistance for protecting, controlling, and
                       accounting for nuclear materials in the former Soviet Union.



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                            account for CTR-provided assistance to the science centers, yet DOD did not
                            report the results of 17 International Science and Technology Center
                            project audits conducted by DCAA in 1996. Approximately half of the 17
                            audits found weaknesses in reporting labor charges of center grantees,
                            although to date, such weaknesses have posed no risk to CTR funding. Also,
                            DOD’s report did not describe the nature of the Department of Energy’s
                            assurance program used to monitor the assistance provided.
                        •   While DOD’s report lists planned DOD audit and examination activities, it
                            omitted those activities planned to account for CTR-funded assistance
                            provided through the Departments of State and Energy.


                            DOD’s  June 1997 report generally included detailed and comprehensive
Not All Data on             data on CTR equipment deliveries; however, information on a CTR-funded
Assistance Provided         cash grant to Ukraine was omitted. Although DOD obtained input from the
                            Departments of State and Energy because they had assumed responsibility
                            for implementing the international science centers and the MCA&PP projects
                            in fiscal year 1996, its report did not include the value or types of CTR
                            assistance provided through them.


Department of Defense       DOD reported that as of December 1996, it had delivered approximately
                            $228 million worth of CTR-funded equipment to the recipient countries.
                            Specifically, the report contains listings of equipment deliveries by
                            country, including the dollar value, delivery dates of the items provided,
                            and their location. The report also includes information on the
                            serviceability4 of equipment. CTR-provided equipment is used to implement
                            projects ranging from safely storing and transporting nuclear materials to
                            eliminating strategic offensive arms.

                            DOD omitted from its report a cash grant made directly to the Ukrainian
                            Ministry of Defense. According to financial statements provided by
                            Ukraine, over $5 million has been spent of the $10.3 million grant. This
                            grant was to support the final removal of nuclear warheads and nuclear
                            support equipment from Ukraine and the elimination of deployed SS-19
                            missiles. According to DOD, Ukraine’s agreement with Russia does not
                            allow foreigners to observe such dismantlement activities. Thus, DOD
                            awarded the cash grant to Ukraine instead of following its normal practice
                            of providing CTR-funded equipment and services.


                            4
                             “Serviceability” refers to the condition of the CTR-provided assistance. In those instances where
                            equipment is found to be inoperable or not used, DOD contractor personnel who provide logistics
                            support are notified to correct the problems.



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Department of State    According to the State Department, through 1996 nearly $50 million5 of CTR
                       funding was provided to help support the ISTC in Russia, including the
                       branch offices recently opened in Belarus and Kazakstan, and the STCU.
                       Although not described in DOD’s report, 130 of the 320 ISTC projects
                       underway received $41.5 million in CTR funding. The types of projects
                       involved include safely disposing of weapons-grade plutonium, improving
                       nuclear power safety, destroying chemical weapons, and protecting the
                       environment. Through 1996, the United States provided $8 million of CTR
                       funding to support 72 of the 87 ongoing STCU projects. These projects
                       cover such subjects as the application of physics to medical technology,
                       energy conversion, plasma sterilization, and information infrastructure.


Department of Energy   Although DOD’s June 1997 report listed the equipment delivered6 in support
                       of the MCA&PP projects administered by the Department of Energy, it did
                       not include the total value or describe the types of assistance provided.
                       For example, DOD did not report that through 1996, the Department of
                       Energy provided over $43 million7 worth of assistance to Russia, Ukraine,
                       Belarus, and Kazakstan. Of this amount, $14 million8 was used for
                       purchasing equipment, such as metal detectors, computers, and security
                       systems, and contracting directly with scientific institutes and labs in the
                       recipient countries to improve controls over nuclear materials. For
                       instance, a CTR-funded contract is helping the Luch Scientific Production
                       Association in Russia develop an integrated network to exchange data
                       between all computers on the network, thus enhancing material controls
                       for the entire site. At the Sosny Research Center in Belarus, CTR funding is
                       being used in the construction of a physical protection system for the
                       nuclear materials stored there.


