oversight

Nuclear Waste: DOE Needs to Ensure Nevada's Conformance With Grant Requirements

Published by the Government Accountability Office on 1990-07-09.

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

--


NUCLEAR WASTE
DOE Needs to Ensure
Nevada’s Conformance
With Grant
Requirements


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     Jt.ESTRICTED --Not    to be released outside the
     General Accounting Of&e unless spemcal,ly
     approved by the Office of Congressional
     lWltiOns.
                                       RELEASED
                 5ecm5
Resources, Community,   and
Economic Development    Division

B-202377

July 9, 1990

The Honorable J. Bennett Johnston
Chairman, Committee on Energy
  and Natural Resources
United States Senate

Dear Mr. Chairman:

As requested, we have reviewed the Department of Energy’s program to provide financial
assistance to the state of Nevada under the Nuclear Waste Policy Act of 1982, as amended.
This report discusses Nevada’s use of about $32 million in grant funds provided through
June 1989 and the Department of Energy’s administration of the grants.

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 to
appropriate congressional committees, the Secretary of Energy, the Governor of Nevada,
Nevada’s Agency for Nuclear Projects, and other interested parties. We will also make copies
available to others upon request.

This work was performed under the direction of Victor S. Rezendes, Director, Energy Issues,
who may be reached on (202) 275-1441. Other major contributors are listed in appendix I.

Sincerely yours,




J. Dexter Peach
Assistant Comptroller General
Ekecutive Summary


                   The state of Nevada opposes the Department of Energy’s (DOE) develop-
Purpose            ment of a nuclear waste repository at Yucca Mountain, Nevada. This
                   opposition has created an environment conducive to disputes over the
                   appropriate use of the financial assistance DOE provides Nevada to pay
                   the state’s repository program costs. At the request of the Chairman,
                   Senate Committee on Energy and Natural Resources, GAO reviewed
                   Nevada’s use of $32.3 million in grant funds provided through June
                   1989 and DOE'S administration of the grants. GAO reviewed in detail the
                   state’s use of the $11 million provided for the year ended June 30, 1989,
                   and relied on independent audits of prior years’ expenditures.


                   The Nuclear Waste Policy Act of 1982 charged DOE with investigating
Background         potential sites for licensing, constructing, and operating a nuclear waste
                   repository. December 1987 amendments to the act limited DOE's investi-
                   gation of candidate sites to Yucca Mountain. Nevada’s legislature, how-
                   ever, has passed resolutions opposing use of Yucca Mountain for a
                   repository and has enacted legislation banning nuclear waste storage in
                   the state. The state believes these actions constitute a notice of disap-
                   proval, as permitted by the act, of the Yucca Mountain site. Accordingly,
                   in January 1990 Nevada sued DOE and asked the Ninth Circuit Court of
                   Appeals to order DOE to terminate all site investigation activities. Shortly
                   thereafter, DOE initiated its own suit in the U.S. District Court asking
                   that Nevada be (1) required to act on the work permits DOE needs to
                   begin site investigations and (2) prohibited from unlawfully interfering
                   in DOE'S site investigation activities. These cases are not expected to be
                   settled until sometime in 1991.

                   DOEmust provide financial assistance grants to Nevada and affected
                   local governments for the general purpose of overseeing DOE's waste
                   program activities within their jurisdictions. Guidance on the use of
                   grant funds is provided by the nuclear waste act, court decisions, appro-
                   priations acts, Office of Management and Budget circulars, and DOE reg-
                   ulations. Formal grant agreements and periodic amendments to the
                   @reements eetablish the terms under which DOEgrsvidas &%nt funds,
                   DOE then primzu-ily r&z3 on annual audits made by independent
                   accounQ@g fjrfig TQ qnqvre cornp&mqe with laws, regulations,  and grant
                   provisions, These audits are required by the Single Audit Act (31 US&,
                   7501-7507).


                   Nevada improperly spent about $1 million of its $32.3 million in grant
Results in Brief   funds. Specifically, the state


                   Page 2                                GAO/RCED-99-173Nevada Grant Requirements
                             ExecutiveSummary




-_--.
                         . used as much as $683,000 for lobbying and litigation expenses that were
                           not authorized or were expressly prohibited by law, court decision, or
                           grant terms;
                         . exceeded a legislative spending limit on socioeconomic studies by about
                           $96,000; and
                         . used, contrary to grant terms, about $275,000 from one grant period to
                           pay expenses incurred in the prior year.

                             Also, the state did not always exercise adequate internal controls over
                             grant funds, such as timely liquidation of funds advanced to
                             contractors.

                             A recent independent audit also questioned the state’s use, with DOE’S
                             approval, of grant funds for legislative expenses. GAO concluded, how-
                             ever, that the nuclear waste act provides DOE with sufficient discretion
                             to approve the use of grant funds for this purpose.

                             A permissive approach to grant administration by DOE contributed to
                             Nevada’s inappropriate use of grant funds. For example, DOE did not
                             always obtain agreement on grant terms before, or even after, releasing
                             funds to the state. Furthermore, DOE has not taken corrective action on
                             the annual audit findings including, for example, the recovery of funds
                             spent for unallowable purposes.



Principal Findings

Nevada Improperly Used       Although Nevada properly used most grant funds, it spent some funds
SomeFunds                    for activities that were not authorized and/or were expressly prohibited
                             by law, regulation, court decision, or grant provision. Specifically,
                             Nevada:

                         l Spent up to $608,000 of grant funds on congressional lobbying activities
                           during the 3 years ended in June 1989. Lobbying was expressly prohib-
                           ited by a provision DoE added to the grant for the period beginning
                           March 1987 and by DOE'S fiscal year 1988 and 1989 appropriations acts.
                           Also, lobbying is not authorized by the nuclear waste act.
                         9 Used up to $75,000 to pay expenses incurred in litigation against ME,
                           until a federal court ruled in September 1987 that litigation is not one of
                           the purposes of financial assistance grants listed in the nuclear waste



                             Page 3                              GAO/RCED-90-173Nevada Grant Requirements
                                                                                                       -
                           ExecutiveSummary




                           act. The independent auditors’ reports of 1986-88 took exception to liti-
                           gation expenses for the same reason.
                         . Exceeded by about $96,000 a spending limit of $1.5 million, contained in
                           DOE'S fiscal year 1989 appropriations act, for socioeconomic studies.
                           Nevada also did not always have effective internal controls over grant
                           funds. For example, the state used $275,000 from one grant period to
                           pay expenses incurred in the prior period and did not adequately control
                           about $226,000 in advances of funds to contractors. One of the advances
                           effectively resulted in an interest-free loan of $210,000.

                           An independent audit for the year ended June 1988 also questioned the
                           state’s use of $69,000 of grant funds for state legislative activities
                           because federal guidelines prohibit, and there is no explicit statutory
                           authority for, the use of grant funds for this purpose. DOE had approved
                           this use of grant funds. On the basis of the nuclear waste act and appli-
                           cable court rulings, GAO concluded that DOE had sufficient discretion to
                           approve the use of grant funds for this purpose.


Weaknessesin DOE Grant     In 1986 a federal court held that DOE is required to fund Nevada’s pro-
Administration             posed tests and studies related to DOE'S investigation of Yucca Mountain
                           if they meet certain conditions. Subsequently, because of the court’s
                           decision and other factors, DOE adopted a permissive approach to
                           administering the state’s grant that has contributed to Nevada’s
                           improper uses of funds.

                           Specifically, DOE provided funds to the state without reaching agreement
                           on all terms for the grants made from May 1986 through June 1990.
                           Nevada altered grant agreements signed and executed by DOE-
                           including deleting the provision prohibiting lobbying that DOE had
                           included in the grant for the period beginning March 1987-and signed
                           and returned the revised agreements to DOE. DOE did not agree to these
                           changes but nonetheless released grant funds to the state. Independent
                           auditors subsequently found that Nevada had used grant funds for lob-
                           bying. After GAO discussed the lack of resolution of disputed grant terms
                           with WE management, DOE notified the state in writing that the changes
                           Nevada had made to the approved grant terms for the period ending in
                           September 1990 were not acceptable.

                           GAO found that DOE is not taking corrective actions on annual audit
                           report findings in a timely manner. Although DOE regulations require
                           that reported problems be resolved within 6 months of the date that the
                           reports are formally presented to DOE'S program staff, this is not being


                           Page4                                GAO/RCED-9%173NevadaGrantRequirements



                                                                                                  ..
                  Executive Summary




                  done. Informational copies of the audit reports are available to DOE'S
                  program staff within about 6 months after the audit period; however,
                  the reports are not formally presented to DOE for resolution of audit
                  findings for about another 9 months. This is because the reports must be
                  subjected to the quality control procedures called for by the Single Audit
                  Act, including a quality review by DOE'S Office of the Inspector General.
                  Thus, DOE'S program staff have several months to familiarize themselves
                  with the reported problems before they formally receive the reports and
                  the 6-month action period begins.

                  In addition, DOE has not acted to recover as much as $75,000 that
                  Nevada spent on litigation against DOE. The state’s use of grant funds for
                  this purpose was first questioned by the independent auditors in a June
                  1986 audit report but DOE has not yet recovered these funds by with-
                  holding the amount from new grants. Instead, DOE is considering recov-
                  ering the amount from certain payments that a different provision of
                  the act requires DOE make to the state-payments     that are equal to the
                  taxes the state would receive if it were authorized to tax DOE'S site char-
                  acterization activities.


                  GAO is recommending that DOE take a number of specific actions to
Recommendations   improve its administration of the grant program and to help ensure that
                  activities funded by grants fully comply with applicable laws, regula-
                  tions, and grant agreements.


                  Because of the requester’s time-critical need for this report, GAO did not
Agency Comments   obtain comments on the report from DOE and the state of Nevada. GAO
                  did, however, discuss the results of its review with DOE and Nevada offi-
                  cials and considered their comments in preparing the report.




                  Page 6                               GAO/RCED-90-173Nevada Grant Requirements
Contents


Executive Summary                                                                                 2

Chapter 1
Introduction             Nevada Opposes the Yucca Mountain Project
                         Grant Program Purpose, Funding, and Administration
                         Objectives, Scope, and Methodology

Chapter 2                                                                                        14
Nevada Has Used          Nevada Used Most Grant Funds Properly                                   14
                         Nevada Used Grant Funds to Lobby the Congress                           16
SomeGrant Funds          Nevada Used Grant Funds to Pay Litigation Expenses                      19
Contrary to Laws,        Congressional Funding Limitation on Socioeconomic                       21
Regulations, and Grant        Studies Exceeded
                         Use of Grant Funds to Pay Expenses of State Legislature                 22
Terms                    Internal Control Weaknesses Result in Improper Uses of                  26
                              Grant Funds

Chapter 3                                                                                        29
DOE’s Weak Grant         DOE Did Not Reach Agreement on All Grant Terms Before                   29
                             Releasing Funds
Administration           DOE Has Not Enforced Laws, Regulations, and Grant                       31
Contributed to               Terms
Improper Uses of         Views of Responsible Agency Officials                                   32
                         Conclusions                                                             33
Funds                    Recommendations                                                         36

Appendixes               Appendix I: NWPA Provides DOE With Considerable                         36
                             Discretion in Approving Uses of Grant Funds
                         Appendix II: Major Contributors to This Report                          41

Tables                   Table 1.1: Summary of Grant Obligations                                 11
                         Table 2.1: Budget and Expenditures for the Year Ended                   15
                             June 30,1989
                         Table 2.2: Costs to Support Socioeconomic Studies                       22




                         Page 6                             GAO/RCED-90-173Nevada Grant Requirements
.


