Modernizing the Nuclear Security Enterprise:

NNSA's Reviews of Budget Estimates and Decisions on Resource Trade-offs Need Strengthening

GAO-12-806: Published: Jul 31, 2012. Publicly Released: Jul 31, 2012.

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What GAO Found

The National Nuclear Security Administration’s (NNSA) planning, programming, budgeting, and evaluation (PPBE) process provides a framework for the agency to plan, prioritize, fund, and evaluate its program activities. Formal policies guide NNSA and management and operating (M&O) contractors through each of four phases of the agency’s PPBE cycle—planning, programming, budgeting, and evaluation. These phases appear to be sequential, but the process is continuous and concurrent because of the amount of time required to develop priorities and review resource requirements, with at least two phases ongoing at any time.

NNSA does not thoroughly review budget estimates before it incorporates them into its proposed annual budget. Instead, NNSA relies on informal, undocumented reviews of such estimates and its own budget validation review process—the formal process for assessing budget estimates. Neither of these processes adheres to Department of Energy (DOE) Order 130.1, which defines departmental provisions for the thoroughness, timing, and documentation of budget reviews. NNSA officials said the agency does not follow the order because it expired in 2003. Nevertheless, the order is listed as current on DOE’s website, and a senior DOE budget official confirmed that it remains in effect, although it is outdated in terminology and organizational structure. Additionally, according to NNSA officials, the agency’s trust in its contractors minimizes the need for formal review of its budget estimates. GAO identified three key problems in NNSA’s budget validation review process. First, this process does not inform NNSA, DOE, Office of Management and Budget, or congressional budget development decisions because it occurs too late in the budget cycle—after the submission of the President’s budget to Congress. Second, this process is not sufficiently thorough to ensure the credibility and reliability of NNSA’s budget because it is limited to assessing the processes used to develop budget estimates rather than the accuracy of the resulting estimates and is conducted for a small portion of NNSA’s budget—approximately 1.5 percent of which received such review in 2011. Third, other weaknesses in this process, such as no formal evaluative mechanism to determine if corrective actions were taken in response to previous findings, limit the process’s effectiveness in assessing NNSA’s budget estimates.

NNSA uses a variety of management tools to decide on resource trade-offs during the programming phase of the PPBE process. One of these tools, integrated priority lists—which rank program activities according to their importance for meeting mission requirements—is to provide senior managers with an understanding of how various funding scenarios would affect program activities. However, NNSA has weakened its ability to gauge the effects of resource trade-offs. For example, in 2010, NNSA disbanded its Office of Integration and Assessments, created in response to DOE Inspector General and GAO recommendations that NNSA establish an independent analysis unit to perform such functions as reviewing proposals for program activities and verifying cost estimates. NNSA agreed with these recommendations and, in 2009, instituted the office to identify, analyze, and assess options for deciding on resource trade-offs. Without an independent analytical capability, NNSA may have difficulty making the best decisions about what activities to fund and whether they are affordable.

Why GAO Did This Study

NNSA, a semiautonomous agency within DOE, is responsible for the nation’s nuclear weapons, nonproliferation, and naval reactors programs. Since its inception in 2000, the agency has faced challenges in its ability to accurately identify the costs of major projects. In addition, both the DOE Inspector General, in 2003, and GAO, in 2007, reported concerns with NNSA’s PPBE process, specifically in how NNSA validates budget estimates and decides on resource allocations or trade-offs.

GAO was asked to review how NNSA manages programming and budgeting through its PPBE process. GAO examined (1) the current structure of NNSA’s PPBE process, (2) the extent to which NNSA reviews its budget estimates, and (3) how NNSA decides on resource trade-offs in its PPBE process. To carry out its work, GAO reviewed NNSA policies, instructions, guidance, and internal reports documenting the agency’s PPBE process and interviewed NNSA, DOE, and M&O contractor officials.

What GAO Recommends

GAO recommends that, among other things, DOE update the departmental order for budget reviews, improve the formal process for reviewing budget estimates, and reinstitute an independent analytical capability. The agency agreed in principle with six recommendations but not with one to consolidate various integrated priority lists. GAO continues to believe this recommendation has merit as discussed in the report.