                       As in prior years, DOD used information collected from audit and
Accounting for CTR     examination teams, logistics support teams and project managers, and the
Assistance             intelligence community to account for CTR assistance. For its latest report,


                       5
                        As of July 1997, DOD had obligated nearly $64 million of CTR funds for the science centers.
                       6
                        The value of the equipment delivered was over $4.3 million.
                       7
                        As of December 1996, DOD had provided the Department of Energy with over $81 million in CTR
                       funds to implement MCA&PP projects. In addition, for fiscal year 1997, the Department of Energy
                       planned to spend over $112 million of its own funding to improve the security of nuclear materials at
                       between 45 and 50 sites in the former Soviet Union and has requested $137 million for this effort in
                       fiscal year 1998.
                       8
                        The remaining $29 million was spent directly by the Department of Energy laboratories for their own
                       labor, travel, and equipment expenses associated with supporting the MCA&PP projects.



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                        DOD  also obtained input from the Departments of State and Energy
                        because they assumed responsibility for implementing the international
                        science centers and the MCA&PP projects in fiscal year 1996. The report,
                        however, did not explain how DOD accounted for a cash grant to Ukraine
                        or thoroughly describe how assistance to the science centers is monitored.
                        Also, the report did not provide details of the Department of Energy’s
                        assurance program.


Department of Defense   Through the end of 1996, DOD had completed a total of 28 audits and
                        examinations of CTR-provided equipment to the four recipient countries.
                        During 1996, audit and examination teams conducted 16 audits and
                        observed equipment such as cranes and cutting blades used to eliminate
                        silo launchers, and air samplers and protective clothing that would be
                        used in response to emergencies involving nuclear weapons and materials.

                        DOD used technical teams located at the logistics support bases to observe
                        how CTR assistance was being used. These contractor personnel conducted
                        approximately 115 visits to 51 different locations throughout Russia,
                        Kazakstan, and Belarus, including 24 separate locations in Russia. In
                        Ukraine, these teams visited 5 different sites on an average of
                        10 scheduled and 25 unscheduled maintenance repair calls per week.

                        CTR project managers also traveled to the recipient countries to monitor
                        the status of their projects and observe how CTR assistance was being
                        used. During 1996, project managers and government contractors took
                        19 trips to several sites throughout the 4 recipient countries. During these
                        visits a variety of projects were observed, including those designed to
                        eliminate strategic offensive arms, safely transport and store nuclear
                        materials, and restore the environment. In addition, personnel visited 14 of
                        the 24 defense conversion projects,9 including 3 housing projects in
                        Belarus and Ukraine.

                        DOD  also obtained information from the intelligence community. According
                        to the 1996 report, national technical means did not detect any diversions
                        of CTR assistance. Because more detailed information is classified, we do
                        not comment on it in this report.



                        9
                         As we reported in April 1997, we were unable to confirm that the defense conversion projects we
                        reviewed had any direct impact on eliminating or reducing weapons of mass destruction or other
                        military capability in the former Soviet Union. See Cooperative Threat Reduction: Status of Defense
                        Conversion Efforts in the Former Soviet Union (GAO/NSIAD-97-101, Apr. 11, 1997).



                        Page 5                                         GAO/NSIAD-97-218 Cooperative Threat Reduction
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                      DOD’s  report does not explain how DOD monitored $5.25 million of the
                      CTR-funded  grant to Ukraine. According to DOD, however, the DCAA audited
                      the financial statements for the $1.75 million spent during 1996 and plans
                      to audit the remaining funds this year. Furthermore, the Ukrainian
                      government has agreed to apply the remainder of the grant—about
                      $5 million—to the integrating contract for nuclear arms elimination. As a
                      result, these funds will be subject to DOD’s audit and examination process.


Department of State   According to the State Department, CTR-provided assistance to the
                      international science centers is monitored through annual financial and
                      project audits conducted by independent auditors as well as periodic
                      internal project reviews conducted by the science centers. DOD’s report
                      explained how the centers are monitored and provided some information
                      on the audits conducted. For example, the DCAA conducted the first annual
                      financial audit for the STCU10 and concluded that the financial statements
                      fairly presented the center’s financial position, operations, and cash flows.
                      Although DOD’s report mentions that the European Union would perform
                      the third annual ISTC financial audit, it does not mention that the European
                      Union auditors issued their report in April 1997 and found that the
                      financial statements fairly reflected the ISTC’s financial activities.11