    Contents




    Abbreviations

    DOE        Department of Energy
    NRC        Nuclear Regulatory Commission
    NWPA       Nuclear Waste Policy Act of 1982
    OCRWM      Office of Civilian Radioactive Waste Management
    OMB        Office of Management and Budget


    Page7                               GAO/RCED-9iS178Nevada Grant Requirements
  Chapter 1

’ Iintroduction


                      In 1982 the Congress found that federal efforts to dispose of radioactive
                      waste accumulating at nuclear power plants had not been successful and
                      that this waste had become a major source of public concern. To help
                      ensure safe disposal of the waste, the Congress enacted the Nuclear
                      Waste Policy Act of 1982 (NWPA). The NWPA established a process for
                      identifying and selecting candidate repository sites for two geologic
                      repositories, charged the Department of Energy (DOE) with implementing
                      the program, assigned responsibility to the Nuclear Regulatory Commis-
                      sion (NRC) to license and regulate the repositories, and established a
                      Nuclear Waste Fund to be used to finance the program. In December
                      1987 the Congress amended NWPA.' The amendments directed DOE to
                      characterize (investigate) only the Yucca Mountain, Nevada, site for
                      possible use as a repository. The amendments also suspended, for about
                      20 years, all site-specific activities directed toward identifying candidate
                      sites for a second repository.

                      In enacting NWPA the Congress recognized that state and public partici-
                      pation in planning and developing the repositories was essential to pro-
                      mote public confidence in the nuclear waste disposal program. In
                      addition, the Congress included in the act a mechanism by which a state
                      could express its disapproval of a repository site within its borders. Spe-
                      cifically, the act permitted, after the President had recommended selec-
                      tion of a repository site, either the governor or the legislature of a state
                      to file a notice of disapproval of the President’s recommendation. Such
                      disapproval would become effective unless overridden by resolution of
                      the Congress. Therefore, the NWPA provided for the active participation
                      of affected states and required DOE to provide financial assistance
                      (grants) to ensure that these states could participate in the program.


                      The state of Nevada opposes DOE'S Yucca Mountain project. Legislative
  Nevada Opposesthe   and administrative actions by Nevada and legal challenges by both the
  Yucca Mountain      state and DOE in the last year illustrate this opposition. In April 1989, for
  Project             example, the Nevada legislature passed two joint resolutions opposing
                      the Yucca Mountain repository. The first expressed the legislature’s
                      “adamant opposition” to a nuclear waste repository in the state and the
                      second refused the state’s consent for a repository at Yucca Mountain.
                      Nevada also enacted legislation in July 1989 making it “unlawful for
                      any person or governmental entity to store high-level radioactive waste
                      in Nevada.”

                      ‘The NuclearWastePolicy AmendmentsAct of 1987,containedin Title V of the OmnibusBudget
                      ReconciliationAct of 1987(P.L. 100-203).



                      Page 8                                      GAO/RCED-90-173Nevada Grant Requirements
    .



                            Chapter 1
                            Introduction




                            On the basis of these resolutions and legislation, Nevada has refused to
                            act on DOE’s applications for the environmental permits necessary to
                            begin site investigations. In the state’s view, the two resolutions consti-
                            tuted a valid and effective notice of its disapproval, under section 116 of
                            NWPA, of the Yucca Mountain site. Therefore, on January 6, 1990,
                            Nevada sued DOE and asked the Ninth Circuit Court of Appeals to,
                            among others things, order DOE to terminate all site characterization
                            activities at the site. In addition, Nevada sued DOE on two previous occa-
                            sions, which resulted in court decisions affecting the way that DOE
                            administers the state’s grant and the way that Nevada uses the grant
                            funds.

                            On January 26, 1990, DOE sued Nevada in the United States District
                            Court, District of Nevada, and, among other things, asked the court to

                        l require Nevada to act on all pending permits needed by DOE to perform
                          exploratory efforts at Yucca Mountain, and
                        . prohibit Nevada from unlawfully interfering in DOE’S site characteriza-
                          tion of Yucca Mountain.2

                            A DOE attorney told us that he anticipates that Nevada’s suit will be
                            decided by the Circuit Court before the end of the year. DOE’S suit, which
                            is stayed pending the outcome of Nevada’s suit, would then have to be
                            decided. If Nevada loses and does not file an appeal, the attorney said
                            that DOE’S case could be decided sometime in January 1991.


                            DOE makes grants from the Nuclear Waste Fund to Nevada and affected
Grant Program               local governments so they can participate in oversight of DOE’S waste
Purpose, Funding, and       program activities. The fund, which is a separate Treasury account, con-
Administration              sists of fees paid by generators and owners of nuclear waste and
                            interest earned on investments of funds that are surplus to the current
                            program needs. The fees collected and interest earned are government
                            funds, and DoE can obligate from the fund only moneys that have been
                            appropriated by the Congress.

                            The NWPA, as amended, provides that grants shall be made to enable the
                            grantee to



                            ‘For a morecompletediscussionof theselawsuits, seeNuclearWaste:Quarterly Reportasof Sep-
                            tember30,1989 (GAO/RCED-90-103,Mar. 2,199O).



                            Page 9                                       GAO/RCED-90-173Nevada Grant Requirements
    Chapter 1
    Introduction




l review DOE'S activities at Yucca Mountain to determine the potential eco-
  nomic, social, public health and safety, and environmental impacts of a
  repository on the state and its residents;
. develop a request for financial and technical assistance to mitigate the
  effects of construction of a repository;
9 engage in any monitoring, testing, or evaluation activities related to
  DOE'S site characterization program;
l provide information to Nevada residents about ME, NRC, and state activ-
  ities with respect to the site; and
. request information from, and provide comments and recommendations
  to, the Secretary of Energy regarding DOE'S nuclear waste repository
  program activities,

    The act precludes the use of grant funds for salary and travel expenses
    that the grantee would ordinarily incur.

    Concerned about the rising costs of the grant program and the type of
    activities being financed by the grants, the Congress began limiting the
    amount of funds DOE could provide to Nevada and placing restrictions
    on the use of the funds. In July 1988 the Congress, through DOE'S fiscal
    year 1989 appropriations act (P.L. lOO-371), limited the amount of
    funds available to Nevada from July 1, 1988, through June 30,1989, to
    $11 million. This was less than one-half of the $23.1 million requested
    by the state in its March 3, 1988, application. The Congress also prohib-
    ited use of Nuclear Waste Fund moneys to influence the Congress and to
    lobby. It also limited the amount of the funds that Nevada could spend
    for transportation and socioeconomic studies to $1.5 million in each
    category.

    The Congress placed even tighter restrictions on the fiscal year 1990
    grant program. In DOE'S appropriations act for fiscal year 1990 (P.L.
    lOl-lOl), the Congress again included the prohibition on use of funds
    for influencing the Congress and lobbying, and

. provided $5 million to Nevada, of which (1) $1 million was earmarked
  for infrastructure studies at the University of Nevada-Reno and (2) no
  more than $1 million could be spent for both socioeconomic and trans-
  portation studies, and
. gave the Secretary of Energy the discretion to provide the state with an
  additional $6 million to conduct appropriate NWPA grant activities.




    Page 10                             GAO/RCED-90-173Nevada Grant Requirements
                                         chapter 1
                                         Introduction




                                         In addition, the act provided the University of Nevada, Las Vegas, with
                                         $10 million for computing resources to support the state’s independent
                                         analyses and oversight responsibilities and for use by the university.

                                         DOE has obligated funds under two grants and several grant amendments
                                         to provide funds for specific budget periods. The first grant was in
                                         effect between March 3, 1983, and February 28,1985. On February 1,
                                         1986, DOE issued a new grant and thereafter extended the grant, by
                                         means of several amendments, through June 30,1989. Although the two
                                         grants overlapped, DOE did not provide funds under the first grant after
                                         September 30, 1984. DOE had obligated about $32.3 million to support
                                         Nevada’s oversight activities between March 1983 and June 1989. (See
                                         table 1.1.)

Table 1.1: Summary of Want Obligations
                                                                                           Approximate
                                                                                              months in           Amount
                                         Period                                           budget period          obligated
                                         March 1983-September 1983                                    7           $350,000
                                         October 1983-February 1985       ..___                      17             646,083
                                         Februarv 1985-April 1986                                    15          1,898.7%
                                         May=-February       1987                    -               10          4,418,754
                                         March
                                         ---    1987-June 1968  --__                                 16         13,998,663
                                         Julv 1988-June 1989                                         12         11 .ooo.ooo
                                         Total                                                                $32,312,278
                                         Source: Compiled from DOE data

                                         DOE'S Office of Civilian Radioactive Waste Management has overall
                                         responsibility for administering the grant program at the national level.
                                         WE'S Nevada Operations and Yucca Mountain Project Offices administer
                                         the grant program at the local level. Nevada’s Agency for Nuclear
                                         Projects-the grantee-administers      the grant for the state.

                                         The grantee submits its grant applications to DOE'S Nevada Operations
                                         Office for review and approval. DOE reviews the applications, which
                                         show planned activities and budgetary data, to ensure that the activities
                                         proposed by the grantee (1) reasonably relate to the oversight of the
                                         Yucca Mountain Project; (2) are allowed by NWPA, subsequent related
                                         court decisions, congressional restrictions, and Office of Management
                                         and Budget (OMB) circulars; (3) do not interfere with or delay DOE'S
                                         planned activities; and (4) are consistent with the grant terms. Fol-
                                         lowing this review, DOE awards grants on the basis of the activities and
                                         funding levels proposed and reviewed. The grantee is required to submit


                                         Page 11                                  GAO/RCED-90-173Nevada Grant Requirements
                        Chapter 1
                        Introduction




                        periodic progress and financial reports to DOE. DOE relies principally on
                        annual audits performed by independent accounting firms under the
                        Single Audit Act to monitor compliance with applicable laws, rules, and
                        regulations.”


                        The Chairman, Senate Committee on Energy and Natural Resources,
Objectives, Scope,and   requested us to review Nevada’s use of DOE’S grant funds and DOE’S
Methodology             administration of the grants.

                        Because the state’s use of grant funds through Nevada’s fiscal year
                        1988 had been audited by independent accounting firms, the Chairman’s
                        office agreed that we should concentrate our review on the funds
                        expended for the year ended June 30,1989. For the earlier period, we
                        identified expenditures questioned by prior audits. We also reviewed rel-
                        evant activities occurring after June 30, 1989.

