oversight

Nuclear Security: DOE Oversight of Livermore's Property Management System Is Inadequate

Published by the Government Accountability Office on 1990-04-18.

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

                   United       States   General   Accounting   Office
                   Report to the Chairman, Subcommittee
GAO                on Oversight and Investigations,
                   Committee on Energy and Commerce,
                   House of Representatives
                            --.--
April   1990
                   NUCLEAR SECURITY
                   DOE Oversight of
                   Livermore’s Property
                   Management System Is
                   Inadequate




GAO,‘RCED-90-122
     l&sources, Community, and
     Economic Development Division

     B-232906

     April l&l990
     The Honorable John D. Dingell
     Chairman, Subcommittee on Oversight
       and Investigations
     Committee on Energy and Commerce
     Houseof Representatives
     Dear Mr. Chairman:
     This report respondsto your request that we determine the extent of property lossesat the
     Lawrence Liver-moreNational Laboratory and assessthe adequacy of the laboratory’s
     controls over government-owned property in its custody. The laboratory is owned by the
     Department of Energy and is operated by the University of California at Livermore,
     California. We also assessedthe adequacy of the Department’s oversight of the laboratory’s
     property managementsystem for government-owned properties. As agreed with your office,
     we will report separately on the lossesof and controls for special nuclear materials and
     classified documents.
     Unless you publicly announce its contents earlier, we plan no further distribution of this
     report until 30 days from the date of this letter. At that time, we will send copies of this
     report to appropriate congressionalcommittees; 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 Issues,
     at (202) 276-1441. Major contributors to this report are listed in appendix II.

     Sincerely yours,




     J. Dexter Peach
     Assistant Comptroller General




__
Ekecutive Summary


                   Inventories of government-owned equipment at the Department of
                   Energy’s (DOE)Lawrence Livermore National Laboratory located in
                   Liverinore, California, were acquired for over $903 million. In June
                   1988, the Subcommittee on Oversight and InvestigaGons,HouseCommit-
                   tee on Energy and Commerce,held hearings to investigate, among other
                   things, allegations that government-owned equipment at the laboratory
                   was being stolen to finance the purchase of illegal drugs.

                   Following these hearings, the Subcommittee Chairman requested that
                   GAOdetermine the extent of property lossesat the laboratory and assess
                   the adequacy of the laboratory’s controls over government-owned prop
                   erty in its custody. The Chairman expressedparticular interest in losses
                   of selecteditems, including word p mcessorsand typewriters, video
                   equipment, cordless hand tools, and highly explosive materials. In addi-
                   tion, GAOassessedthe adequacy of DOE’S  oversight of the laboratory’s
                   property managementsystem for government-owned properties.

                   The laboratory is a nuclear weapons research and development facility.
                   It is government-owned and contractor-operated by the University of
                   California. Under the contract, due to expire September30,1992, the
                   university is responsible for managing government-owned property at
                   the laboratory. DOE’sSan Francisco Operations Office has oversight
                   responsibility with respect to property managementat the laboratory.

                   DOEproperty managementregulations provide guidance on DOEstan-
                   dards, practices, and controls to be applied in the managementof gov-
                   ernment-owned property. The regulations state, for example, that
                   controls shall be established for (1) physically protecting property
                   against loss, theft, or unauthorized use and (2) taking physical invent+
                   ries of property, consistent with generally acceptedaccounting
                   procedures.

                   Laboratory management cannot account for a substantial amount of
Results in Brief   government-owned property in its custody. For example, as of mid-Jan-
                   uary 1990, laboratory managers could not locate 16 percent, or 27,628,
                   of the items recorded in the laboratory’s property managementdata
                   base.On the basis of the results of an internal laboratory inventory, this
                   missing property has an acquisition value of over $45 million. In addi-
                   tion, for the specific items of interest to the Subcommittee,GA0esti-
                   mates that the laboratory has lost accountability for about 14 percent of
                   them, worth about $2 miIlion when acquired. Despite the substantial
                        Executive Summuy




                        number of missing items, the contract between DOE and the university
                        generally protects the university against liability for such losses.
                        The laboratory doesnot have adequate accounting controls to ensure
                        that property in its custody is safeguarded against theft, unauthorized
                        use, or loss. In addition, there are insufficient physical controls to pre-
                        vent laboratory employeesand subcontractors from taking government
                        property from the premises without proper authorization.
                        DOE has not  provided adequate oversight of the laboratory’s property
                        managementsystem and, in essence,has allowed the university to pre-
                        scribe the terms of the contract. DOE has not required the laboratory to
                        conform with departmental property managementregulations, nor has
                        it approved the laboratory’s property managementsystem, as required
                        by regulation. Further, in lieu of the departmental property manage-
                        ment regulations, DOE has not developed or provided guidance to the lab-
                        oratory spelling out the criteria for performance of property
                        management functions. Consequently, EXNcannot ensure that the labo-
                        ratory is adequately safeguarding property in its custody.


principal Findings

Substantial Number of   A substantial number of government-owned items at the laboratory can-
                        not be located. The results of the laboratory’s comprehensiveinventory
Items Missing           of all the property contained in its managementdata base show that
                        about 6 percent of the capital equipment items, 20 percent of the non-
                        capital items, and 3 percent of the attractive items were missing as of
                        mid-January 1990. (In general, capital equipment denotes property with
                        an acquisition cost of $6,000 or more; non-capital equipment denotes
                        property with an acquisition cost of between $600 and $6,000; and
                        attractive items include those with an acquisition cost of at least $160
                        and judged by laboratory managers as prone to theft.) This missing
                        property has an acquisition value of $20.6 million, $24 million, and $3
                        million, respectively. The laboratory’s inventory also shows that a sub-
                        stantial number of the specific items of interest to the Subcommittee
                        cannot be located. For example, as of mid-January 1990, the laboratory
                        was missing 206 typewri~rs/word processors, 841 items of video equip
                        ment, and 3,677 calculators. The results of GAO'S independent statistical
                        analysis verify that a substantial number of the items of interest to the
                        Subcommittee cannot be located. On the basis of GAO'S sample of 276


                        P8ge 3                            GAO/acED-mlee Lhwmom Pmperty Bhnagement
                           items of interest contained in the property managementdata base,GAO
                           estimates that 6,868 items with an acquisition cost of about $2 million
                           are ltlissing.
                           GAO could not  determine the extent of missing items for someproperty
                           such as hand tools and video tapes. No consistent data are collected on
                           acquisitions of these items, and tool acquisitions are made by numerous
                           organizational units that use different control procedures. Similarly, ~2~0
                           could not determine whether any highly explosive materials were miss-
                           ingbecausethedatanecessaq todosoarenotmaintained.
                           Despite the fact that a substantial number of government-owned prop
                           erty items at the laboratory cannot be located, the contract between DOE
                           and the university generally places the risk of such lossesupon the gov-
                           ernment. According to the contract, the university is at risk only if the
                           loss of government property is the result of willful misconduct or bad
                           faith by corporate officers. To date, none of the missing items at the
                           laboratory have been attributed to these reasons.


           Controls Over   Property controls at the laboratory do not ensure that govemment-
                           owned property is adequately safeguarded. For example, the laboratory
                           doesnot have laboratory-wide pohcies and procedures for controlling
                           items with an acquisition cost below $1,000. Becausecontrol of these
                           items is left up to individual user groups, no coirsistent data on their
                           acquisition are collected. Consequently, it is difficult to identify how
                           many of these items have been purchased. Similarly,     GAO   found that the
                           laboratory does not independently verify government-owned invento-
                           ries of precious metals such as gold and platinum that are in the custody
                           of subcontractors. As a result, the laboratory cannot readily verify the
                           reasonablenessof reported consumption of these metals.
                           GAO also found  that individuals leaving the laboratory site face little risk
                           of having their vehicles searched.Consequently, the likelihood of
                           detect@ theft of government property also Fem8LTL8    low. For example,
                           in 1088 about 17 vehicle searcheswere conducted daily-a small
                           number compared to the approximately 7,000 vehicles that enter and
                           leave the laboratory daily.


Inadequate Oversight of    In order to retain the University of California’s services,DOEdid not
                           require inclusion of its standard property managementprovision in the
the Laboratory             contract with the university. This provisiOn, nOImdy included in all DOE


                           p-4
                  Fhecntlvesununuy




                  management and operating contracts, requires contractors to operate in
                  accordancewith departmental property management regulations. In lieu
                  of this provision, the contract provides for a “mutually approved sys-
                  tem.” The terms neededfor approval of this system, however, were
                  never developed nor agreed upon. Further, although the university was
                  opposedin principle to the inclusion of federal property management
                  procedures in the contract, it indicated its willingness to consider such
                  procedures when developing and implementing its own procedures and
                  manuals if guidance was provided by DOE. However, DOE never provided
                  this guidance to the laboratory.

                  BecauseDOE has not developed or reached agreement on the terms for a
                  “mutually approved system” nor approved the property management
                  system that the laboratory is using, it has no clear criteria against which
                  to judge and assesscontractor performance. Consequently, it cannot
                  ensure that the laboratory’s system provides the samelevel of protec-
                  tion as that provided by federal and departmental regulations.


Recommendations   GAO makes a number of recommendations in chapters 2 and 4 to the Sec-
                  retary of &IergY on actions to StN?I@hen   oversight of the labora-
                                                             DOE'S
                  tory’s property management system. These recommendations include (1)
                  identifying areas in the laboratory’s property managementsystem that
                  do not provide the same level of protection for government-owned prop
                  erty as that provided by federal and departmental regulations, (2)
                  advising the laboratory of identified deficiencies and establishing a
                  mutually *       upon time frame for completing the corrective actions,
                  and (3) clearly defining, with the agreement of the laboratory, the terms
                  and provisions of the “mutually approved system.”

                  GAO ciiscwd     the factual information contained in a draft of this report
Agency Comments   with responsible DOE and laboratory officials. DOE officials generally
                  agreed with the facts presented, noting that while the information was
                  hard hitting, it was factually correct. Laboratory offxials made a
                  number of specific comments regarding the factual accuracy of the
                  information presented. GAO reviewed these comments and made changes,
                  as appropriate. Laboratory officials noted, in particular, that the recon-
                  ciliation processis ongoing and that a number of capital and attractive
                  items have been located since midJanuary. GAO notes this in the body of
                  the report but was not able to verify the updated figures before the
                  report was issued. As requested, GAO did not obtain official agency com-
                  ments on the report.