For more information, contact Gene Aloise at (202) 512-3841 or aloisee@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: According to DOE's audit tracking system report, for the period ending 3/31/13, DOE Office of Budget was evaluating and revising DOE Order 130.1 as necessary to include PPBE. The report states that the Office of Budget will communicate revisions to NNSA as appropriate with an estimated completion date of 9/30/13. Also according to the tracking system, Order 130.1 was updated and placed in the management review process some time between 6/30/13 and 9/30/13. As of 6/30/14, the updated order remains in the management review process and this recommendation remains open.

    Recommendation: To enhance NNSA's ability to better ensure the validity of its budget submissions, and to decide on resource trade-offs, the Secretary of Energy should direct the DOE Office of Budget to formally evaluate DOE Order 130.1 and revise as necessary, and communicate any revisions to the NNSA Administrator so that the agency will have updated provisions for assessing the quality of its budget estimates.

    Agency Affected: Department of Energy

  2. Status: Closed - Not Implemented

    Comments: According to DOE's audit tracking system, NNSA agrees with GAO that budget estimates should be thoroughly reviewed by site and headquarter program offices and that these reviews should be timed to inform the NNSA, DOE, and OMB congressional budget decisions. However NNSA argues that GAO did not accurately consider the cumulative effectiveness of NNSA's PPBE process as a whole and instead overemphasized procedural areas, such as budget validation. GAO's focus on the budget validation process was based on the trying to locate a point in the PPBE process where contractor-prepared cost estimates were thoroughly reviewed by DOE staff before being placed in the budget, as required by DOE O130.1. The budget validation process was as close as GAO could find to estimates being reviewed, but as explained in the our report, this process only validated the process used to generate some cost estimates but did not validate any estimates themselves. NNSA has suspended the budget validation process since our report was issued and now lacks even a procedural check on the estimating process. NNSA's reference to the cumulative effectiveness of the PPBE process provides no additional evidence to support the claim that estimates are thoroughly reviewed before being placed in the budget. As a result, this recommendation is categorized as closed not implemented.

    Recommendation: To enhance NNSA's ability to better ensure the validity of its budget submissions, and to decide on resource trade-offs, the Secretary of Energy should direct the Administrator of NNSA to develop a formal process, or amend its budget validation review process, to ensure that all budget estimates are thoroughly reviewed by site and headquarters program offices, and that these reviews are timed to inform NNSA, DOE, OMB, and congressional budget decisions.

    Agency Affected: Department of Energy

  3. Status: Open

    Comments: According to DOE's audit tracking system report, as of 9/30/14, NNSA has put budget validation reviews on hold and has conducted a process improvement study to see how future validation reviews could be timed to better inform the budget request. According to the report, several options are currently under review gby the new NNSA leadership team and all of the options include a provision to evaluate the status of recommendations made during previous validation reviews and to creat a feedback loop in the revised programming process. The report also says that it is now too late in the year to conduct a validation review that would impact the FY16 budget request and the next opportunity to do so will be the summer of 2015 which is the new target date for completing this recommendation. As a result, this recommendation remains open.

    Recommendation: To enhance NNSA's ability to better ensure the validity of its budget submissions, and to decide on resource trade-offs, the Secretary of Energy, once this process is developed, should direct the Administrator of NNSA to incorporate a formal mechanism to evaluate the status of recommendations made during previous budget validation reviews so that NNSA can measure M&O contractors' and programs' progress in responding to deficiencies with their budget estimates.

    Agency Affected: Department of Energy

  4. Status: Closed - Not Implemented

    Comments: According to DOE audit tracking system report, as of 3/31/14, NNSA non-concurred with this recommendation. According to the report, NNSA agrees with GAO that integrated priority lists (IPLs) are a useful management tool to facilitate NNSA and DOE decision making. However, NNSA believes that IPLs are meaningful when program offices prioritize activities within their mission areas. The Weapon Activities (WA) appropriation funds multiple missions and, during programming, these mission areas compete for funding from all NNSA funding sources, not just the WA appropriation. NNSA believes that the current approach is effective and efficient and reaching consensus on an integrated IPL for the WA would be difficult and time consuming with marginal value added. NNSA is open to the idea of a more robust IPL if circumstances change. Based on this input from NNSA, this recommendation is categorized as closed not implemented.