                        To accomplish our first objective, we identified Nevada’s grant fund
                        expenditures for July 1, 1988, through June 30, 1989. We interviewed
                        state officials and reviewed appropriate documents, such as invoices,
                        vouchers payable, and correspondence relating to these expenditures.
                        We also reviewed the appropriateness of these expenditures under the
                        provisions of the NWPA and DOE appropriation acts, federal regulations
                        (such as OMB circulars and DOE’S regulations), and the grant agreements
                        and periodic amendments to the basic agreements. Finally, as requested
                        by the Chairman’s office, we identified whether grant funds for the
                        period were spent within or outside the state of Nevada. The House-
                        Senate Conference Report on DOE’S fiscal year 1989 appropriations act
                        stated that the Congress intended that grant funds be spent to the max-
                        imum extent possible within the state of Nevada. We used the address
                        on the grantee’s contracts with firms and individuals as our criterion for
                        determining if contracts were awarded to firms and individuals within
                        Nevada.

                        For expenditures of grant funds prior to July 1, 1988, we used informa-
                        tion contained in the annual audits and correspondence concerning the
                        resolution of these audit findings. We obtained additional information
                        from the audit organization regarding selected findings contained in the
                        audit reports for the years ended June 30,1987 and 1988.


                        “The act requiresstate and local governmentsthat receivespecifiedamountsof federal financial
                        assistanceto have a single audit conducted.



                        Page 12                                         GAO/RCED-90-1’73
                                                                                       Nevada Grant Requirements
Chapter 1
Introduction




To accomplish our second objective, we reviewed DOE'S procedures for
(1) reviewing and approving grant applications, (2) monitoring grant
activities, and (3) resolving annual audit findings. We interviewed DOE
officials and reviewed appropriate documents, such as grant applica-
tions, DOE staff evaluations of grant applications, and relevant corre-
spondence. We also used information in our prior reports, such as our
report to the Secretary of Energy on DOE'S budgeting procedures for
Nevada’s grant funds.4

Because federal court rulings affect certain aspects of the administra-
tion of the program, we obtained and reviewed the Ninth Circuit Court
of Appeals rulings relating to DOE, Nevada, and the NWPA. We also
reviewed information, such as state hearings and legislation, related to
the state legislative activities funded by the grant.

Our review was conducted primarily at DOE'S Nevada Operations and
Yucca Mountain Project Offices in Las Vegas, Nevada, and at the state
of Nevada’s Agency for Nuclear Projects in Carson City. We discussed
the results of our review with (1) DOE officials at the operations and
project offices and at DOE headquarters and (2) grantee officials. Subse-
quent to our discussion with grantee officials, the grantee’s Executive
Director provided additional comments on the results of our review in a
letter of March 14,199O. We considered the comments of all of the DOE
and Nevada officials, including those comments made in the grantee’s
March letter, in preparing our report. Also, we included the officials’
comments in our report where appropriate. Our review was conducted
between August 1989 and April 1990 in accordance with generally
accepted government auditing standards.




“Nuclear Waste:DOE’sBudgetingProcessfor Grantsto NevadaNeedsRevision(GAO/RCED-90-20,
Oct.20, 1989).



Page 13                                   GAO/RCED-90-173Nevada Grant Requirements
Nevada Has Used SomeGrant F’undsContrary
to Laws, Regulations, and Grant Terms

                           Nevada spent most of the $32 million in nuclear waste act grants prop-
                           erly; however, about $1 million of the $32 million was used for activities
                           that were not authorized and/or were expressly prohibited by law, regu-
                           lation, court decision, or grant terms. Specifically, the grantee

                       l used as much as $608,000 for lobbying;
                       . used about $75,000 to pay costs of litigation against DOE; and
                       . exceeded, by about $96,000, the limit on spending for socioeconomic
                         studies for the year ending in June 1989.

                           A recent independent audit also questioned the state’s use, as approved
                           by DOE, of grant funds for legislative expenses because of a prohibition
                           in federal guidelines and the absence of explicit statutory authority.
                           After reviewing the nuclear waste act and applicable court rulings, we
                           concluded that it is within DOE'S discretion to approve the use of grant
                           funds for this purpose.

                           Finally, because of weaknesses in the grantee’s internal controls over
                           grant funds, the grantee used $275,000 from one grant period to pay
                           claims from a prior grant period, did not adequately control advances of
                           funds to contractors, and did not require annual audits of all sub-
                           recipients of grant funds in accordance with the requirements of the
                           Single Audit Act.


                           DOE provided Nevada with about $32.3 million in grants through June
Nevada Used Most           1989. The major portion of these funds was used properly to contract
Grant Funds Properly       for independent  studies, technical studies, and review of program activi-
                           ties. For example, our detailed review of the $11 million budgeted for
                           the year ended June 30, 1989, showed that the grantee spent about
                           $10.2 million primarily to finance studies on the suitability of the Yucca
                           Mountain site, the effects of a repository on Nevada residents, and
                           transportation matters. A detailed breakdown of the amounts budgeted
                           and spent is shown in table 2.1.

                           About $8 million of the $10.2 million the grantee expended for the year
                           ended June 30, 1989, was used to contract for independent studies, tech-
                           nical advice, and reviews of DOE'S waste program activities. Other
                           expenditures included about $1.2 million to fund the grantee’s direct
                           operating expenses (including $434,000 for five individuals hired on a
                           contract basis), $435,000 to local governments and Indian tribes,
                           $230,000 for legal services, and $83,000 for a Nevada legislative com-
                           mittee. Our audit of the grantee’s expenditures for that year showed


                           Page 14                              GAO/RCED-90-173Nevada Grant Requirements
                                         Chapter 2
                                         Nevada Has Used SomeGrant F’unde
                                         Contrary to Laws, Regulations, and
                                         Grant Terms




                                         that the amounts Nevada reported as spent were accurate and that all
                                         funds were accounted for,

Table 2.1: Budget and Expenditures for
the Year Ended June 30,1989              Category                                                               Budget     Expenditures
                                         Agency
                                         -       support                                                                              -
                                         Salaries and fringe benefits                                          $904,729         $919,558
                                         Travel costs                                                            84.344           90.891
                                         Operatina expenses                                                     184,460          154,591
                                         Equipment purchases                                                     16,275            5,526
                                           Subtotal                                                          $1,189,808      $1,170,566
                                         Contract services
                                         Legal services                                                          330,000         230,538
                                         Public     information _----
                                         --____-__-__-.                                                          242,000         198,515
                                         CPA      assistance
                                         ...--_____                                                               50,000          13,406
                                         Hydrology                                                             2,400,OOO       2,563,760
                                         Geology                                                               1,520,OOO       1,382,833
                                         Socioeconomic                                                         1,500,000       1.438,542
                                         Transportation
                                         -.-.-L--
                                                                                                               1500,000        1,007,787
                                         Quality
                                         -__-- assurance                                                         100,000          66,776
                                         Repositorv enaineerina                                                  200.000         246.861
                                         Environmental
                                         _..___-                                                                 750,000         746,127
                                           Subtotal                                                          $8,592,000      $7,895,145
                                         Technical advisors
                                         Hydrology advisor                                                      112,000          172,162
                                         .-_____ physicist
                                         Health    ---     --advisor                                             10,000            3,750
                                         Materials science advisor                                               25.000           12.642
                                         Plannina advisor                                                       300,192          159,860
                                         Geology
                                         --        advisor                                                       50,000           69,966
                                         Transportation advisor
                                         -subtotal


                                         -Support  to others
                                           ____-.--.--__
                                         Legislative
                                         ___-                                                                    75,000           82,500
                                         Local aovernments and tribes                                           536,000          434,761
                                         Other   state agencies
                                         ---.---____                                                            110,000           59,994
                                           Subtotal                                                            $721,000        $577,255
                                         Total                                                              $11 ,ooo,ooo    $10,157,679
                                         aTransportation advisor costs included with the planning advisor
                                         Source: GAO table developed from DOE and Nevada data.

                                         Nearly all the grant funds were used to hire individuals and firms under
                                         contracts. In the year ended June 30,1989, the grantee had 80 contracts,



                                         Page 15                                            GAO/RCED-90-173Nevada Grant Requirements
                         Chapter 2
                         Nevada Has Used SomeGrant Funds
                         Contrary to Laws, Regulations, and
                         Grant Terms




                         worth $9.4 million, with 69 contractors. Of the 80 contracts, 48 were
                         awarded to Nevada contractors, for a total of about $6.9 million (63 per-
                         cent), and 32 were awarded to out-of-state contractors, for a total of
                         $3.6 million (37 percent).


                         Although the Congress included prohibitions against lobbying in DOE’S
Nevada Used Grant        fiscal year 1988 and 1989 appropriations acts, Nevada employed law
F’undsto Lobby the       firms between July 1986 and June 1989 that, among other things, per-
Congress                 formed lobbying activities, Also, DOE included a specific provision in a
                         1987 grant amendment prohibiting lobbying. The amounts spent for lob-
                         bying during the 3-year period could have been as much as $608,000.


Lobbying Not Permitted   Lobbying activities are not expressly included in NWPA as one of the pur-
                         poses for which financial assistance grants are provided. In 1987, how-
                         ever, an attorney in the chief counsel’s office of DOE’S Nevada
                         Operations Office learned from a newspaper article that the grantee
                         might have contracted with a Washington, D.C., law firm to, among
                         other things, lobby the Congress1 This attorney reviewed the grantee’s
                         contract with the law firm and the grantee’s supplemental grant appli-
                         cation and concluded that there was reason to caution the grantee
                         against using grant funds to lobby. The grantee’s contract with the law
                         firm requires the firm to

                         assist the office with its overall congressional strategy and with its relations with
                         key members of Congress and their staffs regarding the siting of a high-level radio-
                         active waste repository; provide policy analysis relative to the Agency’s [Nevada’s
                         Agency for Nuclear Projects] legislative mandate; critique and analyze congressional
                         and/or federal agency initiatives and actions regarding high-level radioactive waste
                         disposal; represent the Agency at key meetings; and provide general advice and
                         assistance to the Agency on issues pertaining to high-level radioactive waste
                         disposal.

                         Because of this contract, DOE included a provision in the grant amend-
                         ment from March 1987 through June 1988 prohibiting the use of grant
                         funds to influence federal legislation2 The grantee, however, deleted
                         this provision and, in a January 1988 letter, the grantee’s Executive
                         Director told the Nevada Operations Office that “Nevada objects to and

                         IThis firm was registeredas a lobbyist for the grantee,on mattersrelating to nuclear wastelegisla-
                         tion, under the FederalRegulationof LobbyingAct, from August 1987through March 1990.
                         ‘In addition to the grant provision, DOE’sappropriationsact for fiscal year 1988,enactedin
                         December1987,containeda DOEwide lobbying prohibition.