                      While DOD’s report to Congress states that during 1996 DCAA assessed 17
                      ISTC projects at 7 locations,12 it did not provide a description of the audits
                      or the audits’ findings. These audits evaluated time recording procedures,
                      equipment accountability, and verifications of project labor and equipment
                      costs billed to the ISTC. In approximately half of the 17 audits conducted,
                      DCAA auditors found weaknesses in recording the labor charges of ISTC
                      grantees—they were working more hours than those billed. To date,
                      however, such weaknesses have posed no risk to CTR funding. In reviewing
                      these DCAA audits, the DOD Comptroller’s office also highlighted two other
                      issues—namely that (1) the ISTC should provide the DCAA auditors with lists
                      of equipment purchased for the projects and (2) Russian-speaking
                      technical experts should accompany the auditors in reviewing the
                      projects. According to an ISTC director, the center is taking measures to


                      10
                        DCAA conducted the first two annual ISTC financial audits.
                      11
                        However, in their report, the European Union auditors qualified the scope of their work because the
                      restricted access to the recipient institutes’ records did not permit them to verify whether the claims
                      made by the recipients’ institutes included reimbursements received from other sources during the
                      same period of time.
                      12
                       DCAA did not conduct any audits of STCU projects during 1996 as the center did not begin funding
                      projects until late in 1995.



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                       correct these problems. For example, the center has implemented an
                       internal control procedure designed to track the total number of hours
                       worked by grantees on ISTC projects.

                       As stated in DOD’s report, each of the centers also monitors its respective
                       projects to measure technical accomplishments and status and to resolve
                       difficulties. During 1996, ISTC staff conducted 40 annual and 12 closeout
                       audits and reported no significant findings. The STCU has just begun
                       monitoring its projects.


Department of Energy   Although the Department of Energy has drafted an assurance plan13 for
                       monitoring the CTR assistance provided to improve controls over nuclear
                       materials in the four recipient countries, this effort was not fully discussed
                       in DOD’s report. According to the report, Energy conducted a joint MCA&PP
                       audit with DOD during 1996 and planned to conduct additional joint audits;
                       however, the report did not explain that Energy expects to assume sole
                       responsibility for implementing audits of MCA&PP projects. Energy’s
                       assurance plan is intended to certify that the equipment, material, funding,
                       contracts, training, and other services provided are accounted for and
                       used for the purposes intended. Assurances that MCA&PP assistance is being
                       used properly can be obtained through a variety of methods, including
                       documentation, visits and visual observations,14 and contract monitoring.
                       Information obtained through such means can then be documented in an
                       assurance report. According to the Department of Energy, project
                       managers collect the necessary data, compile these reports, and provide
                       the documentation to the management of Energy’s MCA&PP task force. To
                       date, Energy has compiled about 200 assurance reports covering 50
                       projects. According to an Energy official, such reports indicate that the
                       CTR-provided assistance was being used for the purposes intended.



                       As required, DOD made a determination about whether CTR assistance was
Determination of       being used for the purposes intended. DOD reported that as of
Assistance Use         December 1996 it was confident that CTR-provided assistance had been
                       properly accounted for and used, in most instances, for the purposes
                       intended. However, it reported three incidents in which assistance had



                       13
                        The Department of Energy intends to use its assurance program to monitor both CTR- and
                       Energy-funded MCA&PP projects.
                       14
                        According to an Energy official, Energy technical teams make over 1,200 trips per year to 45 sites in
                       Belarus, Kazakstan, Ukraine, and Russia that receive MCA&PP assistance.



                       Page 7                                         GAO/NSIAD-97-218 Cooperative Threat Reduction
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                   been used improperly15 and the corrective measures taken. DOD based its
                   determination on a wide range of evidence obtained from audit and
                   examination and technical support teams, program and contractor
                   personnel, the intelligence community, and other government agencies
                   involved in implementing CTR projects. DOD acknowledged that the risk of
                   diversion exists, but believes that the cooperative relationship that it has
                   developed with the CTR-recipient country officials and its emphasis on the
                   audit and examination process help to ensure the appropriate use of
                   assistance. According to DOD, it remains reasonably confident that any
                   diversions of assistance would be discovered before U.S. interests were
                   affected. Because we could not validate DOD’s determination, we cannot
                   comment on its veracity; however, nothing came to our attention that
                   would call into question the reasonableness of the determination.