    Recommendation: To enhance NNSA's ability to better ensure the validity of its budget submissions, and to decide on resource trade-offs, the Secretary of Energy should direct the Administrator of NNSA to combine the integrated priorities lists for each of the program offices funded within the Weapons Activities appropriation into a single integrated priorities list, as stipulated in NNSA instructions, to better inform DOE which program activities would be affected by changes to this appropriation.

    Agency Affected: Department of Energy

  5. Status: Closed - Implemented

    Comments: According to the DOE audit tracking report for the period ending 3/31/14, NNSA closed this recommendation based on the establishment of the Office of Program Review and Analysis within NNSA. This office was established with the responsibilities outlined in the recommendation. As a result, this recommendation is categorized as closed implemented.

    Recommendation: To enhance NNSA's ability to better ensure the validity of its budget submissions, and to decide on resource trade-offs, the Secretary of Energy should direct the Administrator of NNSA to reinstitute an independent analytical capability to provide senior decision makers with independent program reviews, including an analysis of different options for deciding on resource trade-offs, and facilitate NNSA making the best decisions about what activities to fund and whether they are affordable. As part of this capability, formally retain the Requirements and Resources Assessment process to review proposed new activities and unfunded requirements.

    Agency Affected: Department of Energy

  6. Status: Closed - Implemented

    Comments: According to DOE's audit tracking system, NNSA decided to discontinue the formal issuance of the Administrator's Final Recommendations (AFR) document due to concerns that its contents, which are predecisional, could be leaked and thereby reduce the flexibility of DOE and OMB in making final budget decisions. NNSA replaced the AFR with the Administrator's Preliminary Decision, an internal document that is not signed by NNSA leadership. NNSA agrees with GAO ths the content of the information that is now included in the APD could be improved and NNSA will take necessary steps to do so during the next PPBE cycle and policy documents will be updated to reflect this approach. According to the report, as of 6/30/14, NNSA's new Office of Program Review and Analysis conducted NNSA's FY16-20 program review and the results were documented in an APD that was signed by the new Administrator. The future and scope of the APD and the relaed business operating policies will be reviewed and updated as necessary over time to meet the needs of the new leadership team. As a result of these actions, this recommendation is categorized as closed implemented.

    Recommendation: To enhance NNSA's ability to better ensure the validity of its budget submissions, and to decide on resource trade-offs, the Secretary of Energy should direct the Administrator of NNSA to reinstitute the issuance of the Administrator's Final Recommendations to document the Administrator's rationale and methodology for deciding on resource trade-offs to support in his budget proposal to DOE and to better facilitate NNSA's participation in DOE's budget process.

    Agency Affected: Department of Energy

  7. Status: Closed - Not Implemented

    Comments: According to the DOE audit tracking system report for the period ending 3/31/14, NNSA's Budget Office and Office of Acquisition and Project Management determined that this document is no longer needed. According to the report, NNSA and DOE have already produced sufficient guidance in this area and any additional information should be included as updates to existing guides and policies. This recommendation was based on a careful analysis of existing NNSA and DOE guides and policies related to establishing cost estimates for operations and maintenance (sustainment) activities. The only document that was identified was the draft document that was the focus of this recommendation. NNSA's reference to other guides and policies does not satisfy the intent of this recommendation and is therefore categorized as closed not implemented.

    Recommendation: To enhance NNSA's ability to better ensure the validity of its budget submissions, and to decide on resource trade-offs, the Secretary of Energy should direct the Administrator of NNSA to complete and formally issue the Program Managers' Guide to Understanding and Reviewing Cost Estimates for Operations and Sustainment Activities so that program managers will be better equipped to evaluate the reasonableness of cost estimates.

    Agency Affected: Department of Energy

 

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