                  P8ge 5                           QAo/ItcEDm11LlvemomPrqaerty     bfuu@ment
contents


Executive Summary
Chapter 1                                                                                      10
Introduction              Background
                          Federal Property ManagementResponsibilities and
                                                                                               10
                                                                                               11
                              Requirements
                          Categoriesof Property and Property Management                        13
                              Controls
                          Objectives, Scope,and Methodology                                    16

Chapter 2                                                                                      17
A Sub&anti&     NW&r      Results of Physical Inventory Show a Substantial Number              17
                              of Missing Items
of Items at the           Inventory Also Shows a Substantial Number of Missing                 19
Laboratory Are                Special Interest Items
Missing                   Amount of SomeMissing Property Cannot Be Reliably                    21
                              Estimated
                          Reported Lossesof Precious Metals Are Low                            21
                          NoLossesof precursOr Chemicals Were Found                            21
                          Conclusions                                                          23
                          Recommendations                                                      24

Chapter 3                                                                                      26
The Laboratory Does       Criteria for AssessingProperty ManagementControIs at
                               the Laboratory
                                                                                               26
Not Have Adequate         Property ManagementManuals Are Not Adequate                          26
Property Controls         Property ManagementControls Are Not Adequate or                      27
                               Effectively Implemented
                          Conclusions                                                          32

Chapter 4                                                                                      34
WE    Has Not   provid&   DOE Did Not Require Inclusion of Its Standard Property               34
                              Management Provision in the Contract
Adequate Oversight of     Terms for the “MutuaIly Approved System” Have Not                    36
the Laboratory                J3=WP=dUpon
                          The Operations Office Has Not Ensured Corrective Action              37
                              on AU Identified Deficiencies
                          Conclusions                                                          39
                          Recommendations                                                      39



                          Pye 0                          GAO/limwo4P   Livermm Property rhMgement
Appendixes   Appendix I: Methodology Used to Examine the              42
                Laboratory’s Property ManagementData Base and
                Procurement System
             Appendix II: Major Contributors to This Report           60

Tables       Table 2.1: Summary of Missing Equipment as of Mid-       18
                 January 1999
             Table 2.2: Summary of Items of Interest Missing          20
                 Following the Laboratory’s Inventory
             Table 2.3: Results of GAO Sample of Items of Interest
             Table 3.1: Vehicle Searchesat the Laboratory, 1986-89    iii
             Table 1.1:GAO Universe of Items of Interest              43
             Table 1.2:Results of GAO Sample of Items of Interest     44
             Table 1.3:Estimated Missing Non-Capital and Attractive   46
                 Items
             Table 1.4:Estimated Acquisition Cost of Missing Non-     46
                 Capital and Attractive Items
             Table 1.6:Number of Line Items in the Universe and the   47
                 Sample
             Table 1.6:Number of Estimated Equipment Items and        47
                 Acquisition Cost in PARIS Universe
             Table 1.7:Equipment Items and Associated Acquisition     48
                 Cost in the PARISSample
             Table 1.8:Estimated Number and Percent of Items Not      48
                 Recordedon the Data Base
             Table 1.9:Estimated Acquisition Cost of Items Not        49
                 Recorded on the Data Base
The Lawrence Livermore National Laboratory is a government-owned,
contractor-operated nuclear weapons research and development facility.
Government-owned equipment inventories at the laboratory have an
acquisition cost of over $903 million. They are located in over 400 build-
ings and trailers on a one-squaremile site in Livermore, California, and
at a nearby test site.
This large complex is operated by the regents of the University of &Ii-
fornia under a “cost plus a fixed management allowance” contract with
the Department of Energy (DOE).' Under the contract, (1) the contractor
is responsible for managmg government+wned property at the labora-
toryand(2) ~~~ha~therighttoovemee        andensure the effective man-
agement of such property. In addition to the contract, federal and
departmental regulations outline DOE'S responsibilities with respect to
managementof government-owned property, including property man-
aged by contractors.
We were asked by the Chairman of the Subcommittee on Oversight and
Investigations, HouseCommittee on Energy and Commerce,to determine
the adequacy of the laboratory’s property controls and the extent of the
property 1~. The Subcommittee expressedparticular interest in the
lossesof selectedproperties, including computers, word processorsand
typewriters, video equipment, cordless hand tools, precious metals,
chemicals that can be used to manufacture i&gal drugs, and highly
explosive materials.

The Lawrence Livermore National Laboratory was established in 1962
as a nuclear weapons research and development fatAli@. Its overall mis-
sion is to serve as a scientific, technical, and engineering resource for the
federal government, particularly as these functions relate to national
security. M&n- programs at the laboratory inch& (1) resear&, devel-
opment, and testing fksmcM& with nuclear weapons, (2) inertial con-
finement fusion directed at understanding weapons physics, (3) laser
isotope separation, and (4) magnetic fusion energy and other energy
research programs.
The laboratory has been operated since its establishment by the regents
of the University of California. The contract is subject to renewal every
                                       -
                         6 years. The current contract was signed on September 18,1987, and
                         expires September 30,1992.


                         Federal requirements for control and accountability of government-
Federal Property         owned property are contained in the Federal Property ManagementReg-
Management               ulations (41 CFRChapter 101) issued by the U.S. General Services
Responsibilities and     Administration. The Department of Energy Property ManagementRegu-
                         lations (41 CFRChapter 109) are consistent with the federal regulations
Requirements             and serve to implement and supplement them. The regulations set forth
                         the responsibilities and general policies that the Department must follow
                            managing government-owned property. They cover, among other
                         znhings,DOE's property managementprogram objectives and responsibili-
                         ties, personal property managementstandards and practices, and con-
                         tractors’ personal property managementprograms.


Program Objectives and   The objectives of DOE'S property managementprogram are two-fold.
Responsibilities         They are (1) to provide a system for effectively managing government
                         personal property in the custody or possessionof DOE organizations and
                         DOE contractorS  and (2) to provide uniform principles, policies, stan-
                         dards, and procedures for economical and efficient managementof gov-
                         ernment personal property that are sufficiently broad in scopeand
                         flexible in nature to facilitate adaptation to local needsand various
                         kinds of operations.
                         Responsibility for ensuring that these objectives are met is shared
                         between DOE headquarters and its field offices. At headquarters, the
                         Director, Property and Equipment Division, is responsible for, among
                         other things, developing and maintaining departmental personal prop
                         erty policies, standards, and procedures and conducting reviews and
                         appraisals of departmental personal property management functions.

                         The heads of DOE field offices,2in turn, are responsible for establishing
                         and adminkering a personal property managementprogram within
                         their organizations which will provide for effective managementof gov-
                         ernment personal property in the custody of DOE and DOE contractors,
                         consistent with applicable laws and regulations. They are also responsi-
                         ble for developing and maintaining complete and accurate inventory


                         2”Headaof field off&s,” atedefined by departmentalregulation, are the headsof any DOEoffice
                         locatedoutsidethe Wahington, DC., metrogditan area



                         Page 11                                   GAO/BcED90122 Livenwre         Property   Management
                                  control and accountability record systems and conducting periodic man-
                                  agement reviews to ensure compliance with prescribed policies, regula-
                                  tions, standards, and procedures. In addition, contracting officers at the
                                  field offices are generally directed to ensure that all contracts that
                                  involve property contain the Department’s standard property clause,
                                  which, among other things, requires a contractor to maintain and admin-
                                  ister a property management system in accordancewith sound business
                                  practice and in accordancewith DOEproperty managementregulations.


Personal Property                 Subpart 109-1.61of DOE’sregulations provides general guidance on DOE
Management Standards              standards and practices to be applied in the managementof government-
                                  owned personal property. This subpart covers, among other things, the
and Practices                     identification and marking of government property, the physical protec-
                                  tion of such property, and the physical inventorying of property, consis-
                                  tent with generally acceptedaccounting procedures. For example, the
                                  regulations state that controls shall be established for identifying and
                                  marking government property as such and that property susceptible to
                                  unauthorized personal use, such as hand tools, should be considered for
                                  marking as U.S. Government property, and by numbering for control
                                  purposes. The regulations also state that controls such as property pass
                                  systems and perimeter fencing shall be established to prevent loss, theft,
                                  or unauthorized movement of property from the premises on which such
                                  property is located.


Policy and Responsibilities Subpart 109-1.62of DOE’S regulations prescribes policy and responsibili-
for Contractors’ Personal   ties for the establishment, maintenance, review, and appraisal of a con-
                            tractor’s program and system for the managementof government
Property Management         personal property. Specifically, this subpart states that
PrOgramS
                                  “(a) Contractors shall establish, maintain, and administer a program for the effec-
                                  tive management of government personal property consistent with the terms of the
                                  contract and directives for the contracting officer.

                                  “(b) Contractors shall maintain their personal property management systems in
                                  writing on a current basis.

                                  “(c) Contractors shall require those subcontractors provided government property
                                  under the prime contract to establish and maintain a system for the management of
                                  such property. Procedures for assux4ngeffective property management shall be
                                  included in the contractor’s property control system.”




                                  Pue 18
                           Both the contractors’ and subcontractors’ systems for property control
                           are to provide for, at a minimum, adequate records, controls over acqui-
                           sitions, identification as government property, physical inventories, and
                           proper care, maintenance, and protection. The systems are also sup
                           posed to provide for reporting, redistributing, and disposing of excess
                           and surplus property and a retirement work procedure to account for
                           property that is worn out, lost, stolen, destroyed, abandoned,or dam-
                           aged beyond economical repair. Periodic reporting of physical inventory
                           results and of the total acquisition cost of government property is also
                           required as is an internal surveillance system to ensure that property is
                           being managed in accordancewith established procedures.


                           Property acquired at the laboratory is placed in one of several catego-
Categories of Property     ries-capital equipment, non-capital equipment, attractive items,
~dproperty                 “other” equipment, and special materials items. For control purposes,
Management Controls        these categories are either centrally controlled, user controlled, or spe-
                           cially controlled.


Categories of Property     The basic categoriesof property at the laboratory are defined as
                           follows:

                         . Capital equipment denotesproperty or equipment items with an acquisi-
                           tion cost of $6,000 or more and a useful life of 2 years or more. Exam-
                           ples of items fitting this category include x-ray generators and
                           oscill~pes. As of mid-January 1000 the laboratory had an inventory
                           of 30,362 capital items with a total acquisition cost of $681 million.
                         9 Non-capital equipment generally denotesproperty or equipment items
                           with an acquisition cost of $600 or more. The laboratory further divides
                           this category into two sub-categories-low value equipment and minor
                           equipment. In general, propem costing between $1,000 and $6,000,
                           with a useful life of 2 years or more, is referred to as low value equip
                           ment and includes such items as sophisticated photographic equipment
                           and selectedtypewriters. In contrast, minor equipment generally has an
                           acquisition cost of $600 to $899 and includes such items as personal
                           computer software, printers, and modems.As of mid-January 1900 the
                           laboratory had an inventory of 129,086 non-capital items with a total
                           acquisition cost of $187 million.
                         . Attractive items, also known as sensitive items, include those that cost
                           at least $160 (with no upper limit) and are judged by laboratory mana-
                           gers as prone to theft or misuse. As of mid-January 1900 the laboratory
                           had an inventory of 14,638 attractive items with a total acquisition cost


                           Pye 18
                          of $36.3 million. The attractive items list changes periodically but cur-
                          rently includes binoculars, still cameras,cellular telephones,telescopes,
                          video cameras,tape recorders and players, personal computers, and
                          electronic balances.
                      l   “Other” equipment includes property costing below $600 that is not
                          labeled as “attractive.” This equipment is not categorized,per se, by the
                          laboratory. Examples of such property include cordless hand tools and
                          video tapes. Becausethe laboratory does not inventory items costing
                          below $600, other than the attractive items, the total acquisition cost of
                          this property is not known.
                      l   Special materials items include special nuclear materials such as pluto-
                          nium, precious metals such as gold and silver, and chemicals that could
                          be used to manufacture illegal drugs. Chemicals that can be used to
                          manufacture illegal drugs are known as precursor chemicals. As of the
                          end of fiscal year 1989, the laboratory had an inventory of approxi-
                          mately 1.6 million grams of precious metals with a market value of
                          about $10.2 million. The laboratory maintains similar data on special
                          nuclear materials but that information is classified. Comparable data on
                          precursor chemicals are not maintained by the laboratory.


Property Management       For control purposes, the various categoriesof property at the labora-
                          tory are either centrally controlled, user controlled, or specially con-
Controls                  trolled. In general, centrally controlled items include capital, non-capital,
                          and attractive items. Minor equipment and property with an acquisition
                          cost below $600 are user controlled. Special materials items are specially
                          controlled.

                          Laboratory procedures require centrally controlled items to be tagged
                          (labeled) with a DOE identification number and entered on the labora-
                          tory’s property management data base, called the Movable Equipment
                          Management Information Center. Items on the property management
                          data base are inventoried every 2 years, except attractive items, which
                          are inventoried annually. The laboratory reconciles and reports lossesof
                          capital and attractive items to DOE. Losses of these items are written off
                          in the property management data base.Lossesof non-capital items are
                          neither reconciled nor written offjn the property management data
                          base.