                   According to its report, DOD plans to conduct 17 audit and examination
Future Audit and   activities during calendar year 1997. Although not required to do so, DOD’s
Examination        report also includes a list of 17 planned audit activities for 1998. Both
Activities         listings provide a monthly breakdown of how many audits and
                   examinations DOD will conduct per year. As of July 1997, DOD had
                   conducted eight audits and examinations for 1997.

                   Although not mentioned in DOD’s report, auditors from the European
                   Union have agreed to conduct the annual financial audit of the ISTC for
                   1997. Furthermore, DOD, in consultation with the Department of State, has
                   requested that the DCAA conduct audits at 19 sites involving 25 ISTC projects
                   and conduct the 1997 annual financial audit of the STCU.

                   DOD’s report also omitted specific information on planned the Department
                   of Energy audit activities. An Energy official stated that the Department is
                   now strengthening its MCA&PP assurance plan to make it more
                   comprehensive and intends to issue the revised guidelines by
                   September 15, 1997. Moreover, Energy’s MCA&PP task force has appointed
                   an individual to consolidate the assurance reports on an annual basis.


                   To better inform Congress about how CTR-funded assistance has been
Recommendation     used, we recommend that the Secretary of Defense, in preparing future
                   reports on such assistance, provide more complete data on CTR-funded

                   15
                    CTR-provided equipment was accounted for and being used for the purposes intended, except for
                   data processing equipment provided to Kazakstan for export control purposes, emergency response
                   equipment provided to Russia, and equipment for dismantling nuclear delivery vehicles—a
                   crane—provided to Russia.



                   Page 8                                       GAO/NSIAD-97-218 Cooperative Threat Reduction
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                  projects managed by the Departments of State and Energy, including the
                  values and types of assistance, a detailed description of how the assistance
                  was accounted for, and information on future audit activities for the CTR
                  assistance they provide to the recipient countries.


                  In commenting on a draft of our report, DOD concurred with our findings
Agency Comments   and indicated that it was undertaking measures to improve future
                  reporting of CTR assistance with the other departments receiving CTR funds.
                  DOD suggested two technical clarifications, and we have incorporated them
                  in the text where appropriate. DOD’s comments are reprinted in appendix I.


                  In conducting our work, we reviewed DOD’s latest report to determine
Scope and         whether it (1) contained current and complete data on CTR assistance
Methodology       deliveries, including the current location and condition of the assistance
                  provided; (2) described how CTR-provided assistance was accounted for
                  and used; (3) included an overall determination of whether the assistance
                  was used for its intended purposes; and (4) provided a listing of future
                  audit and examination activities. We also reviewed various documents,
                  including DOD’s prior reports accounting for CTR-provided assistance, CTR
                  audit and examination trip reports, DCAA audit reports, ISTC annual reports,
                  and the Department of Energy assurance reports. We spoke with officials
                  from the Office of the Secretary of Defense, the Defense Comptroller’s
                  Office, the Defense Special Weapons Agency, the On-Site Inspection
                  Agency, the Departments of State and Energy, and the ISTC. Due to the
                  requirement that we comment on DOD’s report within 30 days, we did not
                  visit the recipient countries or meet with country officials to corroborate
                  the information contained in DOD’s 1996 report. Because intelligence
                  sources and methods are cited in the classified annex of DOD’s report, we
                  do not comment on the information contained in it.

                  We conducted our review during July and August 1997 in accordance with
                  generally accepted government auditing standards.


                  We are sending copies of this report to the Secretaries of Defense, Energy,
                  and State and other interested congressional committees. We will also
                  make copies available to others upon request.




                  Page 9                             GAO/NSIAD-97-218 Cooperative Threat Reduction
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Please contact me on (202) 512-4128 if you or your staff have any
questions concerning this report. The major contributors to this report
were F. James Shafer, Beth Hoffman León, and Jo Ann Geoghan.




Harold J. Johnson, Associate Director
International Relations and Trade Issues




Page 10                           GAO/NSIAD-97-218 Cooperative Threat Reduction
Page 11   GAO/NSIAD-97-218 Cooperative Threat Reduction
Appendix I

Comments From the Department of Defense




             Page 12      GAO/NSIAD-97-218 Cooperative Threat Reduction
           Appendix I
           Comments From the Department of Defense




(711285)   Page 13                              GAO/NSIAD-97-218 Cooperative Threat Reduction
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