                         Page 16                                          GAO/RCED-90-173Nevada Grant Requirements
                          Chapter 2
                          Nevada Haa UsedSomeGrant Funcla
                          Contrary to Laws, Rqulatlom~, and
                          Grant Terma




                          will not comply with” the provision. The reasons for the grantee’s objec-
                          tions were that the provision was “arbitrary, unreasonable, and violates
                          the intent of the NWPA, and would likely lead to legal action if the condi-
                          tion remains intact.” Although the grantee asked DOE to acknowledge
                          the retraction, DOE did not do so.

                          Beginning with the grant amendment for the year ended June 30,1989,
                          DOE revised the grant terms to include the lobbying prohibition con-
                          tained in DOE’S fiscal year 1989 appropriations for the Nuclear Waste
                          Fund. The language in that provision states that

                          none of the funds herein appropriated may be used directly or indirectly to influ-
                          ence legislative action on any matter pending before Congress or a state legislature
                          or for any lobbying activity as provided in 18 U.S.C. 1913.” The grantee did not
                          delete this grant provision.



Auditors Questioned       The Single Audit Act audit report on Nevada’s grant for the year ended
Funds Used for Lobbying   June 30, 1988, said that the Washington, D.C., law firm’s vouchers
                          showed that the grantee was billed and paid for lobbying services. The
Through June 1988         auditors questioned the entire $240,000 that the law firm was paid but
                          said that the law firm’s billings were often too vague to determine what
                          specific services were rendered. The auditors also noted that in the pre-
                          vious year the grantee had spent about $155,000 of grant funds for sim-
                          ilar services under the same contract.

                          The grantee’s Executive Director disagreed with the finding. He stated
                          that NWPA authorizes Nevada to have extensive interaction with the
                          Congress. He also interpreted a December 1985 decision of the Ninth
                          Circuit Court of Appeals as stating that NWPA must be read permissively
                          regarding Nevada’s use of grant funds.4 In that decision, the court found
                          that sections of DOE’S guidelines intended to minimize the state’s inde-
                          pendent testing and studies of the Yucca Mountain site were unlawful
                          because they undermined the independent oversight role that the Con-
                          gress envisioned for affected states. The court ruled that NWPA supports
                          funding for independent site testing as long as the testing is essential to
                          an informed “statement of reasons” for disqualifying a site under sec-
                          tion 116(b) of NWPA, the “disapproval” provision. The court also ruled,

                          “This statute (18 USC. 1913)defineslobbying ss any activity intendedor designedto influence in
                          any manner a Memberof Congressto favor or oppose,by vote or otherwise,any legislationor appro
                          priation by the Congress.This statute appliesto federal officers and employeesonly, not to grantees
                          and their employees.
                          4Stateof Nevadav. Herrington, 777 F.2nd629(9th Cir. 1985).



                          Page 17                                          GAO/RCED-90-173Nevada Grant Requirements
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                        Nevada Haa Used SomeGrant Funds
                        Contrary to Laws, Regulations, and
                        Grant Terms




                        however, that the state is not entitled to carte blanche access to the
                        Nuclear Waste Fund; rather, the state’s testing activities (1) must be sci-
                        entifically justifiable (reasonable), (2) must be performed by demon-
                        strably competent contractors, and (3) cannot unreasonably interfere
                        with or delay DOE’S waste program activities.

                        The Executive Director also cited an opinion by the Nevada Attorney
                        General’s Office that the law firm’s activities fell within the scope of the
                        state’s review of DOE’S waste program activities and Nevada’s informa-
                        tion-gathering and dissemination role. The Executive Director added
                        that a unique relationship exists between DOE and Nevada in that
                        Nevada must obtain its funding from the agency it is overseeing and
                        described the relationship between DOE and Nevada as “adversarial.” In
                        this regard, the Executive Director later told us that DOE has tried to
                        limit, interfere with, and influence Nevada’s oversight role through its
                        control of grant funds.

                        Although the auditors acknowledged the Executive Director’s argu-
                        ments, they concluded that the grantee was lobbying and that NWPA does
                        not authorize lobbying. Furthermore, the final audit report cited an
                        October 1987 memorandum from the Executive Director to the Budget
                        Analyst for the state stating that the law firm’s activities were “clearly
                        in the area of lobbying.” This memorandum stated:

                        With regard to the types of activities this Raw1 firm is undertaking, in my estima-
                        tion, they are clearly in the area of lobbying. The firm contacts various congres-
                        sional renresentatives at our reauest. transmits nositions. information. materials,
                        etc., as well as attends meetings at my request with various federal agencies on
                        behalf of the State of Nevada, including the Department of Energy, the Nuclear Reg-
                        ulatory Commission and others. (Underscoring supplied.)



Use of 1989 Funds for   For the year ended June 30, 1989, we found that the grantee had
Lobbying                retained the legal services of an Olympia, Washington, law firm. From
                        June 1987 to July 1988, this firm was a registered lobbyist for the state,
                        under the Federal Regulation of Lobbying Act, on all matters relating to
                        NWPA. The firm’s billings included activities such as contacting congres-
                        sional staff members and drafting legislation. We could not readily
                        determine the actual cost of lobbying activities from the billings for the
                        year ended June 30, 1989, because this firm also provided other legal
                        services to Nevada; however, the total expenditure from grant funds
                        was $213,000.




                        Page 18                                  GAO/RCED-W-173Nevada Grant Requirements
                      Chapter 2
                      Nevada Has Used &me Grant Funda
                      Contrary to Laws, Regulatione, and
                      Grant Terms




                      In response to our finding, the grantee’s Executive Director said NWPA
                      requires Nevada to interact with the Congress and that providing infor-
                      mation about Nevada’s grant activities is not lobbying. He stated that,
                      although his staff and attorneys had numerous congressional contacts,
                      grantee staff and attorneys are not authorized to initiate congressional
                      contacts. Furthermore, Members of Congress and their staffs initiated
                      these contacts and grantee staff and attorneys responded by answering
                      questions, furnishing information, and writing questions.

                      In a March 14, 1990, letter to us elaborating on his earlier comments, the
                      Executive Director stated that the issue of lobbying, especially before
                      the fiscal year 1989 appropriations act language, is a “grey area.” In his
                      view, the Olympia, Washington, law firm did not engage in any lobbying
                      activities. Also, he further claimed that the state had an obligation to
                      inform the Congress of its findings and experiences relative to the
                      nuclear waste program.

                      We found that each firm was formally registered as a lobbyist for the
                      state during at least a part of the period covered by the appropriation
                      acts for fiscal years 1988-89. Documents we reviewed show numerous
                      congressional contacts, many of which appear to have been initiated by
                      the law firms. Furthermore, the state is not prohibited from spending its
                      own funds for activities in what the Executive Director calls a “grey
                      area.”


                      Nevada used grant funds to pay expenses incurred in suing DOE.
Nevada Used Grant     Although specifically prohibited by the grant terms, the state had main-
Funds to Pay          tained that such expenses were allowable under NWPA." In a June 1986
Litigation Expenses   report on an audit of the grantee’s activities for the years ended in June
                      1984 and 1985, the auditors said that at least a portion of $22,600 in
                      legal costs incurred by the grantee during the S-year period was for legal
                      action or claims against the U. S. government-activities    that are
                      clearly prohibited by the grant agreement. In commenting on a draft of
                      that audit report, the grantee’s Executive Director said that NWPA did
                      not provide DOE with the authority to impose this prohibition and that
                      Nevada intended to sue DOE over this issue. Eventually, Nevada did sue
                      DOEover this issue.



                      “The provision statesthat any costsincurred by the state of Nevadafor litigation againstthe U.S.
                      governmentare unallowableunder the grant.



                      Page 19                                          GAO/RCED-99-173Nevada Grant Requirements
  Chapter2
  Nevada Has Used SomeGrant Funda
  Contrary to Imva, Regulations, and
  Grant Temw




  In September 1987 the Ninth Circuit Court of Appeals ruled against the
  state by finding that litigation against DOE is not an activity that the
  Congress intended to finance from the NuclearWaste Fund.” As dis-
  cussed below, however, DOE has not determined or recovered the portion
  of the approximately $75,000 that Nevada spent on litigation against
  DOE prior to the court’s decision.

  Audits of the grantee performed under the Single Audit Act questioned
  the following subtotals of the $75,200 in litigation expenses:

. about $22,600 for the years ended June 30,1984, and 1985;
. about $42,700 for the year ended June 30,1987; and
. about $9,900 for the year ended June 30,1988 (expenses incurred prior
  to the September 1987 court decision).

  DOEmaintains that these litigation costs were never allowable, and that
  the court’s decision reaffirmed that NWPA does not allow such use of
  grant funds. The grantee has not reimbursed DOE for these expenditures
  because, in the opinion of the grantee’s Executive Director, the court’s
  decision was not retroactive. We note that, traditionally, judicial deci-
  sions are regarded as expressions or interpretations of preexisting law.
  Therefore, with a few exceptions that do not apply here, they are cus-
  tomarily given retroactive effect.

  The Executive Director told us that the grantee has not spent grant
  funds for litigation against the United States since the court’s decision.
  Our review of expenditures for the grant period ended June 30, 1989,
  supported his statement. Also, in his March 14, 1990, letter to us, the
  Executive Director said that Nevada has never refused to pay these
  costs and has, in fact, proposed alternatives to offsetting the amount
  that the state is willing to discuss with DOE. One such alternative is to
  reduce the unexpended portion of Nevada’s current grant if such a
  reduction would not impair accomplishing the objectives of the state’s
  program. According to the Executive Director, Nevada is waiting for
  DOE’S response to the state’s proposals.




  %tate of Nevada,et al., v. Herrington,827 F.2d 1394(9th Cir. 1987).



  Page 20                                         GAO/ECED-90473Nevada Grant Requirements
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                          Chapter 2
                          Nevada Haa UeedSomeGrant Funds
                          Contrary tu Laws, Regulatious, and
                          Grant Terms




                          The grantee, without the knowledge of DOE, exceeded the congressional
Congressional Funding     limit on the amount of money that could be spent on socioeconomic
Limitation on             studies for the Year ended in June 1989.7 This occurred because the
Socioeconomic   Studies   grantee excluded costs of individuals under contract to the grantee who
                          assisted other contractors on the studies. As a result, the $1.5-million
Exceeded                  limit was exceeded by about $96,000.

                          DOE’S fiscal year 1989 appropriations  act limited the amount of money
                          that Nevada could spend on socioeconomic and transportation studies to
                          $1.5 million each. Before the act was passed, Nevada had submitted its
                          grant application for about $23 million, of which $3.4 million was for
                          socioeconomic studies. The $3.4 million included $150,000 for a tech-
                          nical review committee to evaluate the methodology, scientific quality,
                          and direction of the socioeconomic studies. Following enactment of DOE'S
                          appropriations act, DOE did not provide Nevada with any guidance on
                          how to ensure that the grantee would not exceed the spending limit.
                          Nevertheless, the grantee scaled down its request for funds to cover the
                          costs of socioeconomic studies to the $1 .5-million limit specified in the
                          act. It excluded from this amount, however, the previously included cost
                          of the technical review committee. This cost item was moved to a sepa-
                          rate account, totaling $300,192, for “advisory services in socioeconomic
                          and transportation planning.” DOE approved the grantee’s funding
                          request and amended the grant accordingly.