                          Items that are user controlled differ from centrally controlled i terns
                          largely in that they are neither tagged with a DOE identification number
                          nor entered on the property managementdata base.Someof these items
                          are engraved with “LLNL” (which stands for Lawrence Livermore


                          Page 14                           GAO/BCEDB@1!22
                                                                         Livenmore Property   .Manqpment
                      National Laboratory) or receive other permanent markings identifying
                      them as government property.
                      Special controls exist for each of the special materials items. For exam-
                      ple, special nuclear materials have specific physical and accounting con-
                      trols outlined in DOEOrders. Further, controls for precious metals are
                      specified by the laboratory’s Materials Management Division and con-
                      trols for precursor chemicals are specified by the laboratory’s Chemical
                      Tracking committee.

                      In a July 12,19SS, letter, the Chairman of the Subcommittee on Over-
Ob&xtives,Scope,and   sight and Investigations, HouseCommittee on Energy and Commerce,
Methodology           asked us to assessthe adequacy of controls at the Lawrence Livermore
                      National Laboratory to protect government property in its custody and
                      to determine the extent of property lossesat the laboratory. The Chair-
                      man expressedparticular interest in lossesof the following items:

                      Computers and computer equipment, including hand-held computers
                      and calculators.
                      Specializedtechnical equipment, e.g., balance scalesand measuring
                      devices.
                      Word processorsand typewriters.
                      Photographic equipment.
                      Video equipment, including recorders, monitors, and tapes.
                      Cordless hand tools.
                      Precious metals.
                      Chemicals that could be used to manufacture illegal drugs.
                      Highly explosive materials.

                      The request was made following June 16,19SS, hearings on the labora-
                      tory’s and DOE’S termination of operation Snowstorm, an undercover
                      investigation of alleged drug activities at the laboratory. During the
                      hearings, the Subcommittee Chairman expressedconcern about allega-
                      tions that equipment and other items was being stolen to finance the
                      purchase of illegal drugs by laboratory employees.We also assess4 the
                      adequacy of DOE’S oversight of the laboratory’s property management
                      system for government-owned properties. As subsequently agreed with
                      your office, we plan to report separately on lossesof and controls for
                      special nuclear materials and classified documents.

                      We performed our work at DOE headquarters, the DOE San Francisco
                      Operations Office in Oakland, California, and the Lawrence Livermore
Laboratory in Livermore, California, from December1988 to January
1990. This work was done in accordancewith generally acceptedgov-
ernment auditing standards.

To determine the adequacy of controls and oversight for government-
owned property at the laboratory, we reviewed, analyzed, and discussed
with DOE and laboratory officials: (1) GAO standards for internal controls
in the federal government,3federal property managementregulations,
and the current contract for management and operation of the labora-
tory and (2) written laboratory policies and procedures for management
of govemment+xvned property. In addition, we reviewed recent nor3
property system appraisals, University of California internal audit
reports, and DOEInspector General reports as well as related reports by
private consulting firms pertaming to property management at the labo
ratory. We also reviewed DOE'S fiscal years 1988-M annual statements
and reports required by the Federal Managers’ Financial Integrity Act
@IA)of 1982 to identify property managementcontrol weaknessesand
actions taken or planned to resolve them. None of the FM reports identi-
fied property management control weaknesses.

To determine the extent of laboratory property losses,we audited inven-
tory data basesand analyzed theft statistics and procurement transac-
tions. We used a statistical sample of the items of interest that are
centrally controlled to determine the extent of losses.This sample
allowed us to estimate lossesfor the universe of these items. Appendix I
contains a more detailed discussion of the sampling methodology we
used. Since the laboratory maintains no data baserecords for most prop
erty costing less than $1,000, we were unable to determine 1~ for
such items as cordless hand tools and video tapes. We did, however, test
the system of controls for these items at the user level by tracing indi-
vidual procurements to the user level to confirm whether or not pur-
chased items were on hand. For the special materials that are not
managed as part of normal property management activities, we
reviewed internal reports of lossesand related controls.




P8ge 16
Chapter 2

A Substantid Number of Items at the
Laboratory Are Missing

                        A substantial percentage of government-owned property is missing from
                        the laboratory. The results of the laboratory’s comprehensive inventory
                        of all the property contained in its property management data base
                        show that about 6 percent of the capital equipment items, costing $20.6
                        million; 20 percent of the non-capital items, costing $24 million; and 3
                        percent of the attractive items, costing $.8 million, were missing as of
                        mid-January 1990. Our independent statistical analysis also confirms
                        that a substantial number of the items of interest to the Subcommittee
                        cannot be located. These unaccounted-for items do not include potential
                        lossesof items that are not controlled on the laboratory’s property man-
                        agement data base.For example, we could not determine the extent of
                        missing items for someproperty such as hand tools, nor could we deter-
                        mine whether there were any video tapes missing. Despite the substan-
                        tial number of missii items, the contract between DOE and the
                        university generally protects the university against liability for such
                        losses.


Results of Physical     comprehensive (wall-towall) inventory of all the property contained in
Inventory Show a        the property managementdata base,the Movable Equipment Manage-
Substantial Number of   ment Information Center (MEMIC),and reconcile all relevant property
                        control and financial accounting records1 In May 1989, the laboratory
Missing Items           began the physical inventory.

                        Table 2.1 summarizes the results of the laboratory’s inventory as of
                        mid-January 1990,2at which time the laboratory could not locate a total
                        of 27,628 items, or 16 percent of the items recorded in the property
                        management data base.This missing property has an acquisition value
                        of over $46 million-6 percent of the total acquisition value of all the
                        property in the data base-and consists of about 6 percent of the labo-
                        ratory’s capital equipment items, 20 percent of the non-capital items,
                        and 3 percent of the attractive,items. For capital and attractive equip-
                        ment, these missing items have accumulated since 1987, when the last

                        ‘Recondliationrequirrathatanexhaustive~confinnthatitemsareactuallymissingsothata
                        losscanberecordedinpropertyandf~               ==-m3systems.
                        2The physical inventory of items in the pwpezty maq@men t data base was completed in May 1989.
                        Following the inventory, ~oftheitemsbegsnandtsstillongdng.InMarch1990,labora-
                        toryo~~toldusthatsincemMJsrmary199otheyhad~someofthe~capitaland
                        attra&veitma.TheymaJntalnthatthepercentpimiasing~ftena,hps                  deaased from 6 per-
                        cent to about 1.9 pexent, the percent of misdng atmbctive items from 3 peramt to 2.4 percent, and
                        theperoentofnoncrpitplitenrsfrom#)perantto18.2~.Becaueethiereportwasinfinal
                        p~rrtthetimethesengureswereprovidedtoua,wewereunabletovwifythembeforeour
                        reportwasimued.



                        Page 17                                       tao/llCED&l88 lhermore Roperty Mana8ement
                                  inventory was completxxL3Becauselossesof non-capital items have not
                                  been reconciled by the laboratory nor written off in the property man-
                                  agement data base,missing non-capital items at the laboratory could
                                  include items that have been missing since the early days of the
                                  laboratory.
 Table 2.1: summary of Mwng
 EquIpmat as of Mid-Jmunry 1820   Dollars in millions
                                                                lmfentoq               Miuinp ewivment
                                  ~hoory                     Numbs      Value    Number Percent   Value Percent
                                  Capital                      30,362   $660.7     1,605       5   $20.6      3
                                  Non-capital                 129,066    187.0    25,516      20    24.0     13
                                  Attractive                  14,638  35.3           407       3       .a     2
                                  Total                      174086 swJ2.o        27,528           $45.4


                                  In November 1988, the laboratory agreed with DOE’S San Franci~co Oper-
                                  ations Office to reconcile all capital, non-capital, and attractive equip
                                  ment upon completion of the inventory. Subsequently, however, it
                                  decided not to reconcile non-capital equipment that is more than 6 years
                                  6ld. According to laboratory officials, this change was made becauseof
                                  the extensive resourcesthat would be required to make a reconciliation
                                  of all non-capital equipment and becauseDOE regulations do not require
                                  reconciliation of noncapital items by management and operating con-
                                  tractors. DOE Operations Office officials told us, however, that the issue
                                  of non-capital reconciliation is not resolved; they continue to believe
                                  that all missing non-capital equipment should be reconciled. Conse-
                                  quently, they have not yet approved the laboratory’s plan to reconcile
                                  only non-capital equipment that is less than 6 years old.

                                  Unless all noncapital equipment is reconciled, there is no way to obtain
                                  an accurate picture of actual lossesof such items and accounting records
                                  cannot be a@sted to accurately reflect the results of the inventory.
                                  Further, part of obtaining a more accurate picture of unlocated non-cap
                                  ital items during an inventory period is the establishment of an “accept-
                                  able” loss standard for non-capital equipment. Up until March 1990, the
                                  laboratory had not established such a standard. At that time, the labora-
                                  tory established a loss standard of 2 percent for non-capital items pur-
                                  chasedwithin the last 6 years; it did not establish a similar standard for
                                  non-capital items purchased before the &year period. (DOE has not yet




                                  P8ge 18



. .--
                         approved this standard.) Becausethis standard does not apply to all
                         non-capital items, an accurate picture of actual lossesof such items can-
                         not be obtained. Given that the laboratory cannot account for 20 percent
                         (as of mid-January) of its non-capital equipment, reconciling such equip
                         ment and the establishment of a loss ratio standard for all such equip
                         ment would help to demonstrate the laboratory’s commitment to
                         managing government-owned property in accordancewith good busi-
                         nesspractices.

                         Further, for comparison purposes, the laboratory’s current acceptable
                         loss standard for the number of capital equipment items that can be
                         missing from inventory is .6 percent. The laboratory’s inventory results
                         as of mid-January 1990 show that the number of missing capital equip
                         ment items was 6 percent, or 10 times the acceptablestandard, demon-
                         strating that the laboratory’s actual loss ratio for capital equipment was
                         substantially higher than the acceptablelevel. According to laboratory
                         officials, the number of missing capital items has decreasedsince that
                         time to about 1.9 percent (as of March 16,1990), largely as a result of
                         ongoing reconciliation. However, even with such a decrease,the number
                         of missing capital equipment items is still about three times the labora-
                         tory’s prescribed loss ratio standard.


                         The laboratory’s inventory of all the property contained in the property
Inventory Also Shows     data base also shows that a substantial number of the specific items of
a Sub&a&al Number        interest to the Subcommittee cannot be located. Of the items of interest,4
of Missing Special       the following are contained in the data base:
Interest Items       .   Computers and certain computer-related equipment.
                     .   Specialized technical equipment (e.g., balance scalesand measuring
                         devices).
                         Word processorsand typewriters.
                         Photographic equipment.
                         Video equipment, including recorders and monitors.

                         Due largely to the fact that the laboratory does not maintain the inven-
                         tory records neededto determine losses,we could not determine the

                         4C%rtainitemsofinteresttotheSubcommittee      do not flt excbively into a given category of prop
                         erty. For example, personal computem are dedgwtd as at&active items. However, other computers,
                         flepawgontheircostandleveIofsophi&icPtlon,are          axm&red to be either capital or norwapital
                         eql&ment. stmil8rly, word proceaom and phowgqw           equipment m8y fall intO different categories,
                         depending on their co& The m&&y of items of interest to the SuMttee           fit into either the non-
                         capital or attwtive property categories.



                         P8ge 19
                                          number of missing items for the remaining items of interest-video
                                          tapes, cordless hand tools, precious metals, chemicals that could be used
                                          to manufacture illegal drugs, and highly explosive materials.

                                          Table 2.2 shows the results of the laboratory’s inventory of items of
                                          interest to the Subcommittee, as of mid-January 1990.
Table 2R: summaty   of Items of hterest
                                                                                                          Nunaerof
                                                                                                   misahglWns                AcquisRlon cost
                                          Microcomputers                                                           49                 686,055
                                          Micro accessories                                                      969                1,612,941
                                          Video equipment                                                        641                1,018,669
                                          Tvoewriters/word orocessors                                            205                  191.117
                                          Balance scales                                                          101                  68.768
                                          Cameras/related equipment                                              388                  104,991
                                          Calculators                                                          3,677                  224,915
                                          Total                                                                6.260              S3.307.276°
                                          %cludes some capital equipment end other oste9ories of equipment that were excluckd from the uni-
                                          verse from which our sample was taken; therefore, the results sre not directly compsrabfs with our
                                          sarn@e results.

                                          The results of our independent statistical analysis verify substantial
                                          lossesof the items of interest to the Subcommittee. We statistically sam-
                                          pled 276 items of interest from the property managementdata base.Of
                                          these items, the laboratory could not locate 38 (14 percent) of them.
                                          Table 2.3 shows the results of our sample.
TabfeR3:RosatsofaAOEampkof
ltemsofI-
                                                                                         YZt                                     A~UlOitbl
                                                                                             ample          mia~
                                          Mimputers                                                  81                  1             $1,249
                                          Micro accessories                                          69                  4              2,848
                                          Video equipment                                            36                  5              4,557
                                          Typewriters/word processors                                21                  3              1,195
                                          Balance scales                                              7                  0                   .
                                          Cameras/related    equipment                               10                  2                512
                                          cakulators                                                 52                 23              2,471

                                          OM;;bE;p,           modular                                 0                  0                     0
                                          TOWI                                                   276                    26           $12,662




                                          P-e   20
                       On the basis of our sample of items of interest contained in the property
                       management data base, we estimate that 6,868 items with an acquisition
                       cost of about $2 million cannot be accounted for. Appendix I provides
                       additional details on these estimates.


                       We could not determine the extent of missing items for someproperty
Amount of Some         such as cordless hand tools, nor could we determine whether there were
Missing   Property     any video tapes missing. No consistent data are collected on acquisitions
Cannot Be Reliably     of these items, and tool acquisitions are made by numerous organiza-
                       tional units that use different control procedures. For example, one type
Estimated              of cordless hand tool-a Makita cordless power drill-is acquired and
                       stocked centrally at a laboratory store-type facility, but it has also been
                       purchased by other organizational units using blanket purchase orders.
                       Many items purchased under blanket purchase orders, as discussedin
                       chapter 3, are not identified individually in the property management
                       data base.Consequently, it is difficult to tell how many of these items
                       have been purchased or lost. In essence,control over these items has
                       been lost.

                       Similarly, we could not determine whether any highly explosive materi-
                       als or precious metals were missing; the data necessaryto determine if
                       lossesof highly explosive materials have OcculTedare not maintained.

                       Unexplained lossesof precious metals-i.e., the difference between
Reported Lossesof      inventory and reported usageas determined by the Laboratory’s Mate-
Precious Metals Are    rial Management Division- have been low. For fiscal years 1987-89,the
LOW                    laboratory’s highest unexplained loss occurred in 1987. This loss, with a
                       market value of about $13,900, was .13 percent. However, while docu-
                       mentation for the acquisition and consumption of precious metals is
                       maintained and periodically verified by physical measurementof the
                       quantities on-hand, reports of consumption of the metals are not inde-
                       pendently verified. Without verification there is no way to ensure that
                       the reported consumption is accurate.

                       We did not identify any lossesof chemicals that can be used to manufac-
No Lossesof Prewrsor   ture illegal drugs. These include barbituric acid, benzyl chloride, pento-
Chemicals WeE Found    barbital, and morpholine. They are tracked from ordering through
                       delivery. In 1937, the laboratory formed a chemical tracking committee
                       to control and monitor procurement, receipt, and delivery of chemicals
                       that can be used to manufacture illegal drugs. The committee developed


                       Page 21                          GAO/BCElM%l22   Ltvenmm? Property Muu@ment
                        chapter 2
                        ASubatanthlNumberofIte~rtthe
                        ---YAnu




                        controls for 27 chemicals that it identified as precursors. In September
                        1988, the laboratory further improved controls to prevent possible mis-
                        use of precursor chemicals by
                        limiting procurement to special orders by five persons (designated by
                        the procurement manager);
                        issuing instructions to suppliers to provide these chemicals through spe-
                        cial orders only;
                        establishing procedures to hand-carry the chemicals to users, obtain
                        signed receipts, and place the chemicals under lock and key;
                        eliminating precursor chemicals as a stock item in laboratory stores; and
                        quarterly reporting of precursor chemical purchasesto the laboratory’s
                        security office for monitoring and investigating purchasesthat appear
                        to be unusually large or otherwise suspicious.

                        According to the laboratory’s procurement manager and the labora-
                        tory’s chief investigator, the purchase of precursor chemicals is infre-
                        quent and the quantity ultimately purchased is small, largely because
                        such items are seldom used at the laboratory. Most chemists use non-
                        controlled substitute chemicals in their work, if needed.The laboratory’s
                        chief investigator told us that he is confident that existing controls are
                        working as intended and that no illegal drug manufacturing is going on
                        at the laboratory.
                        We reviewed two 1989 safeguards and security reports (January and
                        June) for precursor chemical purchases and verified that the quantities
                        purchased since the control system was implemented have been very
                        small. We also verified that signature receipt records were maintained
                        and matched with purchase reports for precursor chemicals.


                        Although a substantial percentage of government-owned property is
The University Is       missing from the laboratory, the contract between DOE and the univer-
Essentially Protected   sity generally places the risk of lost, damaged,or destroyed property
                        upon the government. Specifically, the contract between DOE and the
Against Liability for
LOSSeS
                        “The University shall not be liable for loss or destruction of or damageto Govern-
                        ment Property in the University’s possessionor custody unless such loss, destruc-
                        tion or damageis caused directly by bad faith or willful misconduct on the part of
                        someCorporate Officer or Officers of the University or of any person acting ss Lab-
                        oratory Director, or unless such loss, destruction or damage results from a willful
                        failure on the part of someCorporate Office or Officers of the University or of any



                        P8ge 22
              chpterz
              ASabmtantlalNomberofIteme~tthe
              L8bor8tory Am Misdng




              person acting as Laboratory Director, to take reasonable steps to comply with any
              appropriate written directives of the Manager, San Francisco Operations . . . , to
              safeguard such property . . . .”

              According to a September 1989 DOE Inspector General’s report,5 DOE’S
              fundamental indemnification policy is, with few exceptions, to com-
              pletely indemnify its managementand operating contractors, bear sub-
              stantially all risks, both nuclear and non-nuclear, and pay all costs
              associatedwith running its facilities. DOE’S contract with the university
              is no exception to this fundamental policy. At the laboratory, none of
              the missing items have been attributed to bad faith or willful miscon-
              duct on the part of the university or laboratory directors. Consequently,
              the cost, accountability, and responsibility for these missing items is
              ultimately DOE’S. Moreover, the San FIancisco Operations Office has not
              provided written directives to safeguard government property in the
              university’s possessionor custody, as provided for in the contract.

              On January 26,1990, the Secretary of Energy proposed an amendment
              to the Department’s acquisition regulations that would make manage-
              ment and operating contractors liable for certain costs, claims, and lia-
              bilities currently reimbursed by DOE. These proposed nonreimbursable
              costs include lossesof government property resulting from theft, embez-
              zlement, or unauthorized use. However, as written, this proposed rule
              would affect only those contractors that receive profits under their con-
              tracts. Consequently, according to DOE’S Director, Office of Review and
              Analysis, even if this proposed rule becomesfinal, it will not affect
              property management at the laboratory since the university operates
              the laboratory on a nonprofit basis.


              Becausethe contract between DOE and the university essentially protects
Conclusions   the university against the risk of lost, damaged,or destroyed property,
              the university’s accountability for missing items at the laboratory is
              minimal. Similarly, the incentive to limit abuseof such property is also
              minimal.
              DOE has the  authority to include in its managementand operating con-
              tracts risk-of-loss provisions that would require a contractor to more
              closely managegovernment property in its custody. However, in the


              Q&RU@Z&IXI of the Departmentof Energy’sWt           and OperatU Contractors(Sept.19W,
              DOEInspecmrGeneral.



              Page 28                               GAO/ItCED#122    Liwxmme   Property Management
                       -2
                       ASabmuntidNamberofItemaatthe
                       L8bomtory AN3 Mhsing




                       caseof the Lawrence Livermore National Laboratory, the contract lan-
                       guage makes DOE liable for the loss of property almost without excep
                       tion. The contractor is currently at risk only for willful misconduct by
                       corporate officers. It is not at risk for lack of prudent businessjudg-
                       ment. In our opinion, by negotiating and accepting the terms of the cur-
                       rent contract’s risk-of-lm provision, DOE forfeited a significant
                       opportunity to enhancethe accountability of the university with respect
                       to government-owned property at the laboratory.


                       To enhance accountability over governmentowned property at the labo-
Recomxnendations       ratory, we recommendthat the Secretary of Energy direct the San Fran-
                       cisco Operations Office Manager to

                   . provide appropriate written directives to the university to safeguard
                     and protect government property in the university’s possessionor cus-
                     tody as provided for in the current contract and
                   l modify the contract with the university in 1992 by identifying addi-
                     tional circumstances under which the contractor will be held liable for
                     the loss of government-owned property in its custody.




                       P8ge 24                         GAO/IWEMlbl~   Livmmom Property ru8Mgement
The Laboratory Does Not Have Adequate
property Controls

                      The Lawrence Liver-moreNational Laboratory does not have adequate
                      controls to ensure that property in its custody is safeguarded against
                      theft, unauthorized use, or loss. For example, the laboratory has not
                      tagged, marked, or otherwise identified as government property someof
                      the items it has acquired for use in weapons and energy research and
                      development. Further, there are no laboratory-wide policies and proce-
                      dures for controlling items with an acquisition cost below $1,000; as a
                      consequence,no consistent data are collected on their acquisition. The
                      laboratory also doesnot independently verify the consumption of pre-
                      cious metals such as gold and platinum held by laboratory employees.
                      Moreover, an audit trail doesnot exist by which lossesof highly explo-
                      sive materials can be detected and measured. In addition, there are
                      insufficient physical controls to prevent laboratory employees and sub-
                      contractors from leaving the laboratory with government property
                      without proper authorization. When such we&nesses are taken
                      together, the likelihood of detecting theft of government property is low.


    I for Assessing
Criteria              ifomia sets out the rights and responsibilities of the two parties with
Property Management   respect to property and propem management.The language in the
Controls at the       clause is general and the clause covers a number of topics, including the
                      identification and protection of government property and property man-
Laboratory            agement.Although the contract between DOE and the University of Cali-
                      fornia for managing and operating the laboratory states that the
                      university shall take all reasonableprecautions to safeguard and protect
                      government property in the university’s posses&onor custody-as
                      dire&d by DOE, or in accordancewith sound businesspractice-it does
                      not further define what is meant by “reasonable precaution” or “sound
                      businesspractice.”
                      Criteria do exist, however, against which to assesswhether government
                      property is being adequately safeguarded and protected. In GAO'S Stan-
                      dards for Internal Controls in the Federal Government, for example, we
                      note that as part of safeguarding and protecting government property,
                      adequate internal controls are neededto help prevent against waste,
                      loss, unauthorized use, and misappropriation of assets.Internal control
                      techniques include, but are not limited to, such things as specific poli-
                      cies, procedures, plans of organization(including separation of duties),
                      and physical arrangements (such as locks and fire alarms). In addition,
                      the DOE property management regulations discus& in chapter 1 pro
                      vide a framework for assessingthe adequacy of property controls. Fur-
                      ther, in early September 1988, DOE's San Francisco Operations Office
                         -3                                                                          .
                         TheL&mmtoqDoeeNotEaveAdequt.e
                         Propetty- Controb




                         requested the accounting firm of Deloitte, Haskins, and Sells to provide
                         guidance on what constitutes an effectively functioning property control
                         system. In its September 27,1988, responseto DOE’S request, the firm
                         stated that positive answers to the following questions, among others,
                         would be an indication of an effectively functioning property control
                         system.
                     . Are adequate accounting records maintained regarding the description,
                       value, location, etc., of each item of property?
                     l Are physical controls adequate to keep property from being removed
                       without authorization?
                     l Are accurate physical inventories of all property taken regularly, and
                       are the accounting records adjusted to the results of the physical
                       inventory?
                     . Is the loss/misplacement of property identified during physical invento-
                       ries consistently negligible?