                          During the year ended June 30,1989, the grantee had 80 contracts with
                          69 contractors. We examined the scope of work for all 80 contracts and
                          identified 15 contractors (and 15 contracts) that were directly or indi-
                          rectly involved in socioeconomic studies. Three contractors were actu-
                          ally conducting socioeconomic studies. The other 12 contractors include
                          10 members of the technical review committee and 2 other advisors.
                          According to their contracts, the review committee members and advi-
                          sors were to assist the grantee in designing, managing, and critiquing the
                          socioeconomic studies. We included the costs of all 15 of these contrac-
                          tors in calculating the amount of grant funds spent on socioeconomic
                          studies (see table 2.2).




                          7Suchstudiesare madefor the purposeof determiningthe socialand economicimpactsthat the
                          repository programwill have on the community.



                          Page 21                                      GAO/RCED-90-173Nevada Grant Requirements
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                              Nevada Has bed &me Grant Fun&
                              Contrary to Laws, Regulations, and
                              Grant Terms




Table 2.2: Costs to Support
Socioeconomic Studies         Category                                                               Amount spent
                              Contractors                                                                $1.438542
                              Advisors
                                 Technical Review Committee                                                  82,200
                              __-Others                                                                   -- 75,133
                              Total                                                                     $1 S95.875
                              Source: Nevada Agency for Nuclear Projects

                              We performed a similar analysis of the grantee’s expenditures on trans-
                              portation studies and found that the total amount spent, including advi-
                              sors, was about $1.1 million.

                              DOE did not track the grantee’s expenditures for socioeconomic and
                              transportation studies, and as a result, it had no way of preventing the
                              grantee from exceeding the legislative limitations on the use of grant
                              funds for these purposes. Although the grantee is required to submit
                              quarterly reports to DOE, the reports do not show the amount of expendi-
                              ture by budgetary category.

                              According to the grantee’s Executive Director, the legislative limit on
                              socioeconomic studies was not exceeded because only the costs for the
                              three contractors actually performing the studies should be counted
                              toward the limit. In his March 1990 letter, the Executive Director said
                              that the advisors advise the state and help the state administer a
                              variety of programs and activities. He considers these expenses to be
                              administrative overhead and thus not a part of what is meant by
                              “studies” in the appropriations act. Also, he noted that DOE approved
                              the proposed expenditures.

                              We believe that all costs pertaining to the socioeconomic studies should
                              be counted toward the limitation, including the costs of all contractors
                              that assisted in all aspects of planning, conducting, and reviewing the
                              studies.


                              For the last 2 years included in our review, the grantee requested,
Use of Grant Funds to         obtained, and used over $150,000 of grant funds to pay expenses of the
Pay Expenses of State         state’s nuclear waste legislative committee. The Single Audit Act audit
Legislature ”                 report for the year ended June 30,1988, questioned the grantee’s use of
                              funds for this purpose because it is contrary to OMB guidance and there
                              is no explicit statutory authority that allows such use of grant funds.



                              Page 22                                      GAO/RCED-90-173Nevada Grant Requirements
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                            Nevada Haa Used SomeGrant Funds
                            Contrary to Laws, Regulations, and
                            Grant Terms




                            The auditors recommended that the grantee seek OMB'S approval to use
                            grant funds for legislative expenses. DOE had approved the grantee’s
                            budget requests for legislative expenses without comment. Officials in
                            its Nevada office told us that they had approved the grantee’s requests
                            on the basis of OMB'S policy allowing funding of “advisory councils.” We
                            believe that the OMB guidance is inapplicable to the determination of
                            whether the funding of these expenses is proper. In our view, the rele-
                            vant criteria for this determination must be found within NWPA itself.
                            Furthermore, under the act and applicable court rulings, DOE has consid-
                            erable discretion in determining which expenses are properly chargeable
                            to the grant.


The Grantee Requested       In 1985 the Nevada legislature created the Committee on High-Level
Funds for Legislative       Radioactive Waste. This standing committee of the legislature is author-
                            ized to
Expenditures
                        .   study and evaluate information and policies regarding a repository in
                            Nevada, as well as any other policies relating to the disposal of high-
                            level radioactive waste;
                            identify the potential adverse effects and ways to mitigate the effects of
                            such a repository; and
                            recommend legislation to the Nevada legislature.

                            According to the committee’s enabling legislation, per diem allowances,
                            salary, and travel expenses of the committee members are to be paid
                            from the state legislative fund. Whether this provision precludes reim-
                            bursement of these expenses with grant funds is a matter of dispute
                            within the state. The state Attorney General’s office believes they are a
                            responsibility of the state legislature. The Legislative Counsel Bureau
                            believes they should be paid with NWPA funds.

                            In 1987 the committee recommended two resolutions urging the federal
                            government to take specific actions regarding the repository and one
                            amendment clarifying its own implementing legislation. In 1987 the
                            Nevada legislature passed the clarifying amendment and one of the res-
                            olutions. The resolution urged the Congress and the President to take all
                            measures necessary to mitigate the adverse effects of a repository in
                            Nevada.




                            Page 23                              GAO/RCED-90473Nevada Grant Requirements
                                                                                                                   I

                                                                                                                       *.




                           Chapter 2
                           Nevada Has Used SomeGrant Funds
                           Contrary to Laws, Rqnlatlons, and
                           Grant Terma




                           The grantee contracted with the Nevada Legislative Counsel Bureau to
                           support the Nevada legislature.R For each of the last 2 budget years
                           included in our review, the grantee included an amount for legislative
                           expenditures in the budget requests it submitted to DOE and that agency
                           approved these line items without comment. More than $150,000 was
                           spent for legislative expenses over the 2-year period between July 1,
                           1987, and June 30,1989. This amount included about $69,000 for the
                           first year and $82,500 for the second year. Also, the grantee had con-
                           tracted to support the Nevada legislature in earlier periods. However,
                           because the amounts of these contracts were not separately identified in
                           the DoE-approved grant amendments, we did not take the additional time
                           necessary to identify the actual amounts of grant funds used to pay leg-
                           islative expenses in the earlier periods.


Auditors Question Use of   In the Single Audit Act audit report for the year ended June 30, 1988,
Grant Funds for            the auditors questioned the grantee’s use of about $69,000 of grant
                           funds to pay expenses of Nevada’s legislature. The report stated that
Legislative Expenses       OMB Circular A-87 provides that legislative expenses, except travel
                           expenses that directly benefit a grant program, are not an allowable
                           charge to federal grants.” OMB Circular A-87 sets federal policy on the
                           use of grant funds. Attachment B to this circular states that “salaries
                           and other expenses of the State legislature or similar local governmental
                           bodies . , . whether incurred for purposes of legislative or executive
                           direction, are unallowable.”

                           The auditors also noted that the provisions of the circular may be over-
                           ridden by statutory authority and that NWPA indicates that state partici-
                           pation in the repository siting decision includes the involvement of the
                           state legislature. However, the auditors also noted, no explicit statutory
                           authority exists that allows legislative expenditures to be charged to the
                           state’s grant. Finally, the auditors recognized that DOE had approved
                           funding of legislative expenses by approving the grantee’s budget
                           request.

                           On the basis of these findings, the auditors recommended that the
                           grantee request approval from OMB to expend grant funds for the state
                           legislature.

                           ‘The NevadaLegislativeCounselBureauis the staff agencythat provides legal,research,and fiscal
                           support to the Nevadalegislature,which meetson a biennial basis.It alsoreceivesits funding from
                           the state legislative fund.
                           ‘Cost Principles for Stateand Local Governments(OMB/A-87,Jan. 28,1981).



                           Page 24                                         GAO/RCED-90-173Nevada Grant Requirements
                           chapter2
                           Nevada Has Used &me Grant Funds
                           Contrary to Lawa, R.egulatlons,and
                           Grant Terms




DOE and Nevada Believe     DOE has funded expenses of the Nevada legislature’s Committee on High-
Legislative Expenses Are   level Radioactive Waste and an earlier subcommittee since the beginning
                           of the state’s grant. DOE did not have any documentation in its grant files
Allowable                  that showed the basis on which it permitted the grantee to use funds for
                           this purpose. However, a Nevada Operations Office attorney and the
                           program analyst for Nevada’s grant told us that, according to DOE'S
                           interpretation of the legislation establishing the two committees, they
                           qualify as “advisory councils” under OMB Circular A-87. That circular
                           states that costs incurred by state advisory councils or committees
                           established pursuant to federal requirements to carry out grant pro-
                           grams are allowable. The cost of like organizations is allowable when
                           provided for in the grant agreement, Therefore, these officials said, the
                           expenses incurred by the two committees can be paid with grant funds.

                           In addition, the program analyst stated that the committees were estab-
                           lished as the direct result of the nomination and selection of Yucca
                           Mountain for site characterization. For this reason, any expenses
                           incurred by the committees are a result of this nomination and selection
                           and should not be considered “ordinary expenses” that, according to
                           NWPA, cannot be paid with grant funds.

                           In responding to the 1988 audit report, the Executive Director wrote
                           that it is DOE'S responsibility, not the state’s, to ensure that the proposed
                           use of grant funds is allowed by the NWPA and OMB. The grantee’s Execu-
                           tive Director believes these noE-approved legislative expenses are allow-
                           able. In his March 1990 letter, the Executive Director said that the NWPA
                           specifies a role for both the state’s executive and legislative branches in
                           overseeing DOE'S nuclear waste program. He also said that funding of the
                           state’s legislative involvement in the program has been recognized and
                           supported by DOE since the beginning of the grant program.


NWPA Provides DOE With     In our view, the relevant criteria for determining if grant funds can
Considerable Funding       properly be used to pay expenses of Nevada’s legislature must be found
                           within NWPA rather than OMB Circular A-87. This is the same approach
Discretion                 adopted by the Ninth Circuit Court of Appeals in its September 1987
                           decision on the allowability of Nevada’s litigation expenses.

                           On the basis of our analysis of NWPA, the 1987 amendments to the act,
                           and the December 1986 and September 1987 Circuit Court decisions on
                           the use of grant funds, we conclude that DOE has considerable discretion
                           to determine which expenses are properly chargeable to the grant.



                           Page 25                               GAO/liCED-90473 Nevada Grant Requirements
                         Chapter
                             2
                         Nevada Has Used Some Grant Funds
                         Contrary to Laws, Regulations, and
                         Grant Terme




                         Accordingly, it was not improper for DOE to approve funding of the
                         expenses the state legislature committee under the NWPA grant.

                         Appendix I discussess both why we believe that the circular is not appli-
                         cable criteria and our analysis of the grant funding discretion DOE has
                         under NWPA, as amended, and the related Circuit Court rulings.