                         The laboratory has two internal manuals that address property manage-
PropertyManagement       ment-the Administrative Policies and ProceduresManual and the
ManualsAreNot            Office ProceduresManual. While both manuals provide broad state-
Adequate                 ments of policies and pmcedums for property management,they are
                         ambiguous and do not include the specific steps that users should follow
                         in managing property. For example, the Admin&rative Manual includes
                         a brief description of the property management data base.But it does
                         not explain how the data baseis to be used to support property controls,
                         what types of equipment or property are to be recorded in the data
                         base,or what controls are to be applied to property that is not recorded
                         in the data base.We were told by laboratory property management
                         office officials that, in addition to these manuals, a &aft document enti-
                         tled “LLNL[Lawrence Livermore National Laboratory] Property Manage-
                         ment Task Procedures” is a source of guidance for property controls.
                         Although this draft guidance contains more detailed property manage-
                         ment functions than either of the two manuals, it is not comprehensive.
                         For example, the task procedures contain a detailed description of how
                         attractive property will be controlled and how physical inventories will
                         be taken of attractive and capital equipment, but the draft does not
                         establish controls for property that does not fall into these two
                         categork?s.




                         P8ge 26                          GAo/-mED-m122   LIvemom   Property Management
                            Weaknessesin the laboratory’s property managementmanuals were also
                            found by the accounting firm of Coopersand Lybrand in 1988,’ a review
                            conducted at the request of laboratory management.While the firm’s
                            final report did not identify significant weaknessesin the substanceof
                            the laboratory’s property managementpolicies and procedures, it noted
                            that neither of the laboratory’s property managementmanuals presents
                            the specific steps that a user must follow to conduct property manage-
                            ment-related activities. To improve the existing policies and procedures,
                            Coopers and Lybrand recommendedthat the laboratory consider (1)
                            consolidating the property management-related sectionsof these manu-
                            als into a single volume so that the property managementpolicies and
                            procedures in both manuals provide exactly the same information and
                            (2) strengthening the tone and format of the manuals to improve their
                            effectiveness. Although laboratory officials agreed with these recom-
                            mendations, they did not implement them. The reason given for not act-
                            ing on the recommendations was inadequate staff and funds.


Property Management         theft, unauthorized use, or loss becausepolicies and procedures either
Controls Are Not            are not adequate or have not been effectively implemented. We found
Adequate or                 weaknessesin specific property controls for centrally controlled, user
                            controlled, and some specially controlled items. For example, we found a
Effectively                 34 percent error rate in the laboratory’s property managementdata
Implemented                 base when we attempted to verify inventories of the items of interest to
                            the Subcommittee. We also found weaknessesin physical controls in that
                            individuals leaving the laboratory site face little risk of having their
                            vehicles searched.When such weaknessesare taken together, the likeli-
                            hood of detecting theft of government property is low.


             Controls for   Laboratory controls for centrally controlled items-generally those with
&ntpllv-= F
          Amtrolled Items   an acquisition cost greater than $1,OOO-are not adequate to protect
                            government-owned property, as indicated by the large number of items
AreN ‘ot Followed           included in our statistical sample which were not at the location
                            indicated.
                            Centrally controlled items are supposedto be recorded in the labora-
                            tory’s Movable Equipment ManagementInformation Center data base.
                            The system includes data on the type of item, location, and operating

                             ~~~wre!nazLivermore Nation& Laborataies     Review and Analyds of the Property Management Func-
                            -tion (Nov. 2,lf488), Caopers and Lybrand.



                            P8ge 27                                      GAO/EED@O-122Ltvennore Roperty Management
                            condition. procedures call for property expediters2to report property
                            movement and other changesin status so that the system can be
                            updated and used as a source for inventory.

                            Data accuracy is a necessarycomponent of an effectively functioning
                            property control system. Without accurate data, there is no assurance
                            that property is being properly and effectively managed.However, we
                            found a 34 percent error rate in the laboratory’s property management
                            data base when we attempted to verify inventories of the items of inter-
                            est to the Subcommittee. (Seeapp. I.) One in 3 of the 276 items included
                            in our statistical sample was not in the location indicated in the data
                            base.Further, it took laboratory property managementpersonnel sev-
                            eral months to locate over half of the 94 misplaced items; the remaining
                            38 missing items-14 percent of the 276 items included in our sample-
                            have not been located.

                            Laboratory officials are aware that property expediters do not always
                            report relocations of centrally controlled property as required. And, in
                            their opinion, this is the most likely causeof the property not being at
                            the location indicated in the data base.To help address this problem,
                            laborato~property managementofficials told us that they are consider-
                            ing forwarding a proposal to laboratory managementthat would replace
                            the current property expediters, who perform this function in addition
                            to their regular duties, with about 30 full-time people. Although they
                            would like these positions to be new positions, they said that budget
                            constrainti may not allow for this.


Laboratory Controls for     Laboratory controls for user-controlled items-generally those with an
                            acquisition coat below $l,OOO-are not adequate. The laboratory has no
User-Controlled Items Are   laboratory-wide policies and procedures for controlling these items; con-
Not Adequate                trol is left up to individual user groups3 Further, not all tools purchased
                            through blanket purchase orders have been marked as government
                            Property.
                            Neither of the two property managementmanuals nor the task proce
                            dures manual provides guidance on how to control the majority of items




                            P8ge 28                          GAO/RCED4&122 Llvermore Roperty Muuqemant
                          costing below $1,000.4Becausecontrol of these items is left up to indi-
                          vidual user groups, no consistent data are collected on acquisitions of
                          these items. Therefore, it is difficult to tell how many of these items
                          have been purchased by the laboratory. For example, cordlesstool
                          acquisitions are made by numerous organizational units that use differ-
                          ent procurement procedures. To illustrate, one type of cordless hand
                          tool-a Makita cordless power drill-is acquired, permanently marked
                          as government property, and stocked centrally at a laboratory store-
                          type facility. However, this tool has also been purchased by other orga-
                          nizational units using blanket purchase orders. Items purchased through
                          blanket purchase orders may or may not be marked as government
                          property, depending on the user group. Such orders expedite procure-
                          ments from local sourcesoutside the normal competitive procurement
                          process,but the laboratory’s procurement data base for managing blan-
                          ket purchase orders does not identify the individual items purchased.
                          The loss of accountability for items purchased with blanket purchase
                          orders is potentially significant. The laboratory told us that it has
                          approximately 1,700 materials and equipment purchase orders with a
                          funding level of $40 million. (This excludes blanket purchase orders
                          involving utilities and services.)
                          We also found that not all tools purchased through blanket purchase
                          orders have been marked as government property. For example, of the
                          10 cordless hand tools that we attempted to trace from blanket purchase
                          order transactions to the organizational unit that purchased them, we
                          could verify only that 5 were on hand, and of these, only 1 was perma-
                          nently marked as government property. Similarly, of the four items of
                          computer equipment that we attempted to trace, only one was on hand
                          and it was not marked as government property.


Laboratory Controls for   Laboratory controls for somespecially controlled items, including highly
                          explosive materials and precious metals, are not adequate to ensure
SomeSpeciaUy Controlled   against loss or misuse. First, as with user-controlled items, there are no
Items Are Not Adequate    laboratory-wide policies and procedures for accounting for highly explo
                          sive materials. Consequently, different procedures have been developed
                          by those laboratory organizations responsible for controlling such mate-
                          rials, resulting in the lack of full accountabihty.
The I&oratory   Doea Not Have Adequate
Property Chtrob




While the laboratory has no record of lossesof highly explosive materi-
als, the control system for these materials is not adequate to ensure that
losseshave not occurred. Within the laboratory, controls and accounta-
bility for highly explosive materials are delegated to six different orga-
nizational units that use the materials. Each unit has different control
procedures for storing and handling highly explosive materials. Further,
five of the units do not require periodic verification of quantities on
hand against inventory records. Moreover, one of the five units doesnot
maintain records on the quantities of highly explosive materials that it
receives and disburses. Without such information an audit trail cannot
be established by which lossescan be detected and measured.
With respect to precious metals, we found that weaknessesin the labo-
ratory’s controls for such metals may have allowed undetected losses.
(Precious metals include platinum, gold, silver, rhodium, osmium, irid-
ium, ruthenium, and palladium.) Specifically, we found that the labora-
tory does not independently verify government-owned inventories of
precious metals in the custody of subcontractors nor does it require the
284 users of precious metals to maintain a log showing the individual
user, type, and form of metal and the time, place, and purpose of each
use. As a result, the laboratory cannot readily verify the reasonableness
of reported consumption of these metals.

Recordsof a subcontractor with a large platinum inventory, for exam-
ple, indicated no usageof the material for a 7-year period. The subcon-
tractor subsequently reported that the entire inventory-with an
acquisition cost of $76,000-was used during a 6-month period to make
glass for lasers to be used at the laboratory. The laboratory’s precious
metals manager questioned this much usagein such a short period and
told us that someof the platinum may have been used for customers
other than the laboratory. While a subsequentinvestigation of this inci-
dent by the DefenseContract Audit Agency did not indicate that any of
the platinum had been used for other customers,the Agency found that
the contractor did not separately account for government-owned prop
erty in its possessionduring the period audited. Consequently, there was
no way to readily verify the reported consumption of the government-
owned platinum.

In addition, we observed an inventory verification procedure for pre-
cious metals to determine if it reasonably assured that such metals were
appropriately used and consumedat the laboratory. At the conclusion of
the weighing, the inventory technician told the user how much less pre-
cious metal was on hand than was indicated in inventory records. The


Pyle 30                                  GAO/lKXD@H22
                                                Lhnno   n Ropertv   MMasement
                           ‘Ibe Laboratory Does Not Have Adequate
                           Propdy controls




                           user replied that this missing quantity-four grams of rhodium-had
                           been used in experiments. Given this statement, the inventory techni-
                           cian recorded the adjusted inventory by subtracting the “consumed”
                           quantity and prepared a form to record this amount as a write-off.

                           We asked the user’s superior, who signed the writeoff document, if the
                           signature certified the accuracy of the reported usage.This individual
                           said that the procedure means that he has general knowledge of what
                           the user is doing and that the reported usageseemsto be reasonable;
                           however, his signature is not a certification that the amount written off
                           has actually been used as reported. We do not believe that this proce
                           dure provides a reasonable assurancethat such metals have been appro-
                           priately used and consumed.

                           A 1988 study conducted by Vierra Investigations,6an investigative ser-
                           vices firm, cautioned that the laboratory’s system for controlling pre-
                           cious metals is based on a high degreeof trust and noted that there is
                           somevulnerability to theft due to the nature of precious metals use and
                           the difficulty in verifying use. It concluded that this vulnerability is
                           greatly reduced by supervisory/managerial review of precious metals
                           use. In responseto this study, the laboratory concluded that while this
                           report was extremely candid and offered an independent third-party
                           view of property managementprocedures at the laboratory, theft of
                           property at the laboratory is “not at a level which would suggesta
                           marked inadequacy of the current physical protection of [the] property
                           system.” Consequently, the laboratory did not change its procedures for
                           controlling precious metals.