                         The grantee has internal control weaknesses that place NWPA funds at
Internal Control         risk. The grantee (1) used grant funds received in one period to pay
WeaknessesResult in      approximately $275,000 in expenses incurred during the prior period,
Improper Uses of         (2) made and allowed advance payments to be used improperly, and (3)
                         did not require audits of subrecipients of grant funds. For some of these
Grant Funds              weaknesses, the grantee has begun corrective actions.


Use of 1989 Fu.nds for   In September 1988 the grantee requested additional funding of $272,067
1988 Expenses            for the grant period that had ended June 30, 1988. The DOE Nevada
                         Operations Office denied this request in a December 30, 1988, letter
                         saying, among other things, that in accordance with the grant agreement
                         Nevada has sole liability for the costs incurred in excess of the amount
                         authorized for the grant period. In January 1989 the grantee appealed
                         DOE’Sdenial but DOEdid not answer this appeal. After DOE had denied the
                         grantee’s request for additional 1988 funding, the grantee used about
                         $275,000 in funds provided for the year ended June 30,1989, to pay for
                         claims from the year ended June 30, 1988.

                         The grant agreement stipulates that the amounts of funds obligated for
                         the performance of grant activities during the applicable grant period-
                         in this case from July 1, 1988, to June 30, 1989--is the limit of DOE’S
                         liability under the grant. It also states that any cost incurred in excess of
                         this amount is the sole responsibility of the state. Thus, since DOE disap-
                         proved the grantee’s request for additional funding, the $275,000 expen-
                         diture of funds provided for the year ended June 30, 1989, to pay claims
                         for a prior year is not an allowable expense.


Advances Improperly      OMB Circular A-102 and DOE regulations require the amount of time
Administered             between the transfer of funds from the U.S. Treasury and their dis-
                         bursement be kept to a minimum. lo Further, DOE regulations prohibit

                         “‘Grants and CooperativeAgreementsWith Stateand LocalGovernments(OMB/A-102,Mar. 3,
                         1988).



                         Page 26                                    GAO/RCED-W-173Nevada Grant Requirements
                         chapter 2
                         Nevada Has Used SomeGrant Funds
                         Contrary to Laws, Re~tions, and
                         Grant Terms




                         advances to be used to ensure timely payment of actual cash
                         disbursements.

                         The Single Audit Act audit for the year ended June 30, 1988, found
                         weaknesses in the grantee’s controls over advances. The grantee
                         advanced an entire year’s funds of about $85,000 to the Nevada
                         Attorney General’s Office in August 1987. In response to the audit, the
                         grantee said it would minimize the time between fund disbursement and
                         use.

                         Because of this previously identified weakness, we examined all the
                         advances made by the grantee for the year ended June 30,1989. The
                         grantee made five advances for about $283,000, of which we questioned
                         two that totaled about $226,000. A November 1988 advance of $210,000
                         to the University of Nevada, Las Vegas, College of Engineering, was not
                         liquidated until August 1989. Moreover, during this period, the univer-
                         sity billed, and was paid, for services rendered without drawing down
                         on the advance. Thus, the entire amount of the advance remained out-
                         standing for about 10 months. The university’s grants supervisor told us
                         that the university wanted the advance to ensure timely payment and
                         also stated that this advance had been invested to earn interest.

                         The grantee also advanced the city of Caliente, Nevada, about $16,000
                         in July 1988. Although the advance was reduced and replenished during
                         the year, the grantee neglected to make a final reconciliation of the
                         advance at the end of the contract period. When we called this to the
                         grantee’s attention, it made a final reconciliation to recover the out-
                         standing balance of the advance.


Subrecipients A re Not   Annual audits of certain subrecipients, as defined by OMB, are required
Being Audited            under the Single Audit Act and OMB Circulars A-l 10 and A-128.” Single
                         Audit Act audits for the years ending in June 1987 and 1988 questioned
                         why the grantee’s local government and university subrecipients were
                         not audited each year. The grantee responded that it considered these to
                         be contractors, not subrecipients, and therefore not required to have
                         annual audits. The auditors disagreed with this response because, in
                         their opinion, some of the grantee’s contractual agreements constituted
                         a recipient/subrecipient relationship.

                         ’ ‘Grants and AgreementsWith Institutions of Higher Education,Hospitals,and Other Non-Profit
                         Organizations(OMB/A-110,July 30,1976) and Audits of Stateand LocalGovernments(OMB/A-128,
                         Apr. 12, 1986).



                         Page 27                                       GAO/RCED-90-173Nevada Grant Requirements
Chapter 2
Nevada Has Used SomeGrant Funds
Contrary to Laws, Regulations, and
Grant Terms




OMB defines a subrecipient as an entity that receives funds from the
grantee to carry out programs that will assist in meeting the grant objec-
tives as opposed to contractors who just provide goods and services.
Both subrecipients and contractors may be employed by contracts; thus
the existence of a signed agreement does not mean the entity is a
contractor.

The 1988 audit also cited the grantee for lack of control over contractor
expenditures. To correct this weakness, the grantee hired an accounting
firm to develop a contracts management system. In developing the
system, the accounting firm found it necessary to accurately differen-
tiate between contractors and subrecipients. In July 1989, the
accounting firm asked the DOE Nevada Operations Office to comment on
the interpretation it developed on the basis of research performed to
differentiate between a contractor and a subrecipient. DOE did not
respond, however, until January 1990, after we had questioned why
there had been no response until then. At that time, a contract specialist
in DOE’S Nevada office verbally notified the accounting firm that DOE had
no problems with the firm’s interpretation.




Page 28                              GAO/RCED-90-173Nevada Grant Requirements
Chapter 3

DOE’s Weak Grant Administiation contributed
to Improper Uses of Funds

                     Considering its lax grant administration, DOE must share responsibility
                     for Nevada’s improper uses of grant funds. Over the last several years,
                     for example, DOE has released grant funds without first reaching agree-
                     ment with the state on all grant terms. In addition, DOE has made limited
                     efforts to ensure that the funds were used according to applicable laws,
                     regulations, and grant terms. Finally, DOE has not tracked grantee
                     expenditures to ensure compliance with congressional limitations and
                     has not resolved and, as appropriate, recovered costs questioned in prior
                     audits of the grantee. In part, these administrative weaknesses occurred
                     because of DOE'S permissive attitude toward the administration of
                     Nevada’s NWPA grants.


                     WE and the grantee have not formally agreed to all of the terms of the
DOE Did Not Reach    grant amendments award documents under which the grantee is funded.
Agreement on All     DOE regulations provide that the grant award is valid when it is in
Grant Terms Before   writing and signed by a DOE contracting officer. These regulations also
                     require the grant applicant to acknowledge acceptance of a grant,
ReleasingFunds       including provisions governing the uses of grant funds, by signing and
                     returning a copy of the grant to DOE. After acknowledgement, the terms
                     and conditions of the grant may be changed unilaterally only by DOE.
                     Over the last several years, however, the grantee has objected to various
                     grant provisions either by marking out specific wording before signing
                     grant documents or by taking written exception. Furthermore, the
                     grantee considers the altered version of the grant amendments to be
                     valid. DOE asserts that the grant amendments stand as initially offered,
                     but agreed that it did not take appropriate actions to convey its position
                     to the grantee. Because the grantee did not accept the grant as offered
                     and did not receive approval of its “amendments,” the parties did not
                     reach agreement on the questioned grant terms and conditions. There-
                     fore, DOE should not have provided the grant funds until it had obtained
                     a final agreement on all grant terms.

                     In a May 1986 letter to DOE'S Nevada Operations Office, the grantee’s
                     Executive Director took exception to two provisions in the grant amend-
                     ment for the period from May 1 through December 31,1986. The first
                     provision disallowed litigation costs while the second withheld grant
                     funds until the grantee provided documentation on its plans for inde-
                     pendent tests and studies related to the investigation of the Yucca
                     Mountain site. DOE had requested documentation on the grantee’s test
                     and study plans as a result of a December 1985 court decision requiring
                     DOE to fund such tests and studies if certain conditions were met.




                     Page 29                              GAO/RCED-90-173Nevada Grant Requirements
Chapter 3
DOE’s WeakGrant Administration
Contributed to Improper Usesof Funds




Although DOE did not respond to the grantee’s letter, it released the
funds once the grantee had provided the requested documentation.

In a March 1987 letter to DOE, the grantee again took exception to the
same two provisions in the grant amendment for the period from March
1 through December 31,1987. In the view of DOE’S Nevada Operations
Office, however, the grant provisions remained in force.

In the grant amendment for the period from March 1,1987, through
June 30, 1988, the grantee’s Executive Director crossed out a grant pro-
vision prohibiting the use of grant funds for lobbying and restricting
grantee/congressional communications. As discussed in chapter 2, DOE
had inserted this provision into the grant to caution the grantee against
using the funds for lobbying. An attorney in DOE’S Nevada Operations
Office drafted a letter informing the grantee that DOE could not accept
the deletion of the provision. In part, the draft response stated that

the [provision] was expressedin terms of a separatecondition to caution the State
that expenditures using grant funds for such ‘consulting services’ which go beyond
those reasonably contemplated by the NWPA should not be made and would be sub-
ject to disallowance.

However, the letter was never sent to the grantee. Furthermore, DOE
officials in the Nevada Operations Office could not explain to us why
the letter had not been sent but said that they should have sent it.

For the July 1,1989, through June 30,1990, grant amendment, the
grantee changed the ending date to September 30, 1989, and deleted
parts of three provisions.1 The DOE draft response concurred with short-
ening the grant period but did not agree to delete the three grant provi-
sions. Once again, however, DOE did not send this letter to the grantee
and no&Nevada officials could not explain why they had not done so.

For the grant amendment covering the period from October 1,1989,
through September 30, 1990, the grantee’s Executive Director struck out
two grant provisions2 The DOE Nevada Operations Office drafted two
responses that it did not send. After we questioned why they were not
sent, a response was drafted and sent on February 9, 1990. In this letter

‘Theseprovisions were entitled: Monitoring, Testing,or Evaluation Activities; External Paymentsor
Transfer of Grant Funds;and DGEImplementationof StevensAmendment,Section8136,to the
Departmentof DefenseAppropriations Act.
eThesetwo provisions were:Monitoring, Testing,or Evaluation Activities, and External Paymentsor
Transfer of Grant Funds.



Page 30                                          GAO/RCED-90-173Nevada Grant Requirements
                       Chapter 3
                       DOE’s WeakGrant Adminietration
                       Contributed to Improper Useeof Funds




                       the grantee was told that only the DOE contracting officer could change
                       the award and therefore the existing provisions were in effect.

                       According to the chief counsel of DOE'S Nevada Operations Office, the
                       grant terms remained as submitted to the grantee by DoE regardless of
                       the changes the grantee made. In retrospect, however, DOE officials now
                       believe that they should have sent the response letters to the grantee. In
                       fact, the DOE Yucca Mountain Project Manager was surprised when we
                       informed him that some of DOE'S response letters had not been sent. The
                       Project Manager thought the grantee had been notified that it could not
                       change the conditions of the award.

                       The grantee’s Executive Director told us DOE is untimely in issuing the
                       grant amendments for grantee acceptance and little time is left to nego-
                       tiate terms and conditions. Therefore, unilateral changes to the grant
                       provisions were made to make them acceptable to the grantee. Further-
                       more, the grantee’s position is that the changes constituted amendments
                       of the grant conditions and that DOE agreed to the changes by awarding
                       the funds.


                       As discussed earlier, on two occasions the grantee deleted grant provi-
DOE Has Not Enforced   sions prohibiting lobbying, and DOE did not resolve the disagreements
Laws, Regulations,     over the lobbying provision before releasing grant funds. Also, DOE has
and Grant Terms        not yet determined the best way to recover grant funds used for unal-
                       lowable purposes.

                       As discussed in chapter 2, several audits questioned the grantee’s use of
                       up to $75,000 in grant funds for litigation expenses, and a court also
                       ruled that litigation expenses were not legitimate expenses to be funded
                       by NWPA. However, DOE has yet to recover these unallowable expenses
                       from the grantee either by requiring direct repayment from the grantee
                       or by withholding the appropriate amounts from subsequent grant
                       awards. The DOE Nevada Operations Office Manager, the contracting
                       officer for this grant, believes the best way to recover these expenses is
                       to deduct them from future payments equal to taxes that it will make to
                       the state of Nevada once DOE begins site characterization of Yucca
                       Mountain. DOE headquarter officials told us, however, that a final deci-
                       sion on how the funds will be recovered has not been made.

                       NWPA, as amended, requires DOE to pay to the state each fiscal year, and
                       to the local government in which the Yucca Mountain site is located, an
                       amount equal to the amount that these governmental units would


                       Page 31                                GAO/RCED-90-173Nevada Grant Requirements
                       Chapter 3
                       DOE’s WeakGrant Administration
                       Contributed to Improper Usesof Funds




                       receive if they were authorized to tax site characterization activities. As
                       yet, however, DOE has not determined just how these payment will be
                       made, how much they will be, and when they will begin. On March 7,
                       1990, DOE published in the Federal Register for public comment a Pro-
                       posed Notice of Interpretation and Procedures on payments equal to
                       taxes. However, these proposed procedures do not provide for recouping
                       unallowable grant expenses from payments DOE is authorized to make
                       under other provisions of the act.

                       In addition, DOE did not provide the grantee with guidance on how to
                       ensure that the grantee did not exceed the congressional spending limi-
                       tations, nor did DOE track the grantee’s expenditures to ensure that the
                       limitations were not exceeded. DOE officials told us that their primary
                       tool for reviewing grantee expenditures was the after-the-fact Single
                       Audit Act audits. While this might ordinarily be satisfactory, we found
                       that DOE is not resolving audit findings in accordance with its regula-
                       tions, which require that such findings be resolved within 6 months
                       from the date that the audit reports are formally presented to DOE for
                       audit resolution.

                       Informational copies of audit reports are available to the the Nevada
                       Operations Office, which is responsible for resolving any grantee-related
                       audit findings, generally within about 6 months after the audit period;
                       however, the audit reports are not formally presented to the office for
                       resolution until about 9 months later. The 9 months includes the time
                       needed to process the reports through the quality control checks
                       required by the Single Audit Act, including a quality review by DOE'S
                       Office of the Inspector General. Thus, the program staff have several
                       months to familiarize themselves with the reported problems before
                       they formally receive the reports for audit resolution.

                       Finally, DOE has not acted to ensure that the grantee’s internal controls
                       over grant funds comply with federal standards. As discussed in
                       chapter 2, we and the independent auditors found several weaknesses in
                       the grantee’s internal control system.


                       We discussed the results of our review with (1) DOE officials at the oper-
Views of Responsible   ations and project offices and at DOE headquarters and (2) grantee offi-
Agency Officials
            Y
                       cials. Subsequent to our discussion with grantee officials, the grantee’s
                       Executive Director provided additional comments on the results of our
                       review in a letter of March 14, 1990. In preparing our report, we consid-
                       ered the comments of all of the DOE and Nevada officials, including those


                       Page 32                                GAO/RCED-90-173Nevada Grant Requirements
              Chapter 3
              DOE’s WeakGrant Administration
              Contributed to Improper Usesof Funds




              comments made in the grantee’s March letter. Also, we included the
              comments of DOE and Nevada officials in our report, where appropriate.

              In his March letter, the grantee’s Executive Director said that our report
              should recognize the uniqueness of the state/federal relationship estab-
              lished by NWPA and the wide-ranging implications of that relationship
              for the grant program that funds the state’s oversight activities. Also,
              because of this special relationship between DOE and Nevada, the grant
              program must be viewed as different from other traditional federal
              assistance programs. Moreover, our report should adequately address
              the special circumstances surrounding this unique grant program and
              our findings in the program administration area should be viewed in the
              context of this special relationship.

              The Executive Director also told us that the state’s frustration with
              DOE'S attempts to subvert Nevada’s oversight activities had led to the
              legal actions the state took in January 1990 and in earlier years. In the
              Executive Director’s opinion, only NWPA and subsequent court decisions,
              not DOE, govern how the state can use its grant funds. Accordingly, he
              said, Nevada does not seek guidance from DOE on how it may use grant
              funds.

              For their part, DOE officials in Nevada said that they adopted a more
              permissive approach to funding Nevada’s proposed grant activities fol-
              lowing the December 1985 decision of the Ninth Circuit Court of
              Appeals, discussed earlier, on Nevada’s challenge to DOE'S guidelines on
              nuclear waste program grants. On the basis of this decision, these offi-
              cials decided not to object to funding any of the state’s proposed activi-
              ties that reasonably relate to the Yucca Mountain project. They also said
              that less stringent review of Nevada’s funding requests was needed once
              the Congress limited the amount of NWPA funds the state could receive
              and the amount it could spend on certain activities. In this regard, the
              Yucca Mountain Project Manager interprets the congressional limita-
              tions and restrictions contained in DOE'S 1989 and 1990 appropriations
              acts to mean that the Congress, not DOE, will provide grant program
              direction to Nevada. Nevada may use the funds made available by the
              Congress in whatever way it wishes, within the limits of NWPA.


              NWPA, as amended, charges DOE with investigating the suitability  of
Conclusions   Yucca Mountain as a site for a nuclear waste repository and, if the site is
              found suitable and is selected, to seek authorization from the Nuclear
              Regulatory Commission to construct a repository at the site. However,


              Page 33                                GAO/RCED-90-173Nevada Grant Requirements
Chapter 3
DOE’s WeakGrant Administration
Contributed to Improper Usesof Funds




the grantee vigorously opposes DOE'S Yucca Mountain project. These
opposing points of view toward the project create an environment con-
ducive to disputes over DOE'S administration of the grant and the appro-
priate uses of funds by the grantee.

Regardless of their opposing positions on the Yucca Mountain project,
DOE and Nevada are responsible for ensuring that activities funded by
the grant are consistent with NWPA and other applicable laws, regula-
tions, court decisions, and grant terms. To do this, DOE needs to improve
its administration of the grant by settling disputes over grant terms
before releasing funds to the state. In addition, DOE needs to advise the
grantee on methods for implementing any legislative restrictions on the
use of grant funds, resolve audit findings within 6 months and recover
any amounts used for unallowable purposes, and ensure that the
grantee’s internal controls over grant funds comply with federal stan-
dards. Likewise, the state, as the grantee, has the responsibility to
ensure that it fully complies with all applicable laws, regulations, and
grant provisions.

State and DOE officials have liberally interpreted the uses of grant funds
allowed by NWPA. Nevada officials believe that NWPA provides them with
considerable latitude in deciding how to use grant funds. Although DOE
officials who administer the grant at the local level did not fully agree
with this view, they stated that the 1985 court decision on funding
Nevada’s independent tests and studies and the Congress’ recent deci-
sions to impose restrictions on Nevada’s grant contributed to their more
relaxed approach to administering the grant.

The liberal interpretations by state and DOE officials of how grant funds
can be used has, we believe, contributed to the Congress’ becoming more
restrictive in both the amount of money appropriated for the state’s
grant and in the activities that may be funded. NWPA, as amended,
requires that grant funds shall be used for those purposes stated in the
act, and in DOE'S last two appropriations acts the Congress has specifi-
cally restricted the activities that can be funded with grants paid from
the Nuclear Waste Fund. These actions clearly demonstrate that the
Congress intends that grant funds be used only for purposes that fur-
ther the goals of NWPA, as amended. Thus, it is incumbent on both the
state and DOE to take all necessary steps to ensure that grant funds are
used for appropriate purposes.




Page 34                                GAO/RCED-90-173Nevada Grant Requirements
                    Chapter   3
                    DOE’s Weak Grant Administration
                    Contributed to Improper Usesof Funds




                    To better ensure that grant funds are adequately protected and that
Recommendations     recipients of these funds comply with applicable laws, regulations, court
                    decisions, and grant provisions, we recommend that the Secretary of
                    Energy

                    obtain properly executed grant agreements and amendments to the
                    agreements before releasing funds to grantees;
                    provide timely guidance to the grantee on the methods to be followed in
                    implementing any congressional restrictions placed on the grantee’s use
                    of funds;
                    resolve all audit findings within 6 months as required by current DOE
                    regulations;
                    determine the amount of grant funds expended for unallowable pur-
                    poses, seek repayment of unallowable expenditures, and, if timely
                    repayment is not forthcoming, recover these expenditures by with-
                    holding the amount due from the state’s subsequent grant award; and
                  . ensure that the grantee’s internal controls over grant funds comply with
                    federal standards.




                    Page 35                                GAO/RCED-90-173Nevada Grant Requirements
                                                                                                           ,

Appendix I

NWPA Provides DOE With Considerable
Discretion in Approving Usesof Grant Funds

                        The relevant criteria for determining if grant funds can properly be used
                        to pay expenses of Nevada’s legislature must be found within NWPA
                        rather than OMB Circular A-87. This is the same approach, for example,
                        adopted by the Ninth Circuit Court of Appeals in its September 1987
                        decision on the allowability of Nevada’s litigation expenses. Further-
                        more, on the basis of our analysis of NWPA, the 1987 amendments to the
                        act, and the December 1985 and September 1987 Circuit Court decisions
                        on the use of grant funds, we have concluded that DOE has considerable
                        discretion to determine which expenses are properly chargeable to the
                        grant. Accordingly, it does not appear to be improper for DOE to approve
                        funding of the expenses of the committee of the state legislature under
                        the NWPA grant.


                        The cost principles of OMB Circular A-87 state generally that expenses of
The OMB Circular Is     state legislative bodies are unallowable. Primarily for this reason, the
Not Applicable          Single Audit Act report questioned this use of NWPA grant funds. How-
                        ever, when DOE attempted to rely on another provision of this circular,
                        concerning states’ litigation expenses under NWPA, the Ninth Circuit
                        ruled, in its September 1987 decision, that “[rleliance on this circular is
                        clearly inappropriate.“’ The Court noted, in part, that the circular itself
                        states that its principles are not intended to dictate the extent of federal
                        participation in a particular grant, and the Court based its decision
                        instead on the provisions of NWPA.