Physical Controls Over     Physical controls over exiting vehicles at the laboratory are not ade-
Exiting Vehicles Are Not   quate to ensure against theft. Specifically, individuals leaving the labo-
                           ratory site in vehicles face little risk of having them searched.
Adequate                   Consequently, the likelihood of detecting theft of government property
                           also remains low.
                           Laboratory security statistics indicate, as shown in table 3.1, that while
                           the number of vehicle searcheshas increased every year except one
                           since 1986, the number has remained small relative to the number of
                           vehicles that move through the laboratory daily. For example, in 1983,
                           the year of the greatest number of searches,about 17 vehicle searches

                           5&m        uvemm    NM      Laboratory: Theft/Loss Vulnerabili~ Amlysis (Nov. 19881,Vierra
                           IlWm       rc3.



                            P8ge 31                                 GAOjXCED8@122 Livermore property lbfamwment
                              -3
                              TheL&watmyDoesNotJiweAdequate
                              Pmperty Co&rob




                              were conducted each day.6Approximately 7,000 vehicles enter and sub-
                              sequently leave the laboratory daily. According to laboratory security
                              officials, fewer gate searcheswere made in 1989 becauseof increased
                              security requirements elsewhere in the laboratory, leaving fewer
                              officers available for gate vehicle searches.Table 3.1 shows the number
                              of searchesfor the last 4 years.
T8bi83.1:wlkJa&ucho8tim
Labaawy, lffl-89              Yew                                                                                          smmchea
                              1986                                                                                               1.211
                              1987                                                                                               21739
                              1980                                                                                               4,321'
                              1989                                                                                               1.379
                              aExcludes searches for one facility within the laboratory complex where all vehiis are routinely
                              searched. At this facility, 4,929 searches were conducted during 1988 and 4,219 during 1989.

                              Further, only about one-half of the searchesmade during each year
                              (1986-89) were exit searches.J&it searchesare supposedto deter theft
                              of government property and classified materials. Entry searches,on the
                              other hand, are aimed at preventing anyone from bringing in contra-
                              band--firearms, explosives, listening devices, cameras,and drugs.
                              Given that only about one-half of the searchesmade during each year
                              were exit searches,it is questionable how effective such searchesare in
                              deterring theft of government property and classified materials.

                              The laboratory does not have an effectively functioning property con-
Conclusions                   trol system. Property controls are inadequate and a substantial number
                              of items are missing, as discussedin chapter 2. Moreover, positive
                              answers cannot be provided to the questions of:
                          l Are adequate accounting records maintained regarding the description,
                            value, location, etc., of each item of property7
                          . Are physical controls adequate to keep property from beii removed
                            without authorization?
                          l Are accurate physical inventories of all property taken regularly, and
                            are the accounting records adjusted to the results of the physical
                            inventory?

                              %aaed an the Vierra Inv~ns          report data of 260 bushens days and the laboratory’s vehicle
                              seprch~.~laboratory’satotbtiesindudeseprchcsforboshthelpboratoryandSite300.)
                              Thevierraxnv~reportrecanmendedthatofthe                   approldmptely 7,000 vehicles entering and
                              zysz                  the bbomtmy daily, at least 1 percent, or 70 vehicles, should be stopped and
        l   Is the loss/misplacement of property identified during physical invento-
            ries consistently negligible?

            While it is the university’s responsibility to take all reasonable precau-
            tions to safeguard and protect government property in its custody, it is
            DOE's responsibility to ensure that the university does so. It is also DOE’S
            responsibility to ensure that the laboratory’s property ckntrol system is
            effective. In chapter 4, we discusshow DOE has fallen short of meeting
            these responsibilities and provide recommendations to DOE on ways to
            improve property controls at the laboratory.




            P8ge 88



__--.
DOE Has Not provideded
                     Adequate Oversight of
the Laboratory

                       DOEhas not adequately overseenthe laboratory’s property management
                       system. DOEdid not require inclusion of its standard property manage-
                       ment provision in the contract with the University of California. This
                       provision, normally included in all DOEmanagementand operating con-
                       tracts, requires that a contractor maintain and administer a property
                       management system in accordancewith sound businesspractice and in
                       accordancewith DOE’Sproperty managementregulations. Moreover, in
                       lieu of this provision, DOEhas not developed or provided guidance to the
                       laboratory, spelling out alternative criteria for performing the labora-
                       tory’s property management functions. Furthermore, even though the
                       contract between DOEand the university provides for establishing a
                       “mutually approved system” for property management,the terms of
                       this system have not been developed nor agreed upon. In addition, the
                       Operations Office has not ensured corrective action of deficiencies iden-
                       tified during its appraisals of the laboratory’s property management
                       system. As a result, DOEcannot provide assurancethat govemment-
                       owned property at the laboratory is being adequately safeguarded and
                       protected.


                       The DOESan F’ranciscoOperations Office did not require inclusion of its
DOE Did Not Require    standard property managementprovision in the contract with the Uni-
Inclusion of Its       versity of California. The contract was signed on September 18,1987,
Standard Property      and expires September30,19!32. !l’his provision, which the regulations
                       generally require DOEto include in its management and operating con-
Management Provision   tracts, states that
in the Contract
                        “The contractor shall maintain and administer a property management system, sub-
                       ject to the approval of the contracting officer, of accounting for and control, utiliza-
                       tion, maintenance, repair, protection and preservation of Government property in
                       its possessionunder the contract. The contractor’s property management system
                       shall be maintained and administered in accordance with sound business practice,
                        and in accordance with Department of Energy Property Management Regulations,
                        and such directives or instructions which the contracting officer may from time to
                       time prescribe.”

                       Replacing this particular provision in the contract is the following
                       language:
                       “The University shall take all reasonable precautions, as directed by the Manager,
                       San Prancisco Operations or his authorized alternate, or in the absenceof such
                       directions in accordance with sound business practice, to safeguard and protect
                       Government Property in the University’s possessionor custody. . . . The I’nlversity




                       Page 34
shall keep up-to-date the mutually approved property management system [empha-
sis added], as it may be modified with the approval of the DOEcontracting officer,
of accounting for and control by the University of property owned by the govern-
ment within the custody of the University.”

According to DOE’sContracting Officer at the San Francisco Operations
Office, DOEtried to insert its standard provision into the contract during
the most recent negotiations (1987), but the university opposed its inclu-
sion, arguing that such a requirement would impose a superior/
subordinate relationship upon government and contractor rather than
the historical relationship of mutuality and consent. DOEagreed to drop
this as a negotiating point, stating in its negotiation summary report
that
“Although DOEwas concerned about the degree of its ability to exercise oversight
and control and about the university’s occasional lack of responsiveness to DOE’s
concerns (emphasis added], the Department recognized that administrative require-
ments are basically being complied with and determined that the Laboratory’s per-
formance . . . far outweighed the administrative problems.”

Other excerpts from the negotiation summary report provide additional
insight into DOE’S  reasoning for excluding the exact language of its
standard property management provision in the contract. For example,
the negotiations report states that the university rigidly insists “upon.
the principle that the government’s role is to establish broad policy and
provide general dir&ion for the conduct of the work, and that the uni-
versity’s role is to managethe work as it believes appropriate . . . .*’
In recommending the contract for approval, the report concluded that
“Although the contract differs substantially from what is prescribed as a standard
for Y&O [management and operating] contracts, the basic concepts and the relation-
ship that this contract has historically represented have served the Department well
in terms of accomplishing its mission. The omissions and deviations from what
mi#ht be desired are administrative matters rather than statutorily material
deficiencies.”

tinsequently, as acknowledged by LIOESan Francisco operations Office
officials, rather than jeopardize retention of the university as the con-
tractor, DOEdecided not to insist on including the provision in the con-
tract and stated that it would exercise its oversight responsibilities
through management actions outside of the contract itself. What form
these “management actions” would take, however, was not specified.




                                     OAO/WEDMHZ2Llvemom PmpertyNnt


                                                                                       --
                     -4
                     DOEHamNot Rovided Adequte Overulght of
                     theL8bor8tory




                     More importantly, in lieu of this provision, the contract gives DOEthe
                     right to direct-through guidance-the property managementopera-
                     tions of the university. It did not do so, even though the university had
                     indicated its wilhngness during contract negotiations to consider such
                     guidance in developing and implementing laboratory procedures and
                     manuals.
                     The Operations Office’s property administrator made an effort in March
                     1988 to draft someproperty management guidelines, but these guide-
                     lines were never approved. The guidelines were returned unapproved to
                     the property administrator by the Operations Office Contractor Manage-
                     ment Division stating that “the contract property clause does not allow
                     DOEthe right to changethe University’s property management system
                     without mutual agreement.” Following this rejection, the Operations
                     Office took no further action to develop property management guide-
                     lines for the laboratory.


                     Even though the contract between DOEand the university provides for
Terms for the        the establishment of a “mutually approved system” for property man-
“Mutually Approved   agement, the terms of this system have not been developed nor agreed
System” Have Not     upon. When we asked laboratory managers about this “mutually
                     approved system,” they referred us to the laboratory’s property man-
Been Agreed Upon     agement manuals-the Administrative Policies and Procedures Manual,
                     the Office Procedures Manual, and the Lawrence Livermore National
                     Property Management Task Procedures.The task procedures, however,
                     have not been formally approved by DOE.
                     Also, DOE’sheadquarters Office of Review and Analysis for Procurement
                     and Assistance Management noted in its May 1988 review’ of property
                     management functions at the San Francisco Operations Office that,
                     although the contract references the establishment of a mutually
                     approved property management system,
                     “Discussions with AIS [Administrative and Information System (sic) Division] prop
                     erty administrators and the Division Director indicate uncertainty regarding the
                     existence of such systems or the terms of approval.”

                     To address this problem, the report recommendedthat, “in the absence
                     of the standard DOEproperty clause,” the field office should


                     ‘Part II: PemonalPropertyYarrpgement
                                                       Review(PPMR)(May1888),DOE.


                     P8ge 96                              GAO/RCED-W122 Livennore   Property   Management
                       l determine the status of the mutual agreementswith the laboratory;
                       . review mutually agreed upon terms to ensure conformance with federal
                         and departmental property management regulations; and
                       . identify those areas where discrepancieswith the regulations exist
                         which would affect the San F’ranciscoOperations Office’s ability to man-
                         age personal propem effectively and include mutually agreed upon
                         changesto areas so identified.

                           In responseto these recommendations,the Operations Office stated that
                           it reviews the laboratory’s property management policies and proce-
                           dures during its scheduled appraisals of the laboratory and that when
                           deficiencies are identified, it makes recommendations for corrective
                           action. However, while the Operations Office’s November 1988
                           appraisal of the laboratory’s property managementsystem identified
                           some deficiencies in the laboratory’s system, it did not “determine the
                           status of the mutual agreementswith the laboratory,” or “review mutu-
                           ally agreed upon terms to ensure conformance with federal and depart-
                           mental property managementregulations,” as recommended.According
                           to Operations Office officials, these recommendations were not imple-
                           mented due to staff shortages.

                           Approval of a contractor’s personal property system is required by reg-
                           ulation. BecauseDOE has not met this regulatory requirement, it cannot
                           provide assurancethat government-owned property at the laboratory is
                           beii adequately safeguarded and protected.