                        On the basis of NWPA, subsequent judicial construction of the act, and the
NWPA Provides DOE       1987 amendments to the act, we believe that DOE has sufficient discre-
With Considerable       tion to determine that expenses of a Nevada state legislative committee
Discretion on the Use   are properly chargeable to the grant.
of Funds

Original Statutory      Under subsection (c) of section 116 of NWPA as originally enacted, the
Provisions              Congress provided authority and established criteria for various grants
                        to states to be made out of the nuclear waste fund, Paragraph (c)(l)(A)
                        directed the Secretary of Energy to make grants to each state receiving
                        notification that it contained a “potentially acceptable” repository site.
              Y         The NWPA provided a definition of the term “potential acceptable site,”
                        but did not establish a numerical limit on the states that might have

                        ‘State of Nevada, et al. v. Herrington, 827 F.2d 1399 (9th Cir. 1987).



                        Page 36                                            GAO/RCED-90-173Nevada Grant Requirements
Appendix I
NWPA provides DOE With Considerable
Diacmtion in Approving Usesof Grant Funds




such sites. At most, the Secretary’s notification was required to take
place within 180 days after January 7, 1983, the date of enactment of
NWPA. States were to receive such grants “for the purpose of partici-
pating in activities required by” sections 116 and 117 of the act, or
authorized by written agreement entered into pursuant to subsection
117(~).~ Salary and travel expenses that would ordinarily be incurred by
the state were specifically determined to be ineligible for funding. No
other statutory guidelines were prescribed for paragraph (c)(l)(A)
grants.

Paragraph (c)(l)(B) directed the Secretary to make grants to each state
having a “candidate” repository site approved by the President, based
on recommendations of the Secretary of Energy. The Secretary’s recom-
mendations, based in turn on his nomination of at least five sites pur-
suant to guidelines to be issued within 180 days of NWPA’S enactment,
were to be made to the President not later than January 1, 1985. The
Secretary was to recommend three sites to the President, whose
approval (or disapproval) was required within 60 days of the Secre-
tary’s recommendation. Grants made pursuant to paragraph (c)(l)(B)
were to be “only” for purposes of enabling a state to undertake five
listed categories of activities, which essentially involve independent
state oversight and analysis of the impacts of DOE’S site characterization
activities.

Consideration must also be paid to the state site disapproval process
under NWPA. Under subsection 116(b) of the act, once the President has
recommended a site for the repository, unless otherwise provided by
state law, either the governor or the legislature of the state in which the
site is located may submit to the Congress a notice of disapproval. In the
bill considered on the House floor in 1982, the text of the subsection as
originally drafted required the notice to be submitted jointly by the gov-
ernor and the legislature. As the result of an amendment offered by Rep-
resentative Markey, the provision was changed to permit either the
governor or the legislature to file a notice of disapproval. Floor debate
on the amendment makes it clear that its purpose was to provide the
state with the maximum flexibility to determine the means by which to
present the state’s disapproval:

Mr. Udall. The gentleman’s amendment as I understand it says to the State, You
have a veto. We hereby grant you the further power to decide who will exercise that
State veto.


2Thereis no section 117 written agreement between DOE and Nevada.



Page 37                                        GAO/RCED-90-173Nevada Grant Requirements
                        Appendix I
                        NWl’A provides DOE With Considerable
                        Discretion In Approving Usesof Grant Funds




                        It could be the Governor alone, the legislature alone, it could be a special commission
                        set up under State law or any other formulation or arrangement the State wanted to
                        put into effect.

                        Mr. Markey.      That is the intention of the amendment.”

                        In 1985, in order to be prepared to carry out its statutory authority to
                        submit a notice of disapproval, should it be necessary, the Nevada legis-
                        lature enacted NRS 459.0085, creating the Committee on High-Level
                        Radioactive Waste to study and evaluate certain issues raised by the
                        potential location of a nuclear waste repository in the state, and to rec-
                        ommend appropriate legislation. In the preamble to NRS 459.0085, the
                        state expressed its determination that both the governor and the legisla-
                        ture would participate in the disapproval process as follows:

                        The legislature hereby finds, and declares it to be the policy of this state, that the
                        study of the disposal of high-level radioactive waste in the State of Nevada and
                        related activities is essential to the preservation of the public health and welfare.
                        This study must involve the governor, the legislature and local governments as
                        direct participants. (Emphasis added).4

                        It is obvious that the activities of the legislative committee are consid-
                        ered by the state to be an integral part of the state’s role under NWPA.


Judicial Construction   In 1984, following DOE’S denial of a Nevada request for funding of cer-
                        tain proposed hydrologic and geologic studies of the Yucca Mountain
                        site, Nevada sued DOE for a declaratory judgment that DOE’S Internal
                        General Guidelines on Nuclear Waste Repository Program Grants were
                        unlawful, and that the funding request should be approved. The issue
                        arose at a point prior to the Secretary’s recommendation and the Presi-
                        dent’s approval of “candidate sites,” which would have triggered the
                        authority provided by paragraph (c)(l)(B) of section 116 of NWPA. Thus,
                        only the grant program authorized by paragraph (c)(l)(A) was directly
                        involved in this litigation. The court held that Nevada was entitled to
                        the requested funding and that sections of DOE’S Guidelines that sought
                        to “minimize” independent state collection of primary data were
                        unlawful.

                        On the basis of its analysis of the purposes and structure of the NWPA,
                        the Court concluded that paragraph (c)(l)(A) “must be read as a

                        “128 Cong. Rec. H8598 (daily ed. Nov. 30, 1982).

                        4Ch. 680, Nev. Stats. 1985.



                        Page 38                                            GAO/RCED-90-173Nevada Grant Requirements
Appendix I
NWPAProvides DOE With Considerable
Discretion in Approving Usesof Grant Funds




catchall provision that authorizes funding in other circumstances not
already specifically ‘required by sections 116 or 117 or authorized by
written agreement.“’ (Emphasis in original).” The Court also observed
that this paragraph provides a basis for funding the proposed studies, if
they would be essential to the informed “statement of reasons” that
might be needed later under subsection 116(b) to explain a state’s disap-
proval of a recommended repository site. The Court found that this
statement of reasons is “required by section 116,” and thus the pro-
posed studies were eligible for funding under paragraph (c)(l)(A). Even
though a state may never have to file a statement of reasons, activities
in advance of such a statement were held to be eligible for funding
under this authority. Finally, in the act’s legislative history, the Court
found support for its analysis of the act’s purpose and structure. And
the Court quoted Senate committee report language indicating that a
state’s rights under NWPA were to be given the broadest possible
interpretation.

Nevada, joined by other states, later sued DOE to overturn the Secre-
tary’s denial of eligibility for grant funding of litigation expenses
incurred to finance judicial review of DOE actions under the NWPA. This
matter arose after the President had approved three “candidate” sites
for characterization, thus meeting the condition, with respect to two of
the petitioners, for grant funding under paragraph (c)(l)(B). However,
three of the other petitioning states did not contain “candidate” sites,
but only “potentially acceptable” sites. Therefore, the extent of funding
eligibility for those states would normally be governed by paragraph
(c)(l)(A), for, as the Court noted, “[tlhere are specific statutory provi-
sions requiring funding to states at different stages of the site selection
process.“ci

The Court considered the principal issue to be whether litigation
expenses attendant to judicial review were an activity “required” by
sections 116 and 117 of NWPA. However, having thus phrased the issue
in terms of paragraph (c)(l)(A), the analysis proceeded on the basis of
paragraph (c)(l)(B). The Court held that paragraph (c)(l)(B) “sets forth
an exhaustive list of activities for which a state may use grant funds.”
(Emphasis added.)7 For this conclusion the Court twice quoted the lan-
guage of paragraph (c)(l)(B), which still contained the word “only.” The

“State of Nevada v. Herrington, 777 F.2d 529 at 532.
“State of Nevada, et al. v. Herrington, 827 F.2d 1394 at 1398.

7State of Nevada, et al. v. Herrington, at 1398, 1399.



Page 39                                             GAO/RCED-90-173Nevada Grant Requirements
                  Appendix I
                  NWPAProvides DOE With Considerable
                  Discretion in Approving Usesof Grant Funds




                  Court held that litigation expenses, not being expressly or impliedly cov-
                  ered in paragraph (c)(l)(B), were not to be funded by NWPA grants.


NWPA Amendments   Three months later, the Congress enacted amendments to NWPA. Among
                  the amendments was the deletion of the word “only” from paragraph
                  (c)(l)(B). Paragraphs (c)(l)(A) and (c)(l)(B) were retained as distinct
                  funding authorities, even though the previous phased process of site
                  selection was changed so that site characterization activities were to be
                  focused on Nevada instead of on three states.

                  The word “only” was deleted at the conference report stage of the 1987
                  NWPA amendments. While there is no explanation in the report or floor
                  debate for the purpose of this deletion, there clearly must have been
                  some reason for this legislative action. One possible reason for this
                  amendment was to overturn the recent restrictive court interpretation
                  of the NWE’A funding provisions, since it is generally presumed that the
                  Congress is knowledgeable about existing law pertinent to the legislation
                  it enacts,x and that the Congress has knowledge of the judicial interpre-
                  tation given to a prior statute, at least insofar as it affects the new
                  statute.”


                  On the basis of this analysis, we conclude that DOE has considerable dis-
Conclusions       cretion under NWPA to determine which expenses are properly charge-
                  able to the grant. Specifically, under the authority of paragraph
                  (c)( 1 )(A) of NWPA, as interpreted by the Ninth Circuit in State of Nevada
                  v. Herrington, DOE could properly determine that funding the state legis-
                  lative committee from the NWPA grant was proper, inasmuch as state
                  policy, as permitted by the NWPA, was to involve the legislature inte-
                  grally in the site disapproval process. In addition, the later 1987 NWPA
                  amendments can be viewed as confirming DOE’S funding flexibility under
                  the act. Therefore, it does not appear to be improper for DOE to approve
                  funding of the expenses of this committee of the state legislature under
                  the NWPA grant.




                  “Goodycar Atomic Corp. v. Miller, 486 U.S. 174 (1988), and Sutton v. United States, 819 F.2d 1289
                  (5th Cir. 1987).
                  %xillard   v. Pans, 434 17,s.575 (1978)



                  Page 40                                           GAO/RCED-M-173Nevada Grant Requirements
Appendix II

Major Contributors to This Report


                        Judy England-Joseph, Associate Director
Resources,              Dwayne E. Weigel, Assistant Director
Community, and          Richard A. Renzi, Assignment Manager
Economic
Development Division,
Washington, D.C.


Regional Office         Eugene P. Buchert, Staff Evaluator


                        Susan W. Irwin, Attorney
Office of General
Counsel




(YOlBH7)                Page 41                              GAO/RCED-90-173Nevada Grant Requirements
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