Corrective Action on       rection of identified deficiencies is required by regulation.
All Identified             Subpart 199-1.62of DOE’S implementing regulations requires the prop
Deficiencies               erty admMstrator to appraise the contractor’s property management
                           operations at least every 2 years (with a maximum period of 3 years)
                           after the execution date of the contract. The appraisal may be baaedon
                           a formal, in-depth appraisal on site or a series of formal appraisals of
                           the functional segmentsof the contractor’s property managementsys-
                           tem to determine if the contractor is managing the government personal
                           property in its custody in accordancewith previously approved policies,
                           procedures, and applicable regulations. Appropriate follow-up is
                           required by the property adminWrator to ensure that corrective actions
                           are taken.
In 1985, the San F’ranciscoOperations Office appraised the laboratory’s
personal property managementsystem.2This appraisal revealed defi-
ciencies in the system, including a failure by employeesand property
expediters to (1) update the property managementdata base and (2) tag
property delivered directly to users. To correct these deficiencies, the
Operations Office recommended,respectively, (1) that management
emphasizeemployee responsibilities for supporting the property man-
agementsystem and its importance for controlling DOE equipment and
(2) thit property managementfollow up on and tag all untagged equip
ment as soon as possible. These recommendations have yet to be satis-
factorily implemented, even though the contract was renegotiated and
approved again in 1987.
A subsequentappraisal of the laboratory’s property managementsys-
tem, completed in November MS,8 again reported on the failure of
employees and property expediter%to keep the property management
data base up to date regarding property movement. DOE recommended
that (1) “laboratory staff and their supervisors should be made fully
aware of their personal property responsibilities, held personally
accountable for property in their custody and penalized for abuse” and
(2) the current biennial inventory “should be a lOGpercent inventory
and reconciliation of laboratory equipment, including all capital, non-
capital, and sensitive items.” DOE made completion of the 190~percent
inventory and reconciliation a condition for DOE approval of the labora-
tory’s property management system.
Althoughthe laboratory initially agreed to take corrective action on
these deficiencies, the laboratory, as discussedearlier, no longer plans to
reconcile non-capital equipment purchased over 6 years ago. The issue
of reconciling non-capital equipment is still being discussed-14 months
after the recommendation was made. The laboratory did issue, on
December 12 MS, a memorandum to laboratory staff emphasizing the
importance of personal property responsibilities. However, the Opera-
tions Office has not yet evaluated the effectiveness of the laboratory’s
actionsinthisarea




                                              Lawrence Livermore National Laboratmy


                                      )I&port,LawnmxUvmreNationalLaborato~
             sanRaluhcoopartbnomee.
                      DOEhas not provided    adequate oversight of the laboratory’s property
Conclusions           management system. DOE’s responsibility is to ensure that a contractor’s
                      system adequately safeguards and protects government property. DOE
                      cannot provide these assurances- it has not approved the laboratory’s
                      existing system nor has it developed or provided guidance to the labora-
                      tory, spelling out the criteria for performance of property management
                      functions. Without an approved system, DOE has no clear criteria against
                      which to judge and assesscontractor performance. And without such
                      clear criteria, it cannot provide assurancethat government personal
                      property is being adequately managed.

                      As discussedin chapter 2, the number of missing items of government
                      property at the laboratory has been substantial-the result, at least in
                      part, of inadequate property controls at the laboratory. Had DOEpro
                      vided adequate oversight of the laboratory’s property management sys-
                      tem, the internal control weaknessesleading to these lossesshould have
                      been identified and corrective actions taken.

                      Further, DOE’s wihgneS!bi    to allow the contractor to prescribe the terms
                      of the contract raises questions about DOE’s commitment to ensuring ade-
                      quate oversight. The negotiations summary report prepared by the San
                      Francisco Operations office provides troublesome insights into DOE's
                      approach for dealing with the contractor. In the report, DOEacknowl-
                      edgesthat the contract differs substantiahy from what is prescribed as
                      a standard for management and operating contracts and acknowledges
                      that it acceptedthe contractor’s refusal to include the standard federal
                      property managementclause in the contract in order to retain the ser-
                      vices of the university. It is also troublesome to note that DOEaccepted
                      what was, in its own view, the contractor’s insistence upon the principle
                      that the government’s role is to establish broad policy and provide gen-
                      eral direction for the conduct of the work, and that the university’s role
                      is to managethe work as it believes appropriate. DOE’S role, by federal
                      and departmental regulation, is more than a policy maker and a pro-
                      vider of direction-the Department is ultimately responsible for assur-
                      ing that government-owned property is adequately safeguarded and
                      protected. In the caseof the Lawrence Liver-moreNational Laboratory,
                      DOEhas fallen short of meeting this responsibility.


                      To improve oversight of the laboratory’s property management system,
Recommendations       we recommend that the Secretary of Energy direct the San Francisco
                      Operations Office Manager to:

                  -

                      Pyre 3s                          GAO/IKZDUbleZ   Lhwmore   Pmperty Management
          chptsr’
          DOEHuNOtPNWidd    Adequate OveNight of
          *-




    . Identify areas, including internal controlweaknesses, in the laboratory’s
      current property managementsystem that do not provide the samelevel
      of protection for government-owned property as that which is provided
      by federal and departmental regulation. Following identification of
      these wealmesses,the San Francisco Operations Office should, as
      required by regulation, advise the laboratory of the deficiencies that
      need to be corrected, and establish an agreed upon time frame for mutu-
      ally resolving and completing the corrective actions.
    . Develop and provide written guidance to the laboratory, spelling out the
      criteria for performance of property managementfunctions.
    l Clearly define, in conjunction with the laboratory, written terms and
      provisions of the agreedupon “mutuahy approved system.”
    . Correct the deficiencies identified during its appraisals of the labora-
      tory’s property managementsystem as well as those internal control
      weaknessesGAO identified during this review. These include, among
      other things, the need to

          (1) tag, mark, or otherwise identify as government property all items of
          equipment that the laboratory acquires for use in its weapons and
          energy research and development programs;
          (2) independently verify the (a) consumption of precious metals such as
          gold and platinum held by laboratory employeesand (b) precious metal
          inventories held by laboratory subcontractors;
          (3) establish and implement physical controls to prevent laboratory
          employees and subcontractors from removing government property
          from the laboratory without proper authorization; and
          (4) establish a loss ratio standard for all non-capital equipment.

        . Include its standard property managementprovision in the contract
          with the University of California when the contract is renegotiated in
          1902.




          Pye 40                             GAO/l!cEDmlBB LhrmonE Property rbhugemnt


-
     Methodology Used to Examine the Laboratory’&
     Property Management Data Base and
     Procurement System
                       During our review, we estimated lossesof centrally controlled equip-
                       ment at the laboratory. Such lossesresult from (1) equipment listed on
                       the property management data basethat cannot be located or (2)
                       purchases of accountable equipment that are not recorded on the prop
                       erty managementdata base.To estimate the extent of such losses,we
                       used statistical sampling surveys to (1) evaluate the extent of lossesof
                       items recorded on the property managementdata base,the Movable
                       Equipment Management Information Center (MEMIC), and (2) determine
                       the extent to which items recorded on the F?ocurement-Accounting-
                       Receiving Information System (PARIS) were not being recorded on the
                       property managementdata base,when required. PARIS tracks equipment
                       purchases by means of individual purchase orders. Equipment pur-
                       chasedusing blanket purchase orders was reviewed using judgment
                       samples from releaseorders becausethe Procurement Information
                       Center, the laboratory’s procurement data baseused to control blanket
                       purchase orders, does not contain a description of items purchased.

                       All sample surveys provide range estimates of the universe characteris-
                       tics being estimated. Such ranges, called confidence intervals, are devel-
                       oped at stated confidence levels. The width of a confidence interval
                       denotes the reliability of an estimate. Narrow confidence intervals
                       denote high reliability and wide confidence intervals, low reliability. All
                       estimates in this report were developed at the 96 percent confidence
                       level. This means that the chancesare 19 out of 20 that the equipment
                       and dollar lossesbeing estimated are within the confidence interval indi-
                       cated. In the following pageswe also define the universes sampled in
                       our survey. Becausethese universes are unique to this survey, sample
                       results are not directly comparable with results from other laboratory
                       StUdieS.


                       We identified the universe of equipment items on the laboratory’s prop
     TheProperty       erty management data base by manually screening a list of all nomencla-
     Management Data   tures on the data base and selecting those of interest to the
     BaSe              Subcommittee. As of February 28,1989, the overall data base contained
                       over 179,000 items valued at about $941 milli0n.l
                       Using the property managementdata basenomenclature, we identified a
                       universe of about 43,000 items as being in the categoriesof interest to



                       *IIWIU~~~
                               items from the laboratory, We 300, and the NevadaTest Site.



                       Page 42                                   GAO/WED-f@122 Livermore     Property   IManagement


--
T&l8 1.2:R88ult8 of GAO SampI of
It8nlo of lntuw                                                                                                       A-
                                                                                      NWM8r
                                   C-fPY                                            in wmpk         rtf?z!z         nti8&-4
                                   Micro computers                                          81                  1             $1,249
                                   Micro accessorii                                         89                 4                2,848
                                   Video equipment                                          38                 5                4,557
                                   Typewriters/word processors                              21                 3                1,195
                                   Balance scales                                            7                 0                    0
                                   Cameras/related equipment                                10                 2                  512
                                   Calculators                                              52                23                2,471
                                   Other (binoculars, rn@Mu telephones)                      0                 0
                                   Tow                                                     276                28


                                   In addition to the above 276 items, all of which were either non-capital
                                   or attractive equipment, we randomly selected31 capital equipment
                                   items, each valued at over $6,606. These items consisted primarily of
                                   minicomputers and computer mainframe-related equipment.

                                   Accompanied by property managementpersonnel, we were able to phys-
                                   ically locate 182, or 66 percent (66 to 72)p, of the 276 sample items and
                                   24 of the 31 capital items. To verify the property managementsystem
                                   data base,we checkedthe DOE property number, the location, and,
                                   where feasible, the manufacturer’s serial number. We found that all of
                                   the site 306 items included in our sample were physically located at the
                                   place designated by the data base.In contrast, 94 of the 276 non-capital
                                   items, or 34 percent (28 to 46), included in our sample were not at the
                                   locations indicated on the prow       managementdata base.In addition,
                                   7ofthe31capitalitemswereatlocationsotherthanshownontheprop
                                   erty management data base.Even though the laboratory had updated
                                   the locations shown in our copy of the data basethe week before we
                                   began our inventory, these items could not be located during our physi-
                                   cal inventory. The results of our initial efforts to locate items basedon
                                   the data base were consistent with other inventory efforts at the
                                   Iaboratory.
                                   Following our inventory, we provided the laboratory with a list of the
                                   items not found, all of which were supposedto be at the laboratory. A
                                   Property Management representative was assignedto locate the items.


                                   5Jumbasinpventheeisrefertothe~canlidrnce               intervalcomputedattheBspercentumfi-
                                   demelevel.



                                   Pye 44                                     GAo/lkcEMm22ISIlaraaonProputy~t
                                      the Subcommittee. Of this number, we selecteda statistically simple ran-
                                      dom sample of 276 items. Table I.1 shows the universe of items of inter-
                                      est to the Subcommittee from which we selectedour sample.
T8bh 1.1:GAO Unlvern   oi ltmr   of
--                                                                                                 Numb8rofltmnr
                                      -WWY                                                         llatod 011MeMlC          Acqulrluon     coot
                                      Micro computersa                                                          12,199               $29333,899
                                      Micro accessoriesb                                                        11,066                19,672,696
                                      Video equipmeW                                                             5,925                 6,679,965
                                      Typewriters/word processors                                                2,808                 3,315,292
                                      Balance scalesd                                                              882                 1,212,Oll
                                      Cameras/related     equipmeW                                              2,214                  1,163.736
                                      Calculators                                                                7,345                   612,145
                                      Other (binoculars, modular telephones)’                                       67                   196,416
                                      Tbtd                                                                     42,846            262,712.284
                                      %cludes primarily personal computers and computer workstations.
                                      %cludes primarily disk drives, keyboards, modems, printers, monitors, and other types of related
                                      equipment.
                                      Yndudes primarify TV cameras and monitors and video cassette recorders.
                                      dlncludas primarily all types of hafancs scales except floor, triple baam, and weight scales
                                      *Includes primarily cameras and camera-associated equipment, except for specialized equipment such
                                      as oscilbscope cameras, microscope cameras, and 8 x 10 portrait cameras.
                                      ‘Includes cnfy squipmant items designated as attractive by LLNL, other than those included in the
                                      abovecstsgories.

                                      Before finalizing our sample, we discussedit with laboratory property
                                      managementpersonnel. On the basis of their comments and those of
                                      officials from the laboratory’s Safeguards and Security Division, we
                                      excluded certain osciIloscopeand other highly technical cameras that
                                      were not among the items of special interest to the Subcommittee Chair-
                                      man. Table 1.2shows our sample of the items of interest to the
                                      subcommittee.




                                                                                     GAO/ltCQ4@122         Lhrmom        Property Monuement
                As of October 31,1989, after considerable time and effort on the part of
                laboratory property managementpersonnel,        an additional 66 of the 94
                missing items were located. Also, the sevenmissing capital items were
                found. Thirty-six items were located during the laboratory’s 100~percent
                inventory. Thirty-eight, or 14 percent (9 to 18), of the 276 non-capital
                and attractive items could not be located. While we do not know if these
                items are still at the laboratory, accountability of these items has been
                lost. Twenty-three of the 38 items yet to be found are calculators.
                Rxcluding the 62 calculatoxq 16, or 6.7 percent (3.4 to lo), of the 224
                items are still missing. Reviews of item descriptions for the remaining 16
                items indicate that 2 were designated as attractive items-one personal
                computer valued at $1,249 and a video cassetteplayer valued at $926.
                On the basis of our sample, we estimate that, of the items in the data
                base,6,868 items of interest to the Subcommittee are missing. These
                items cost about $2 million. Most of the missing items are calculators.
                Other items consist of microcomputers; micro-computer accessories
                such as modems,disk drives, and printers; video-associatedequipment
                such as TV cameras and monitors; and office equipment such as type-
                writers. Tables I.3 and I.4 show the estimated number of missing items
                and their acquisition and cost, respectively.
TawII-Mi88hlgMon~l
8ndAtmdv8lwn8                                                  em confwnw~8l8tth
                                                                -p ~~ to
                                                                n-m
                Micro computers                                          1%.                4               826
                Micro accessories                                        617*             164   to        1,466
                viiequipment                                             771’             275   to        1,662
                Typewiters/wordprocessors                                                 103   to        1,264
                wancescales                                                (r               0   to           360
                Camem/felated equipment                                                    40   to         1,052
                calcul8tom                                                           2,523      to        4,813
                                                                     z               4,128      to        7,580
                The satnpb was dasi~ned to provide an ovedf e8timate of the bu of equipment items of interest to
                m s.             using pod atmtifi#tkn, we sapuatd the overatl sampk into its subcompoMmts to
                d&rmine tha dooma of kmses at thaw bvek. Losses for the subcomponents are much less reliable
                thantheovmns8mple.




                                                           GAO/XEDUM22          lhermom    Proper0 hbmement
         Tabh I.4 Eatlmatod Acq@bwtlon coat ot
         Mlaahg lwkcapltal  and Attmctlva lmnr
                                                                                                               -Yi&ZWH
                                                 Cakgoy                                                         Lowor llmit              Uppar umlt
                                                 Micro computers                               $193,W                $1,249    to           $570,000
                                                 Micro accessories                              439,m                 2.847    to            893.ooo
                                                 Video eauioment                                702,OCV              81,000    to           1,320.ooo
                                                 Typewriters/word processors                     194,W                1,195    to              444,ooo
                                                 Balance scales                                        P
                                                 Cameras/related eaubment                         79.m                   512    to             234.olN
                                                 Calculators                                    381 ,ooo            174,000     to
                                                 Total                                      Sl,878,wo           $1,loomo       to        a::
                                                 ‘The sampk was dedgned to provide an overall estimste of the loss of equimt       items of in&red to
                                                 the Subcommittee. Using post stratificatii, we separated the overall sample into its subcomponents to
                                                 determine the degree of losses at those levels. Losses for the s&components sre much less relii
                                                 than the overall sample.



                                                 We also made tests to determine whether equipment that should be
         Tracing Equipment                       listed on the property managementdata base,as required by laboratory
         Acquisitions to the                     criteria, is in fact being listed.
         Pro$erty Management                     Three mJor procurement processescan be used by laboratory staff to
         DataBase                                acquire new equipment. Equipment entering the laboratory through any
                                                 one of these pm         should be recorded on the property management
                                                 data base if laboratory criteria specify such monitoring. The three pro
                                                 curement processesare purchasing equipment through (1) the labora-
                                                 tory’s automated Procurement-Accounting-ReceivingInformation
                                                 System, (2) blanket purchase orders, and (3) laboratory stores. We did
                                                 not test stores, since most items acquired in this manner are below the
                                                 criteria for recording on the property managementdata base.

                                                 In tracing equipment acquisitions from PARIsto the property manage
                                                 ment data base,we restricted the universe to include fii     year 1988
                                                 purchasesof items of interest to the Subcommittee that, according to
                                                 laboratory criteria, required recording on the laboratory’s property
                                                 managementdata base.PAEUS records procurements by purchase order
                                                 number. A purchase order can include more than one line item, each of
                                                 which correspondsto ordering one or more units of identical equipment.
                                                 Our sampling unit was the purchase order line item. We selecteda uni-
                                                 verse of line items from PARIS by manually screening a list of the nomen-
                                                 clatures on the data base for purchasesin equipment groupings of
                                                 interest to the Subcommittee. Becausethe nomenclature used by PARIS
                                                 could mislead us as to whether the item was one of actual interest to the




------
                              Subcommittee, a determination to include the item in the universe was
                              made during the sample evaluation phase. Consequently, the number of
                              equipment items in the universe and the associatedacquisition costs had
                              to be estimated from sample results. Table I.6 shows the number of line
                              items in the universe and the sample.
hbkI.kNumbwofLlneltem8lnth@
lJlblwwandtha8alnpla                                                --off                    Numbarofllna            Numbwofllnaltetna
                              fmipnnnt     WP.                                unlvaraa          n”uks                       In the sampI
                                                                                                                      Ofhlwroatbwludd
                              Micro-comcwters                                        288                      108                        72
                              Comwter eauipment                                     1,088                     189                        44a
                              Video equipment                                         253                     132                        74a
                              Belancesoales                                            83                     83                         w
                              Cameras eauitament                                      142                     89                         1B
                              The samples were sebcted on the basis of unit costs of $150 or higher for attractive items. For other
                              items, the sample evaluation process included only equipment with a unit cost of $1 ,ooObut less than
                              s5,ocm
                              bOnly line items corresponding to equipment with unit costs of more than Sl ,000 but less then S5,OW
                              were used in the sample evaluatiin process.

                              The estimated number of equipment items in the universe and the asso-
                              ciated acquisition cost are shown in Table 1.6.




                              ~quipcmnttrP@                                                -Y!Es
                              Micro-computers                                245              159- 331              $1.11     $0.48 - $1.77
                              Computer equipment                             443             314- 572                0.98       0.88- 1.28
                              Video equipment                                278             212- 340                0.43       0.34 - 0.53
                              Balanoesoales                                   39                          b          0.08                     b

                              Camerae equipment                                21               20-22                0.03       0.03 - 0.04
                                                                            ha?4            as6 - 1,192             $243     $1.81 - $3.3s
                              QrMsncs      interval at the 95 percent confidence level.
                              bAHlins items were evaluated in these equipment types.

                              Overall sample results were developed using a combination stratified/
                              cluster sample. Each n@or equipment category constituted a strata
                              from which a proportional random sample of line items was selected.
                              The proportion and unit cost selection criteria varied for each strata.
                              For attractive items, such as personal computers, a lower unit cost limit
                              of $160 was used. All other equipment was included only if unit costs
                              were in the range of greater than $1,000 but less than $6,000. The
                              number of equipment items, the associatedacquisition costs, and the
                              number of items missing and their costs are shown in table I.7 below.


                                                                                        Total   Numbar      Acqul8ltlon
                                                                                   acqumw      a       tort ot ml
                              Equlpnrmt VP@                          @Gil&                                       s
                              Micro-computers                                 97     $439,738        5           13,457
                              Computer equipment                              77       170,209       4             8,715
                              Video and etauipment                           144      226,495        4             8,507
                              Balanoe stalk’                                  39        77,617       3             5,599
                              Cameras and equipment                           10        16,570       0                  0
                              Tatal                                          367     awlA            b                  b
                              l Aa of February28,1989.
                              bOnly weighted totals am meaningful.

                              Using automated techniques, we compared the equipment items in the
                              sample with items listed on the laboratory’s property managementdata
                              base as of February 28,1989. Items purchased in fiscal year 1988 that
                              were not listed by that time were counted as not having been recorded
                              on the data base.A list of missing items was provided to the laboratory
                              for verification that the items were missing from the data base.On
                              August 31,1989, after the laboratory’s lOO-percentinventory, we again
                              checked the property managementdata base for these items.
                              The number of items missing, the associatedacquisition cost, and the
                              corresponding statistical confidence intervals at the 96 percent confi-
                              dence level are shown in tables I.8 and I.9 as of February 28 and August
                              31,1989.
T&lOI.bhth@tdNunkrUBd~
otltunaNotno8ododontho~Boao
                                                                       i!t!is                   ConWow     lntonml at the
                                                                         ltmwnot                   I parcant c-
                                                                          rocododParoont
                              Feb. 26,1989                                       46      4.50                     24 to 68
                              Aug. 31,1969                                       34      3.32                     15to53




                                                                             GAo/BcEDm-1e8-          Property Management
T&tol.~:AAoquirilknCoatot                   ,.-.,.
ItafmNa-onthaD8taBaaa       Dolkr8inthousands



                            Feb.28,1989                        $110      4.17              s5otosl6o
                            Aug.31,1989                         $70      2.65              smtos120


                            Overall, statistically weighted sample results indicate that of the sam-
                            pled equipment items purchased in fiscal year 1088 that should have
                            been listed on the laboratory’s property management data base(1)
                            about 4 percent costing about $110,000 were not recorded as of Febru-
                            ary 28,1989, and (2) about 3 percent valued at about $70,000 were still
                            not recorded as of August 31,1080, following the laboratory’s lOO-per-
                            cent inventory. This applies to all types of equipment sampled, except
                            stillcameras,becausenoneofthe1O~camerasandrelateditemsin
                            our sample was missing.


                            Becausethe laboratory’s Promrement Information and Control system
Bla&etPurchase              doesnot identify individual items, acquisitions through blanket pur-
Orders                      chaseorders were extremely difficult to acceptusing random sampling
                            Whniques. For blanket purchase orders, we used a casestudy approach
                            to demonstrate, by example, how laboratory staff can by-pass central
                            laboratory controls.
Appendix II

Major contributors to This Fteport


                        Carl J. Bannerman, Assistant Director
Resources,              Doris E. L. Cannon, Assignment Manager
Community, and          Beverly A. Daniel, Advisor
                        William M. Seay, Staff Evaluator
Economic                Molly W. MacLeod,Reports Analyst
Development Division,
Washington, D.C.
                        Robert W. Brown, Evaluator-in-Charge
San Francisco           David Moreno, Staff Evaluator
Regional Office         Ira B. Carter, Staff Evaluator
                        Terrence T. Shenks,Advisor
                        Hans R. Bredfeldt, Advisor




                        P8ge 60                       GAO/BCED4&12Z   Livermore Property Management