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Report to Congressional Committees: 

August 2005: 

Nuclear Nonproliferation: 

Better Management Controls Needed for Some DOE Projects in Russia and 
Other Countries: 

GAO-05-828: 

GAO Highlights: 

Highlights of GAO-05-828, a report to congressional committees: 

Why GAO Did This Study: 

The National Defense Authorization Act for FY 2004 mandated that we 
assess the management of threat reduction and nonproliferation programs 
that the Departments of Defense and Energy each administer. The 
objective of this report is to assess how the Department of Energy’s 
National Nuclear Security Administration (NNSA) implements management 
controls, which we define here to be the processes ensuring that work 
done under a contract meets contract specifications and that payments 
go to contractors as intended. 

What GAO Found: 

Two NNSA offices, the Office of Nuclear Risk Reduction (designated by 
NNSA as NA-23) and International Material Protection and Cooperation 
(NA-25), documented management controls for almost all of their 
contracts that we reviewed, but the third office, the Office of 
Nonproliferation and International Security (NA-24), did not document 
controls for most of their contracts because they could not provide the 
required documentation. More specifically, for eight of the nine NA-23 
and NA-25 contracts we reviewed, the NA-23 headquarters staff and the 
laboratory staff that manage the contracts for NA-25 provided to us 
complete records of deliverables and invoices, as well as evidence that 
technical officials reviewed and approved the deliverables and contract 
officers reviewed and approved the invoices. (For the ninth contract, 
NA-25 provided us with incomplete documentation of its controls.) In 
addition, NA-23 and NA-25 each apply procedural guidance that assists 
managers in maintaining these controls. However, according to an NNSA 
official, none of the three offices currently perform periodic reviews 
to ensure their existing management controls remain appropriate. 

In contrast, we were unable to determine if NA-24 implements management 
controls because, for seven of the nine contracts we reviewed, the 
documentation it provided to us was in most cases either incomplete or 
it provided no clear audit trail that we could follow. (Documentation 
was complete for the eighth and ninth contracts.) The types of 
documents that were missing varied across and within some contracts. In 
addition, NA-24 does not provide its contract managers with procedural 
guidance on how to maintain its management controls, nor does it 
perform a periodic review of its controls to ensure the controls are 
effective and appropriate. 

Table 1: NNSA Documentation of Management Controls in Nuclear 
Nonproliferation Contracts, by Number of Contracts: 

[See PDF for image]

Source: GAO. 

[End of table]

What GAO Recommends: 

To create effective management controls, we recommend that the 
Secretary of Energy, working with the Administrator of NNSA, require 
that: (1) NNSA develop guidance for implementing and documenting 
management controls, (2) program managers have quick access to key 
contract records, regardless of the records’ location, and (3) NNSA 
perform periodic reviews of its management controls to ensure their 
effectiveness. NNSA accepted our recommendations but took issue with 
our assessment of management controls in some cases. We believe that 
the facts support our assessment and that the implementation of our 
recommendations will improve the effectiveness of the management 
controls we reviewed. 

www.gao.gov/cgi-bin/getrpt?GAO-05-828. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Gene Aloise, 202-512-
3841, aloisee@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Management Controls Are in Place for Two of the Three NNSA Offices 
Administering Contracts for Nuclear Nonproliferation Projects: 

Conclusions: 

Recommendations: 

Agency Comments and Our Evaluation: 

Scope and Methodology: 

Appendixes: 

Appendix I: NNSA Contracts: 

Appendix II: Documentation of Management Controls - GAO Assessment by 
Contract: 

Appendix III: Comments from the Department of Energy: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: NNSA Documentation of Management Controls in Nuclear 
Nonproliferation Contracts, by Number of Contracts: 

Abbreviations: 

BNL: Brookhaven National Laboratory: 

CRDF: U.S. Civilian Research and Development Foundation: 

DOD: Department of Defense: 

DOE: Department of Energy: 

FRAEC: Foundation for Russian American Economic Cooperation: 

GIPP: Global Initiatives for Proliferation Prevention: 

HEU: Highly Enriched Uranium: 

INL: Idaho National Laboratory: 

IPP: Initiatives for Proliferation Prevention: 

ISTC: International Science and Technology Center: 

LANL: Los Alamos National Laboratory: 

LBNL: Lawrence Berkeley National Laboratory: 

LEU: Low Enrichment Uranium: 

LLNL: Lawrence Livermore National Laboratory: 

NNSA: National Nuclear Security Administration: 

ORNL: Oak Ridge National Laboratory: 

PNNL: Pacific Northwest National Laboratory: 

SNL: Sandia National Laboratory: 

STCU: Science and Technology Center of Ukraine: 

TST: Technical Survey Team: 

Letter August 29, 2005: 

The Honorable John Warner: 
Chairman: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Duncan Hunter: 
Chairman: 
The Honorable Ike Skelton: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives: 

In March 2000, the National Nuclear Security Administration (NNSA) 
assumed responsibility for carrying out the Department of Energy's 
(DOE) national security and nuclear nonproliferation 
responsibilities.[Footnote 1] These nuclear nonproliferation projects, 
most of which have been undertaken in Russia but also reside in many 
other foreign countries,[Footnote 2] involve DOE's national 
laboratories,[Footnote 3] U.S. contractors, and Russian scientists and 
contractors and entail activities such as upgrading the security of 
nuclear weapons sites and "blending-down" weapons-grade highly enriched 
uranium so it can be used in nuclear power plants to generate 
electricity. From fiscal year 2001 through fiscal year 2004, DOE 
obligated $1.7 billion on these projects, which are comprised of 
multiple contracts for construction work or the provision of services. 

Three offices within NNSA administer most of the nonproliferation 
projects:[Footnote 4]

* The Office of Nuclear Risk Reduction (designated by NNSA as NA-23) 
seeks to reduce the risk of accidents at foreign nuclear facilities by, 
among other things, strengthening foreign governments' abilities to 
respond to nuclear emergencies. For example, two current projects aim 
to enable two Russian cities, Seversk and Zheleznogorsk, to replace 
nuclear power reactors that produce weapons-grade material that the 
cities currently use for heat and electricity production with fossil- 
fuel electricity plants.[Footnote 5] NA-23 staff provide the day-to-day 
management of the contracts for these projects. 

* The Office of Nonproliferation and International Security (NA-24), 
counters proliferation and strengthens the nonproliferation regime by 
promoting transparency and verification in the dismantlement of weapons 
of mass destruction (WMD), denying acquisition of WMD by terrorists and 
illicit trade in nuclear technology, and encouraging international 
partners to strengthen their export controls and redirect the work of 
former nuclear scientists, technicians, and engineers toward projects 
with commercial potential, such as the development of titanium alloys 
for medical applications. DOE's national laboratories provide most of 
the day-to-day technical management of the contracts for these 
projects. 

* The Office of International Material Protection and Cooperation (NA- 
25) administers projects designed to, among other things, improve the 
security of weapons-usable nuclear and radiological material and 
enhance detection infrastructure at sites that currently store these 
materials. The national laboratories provide most of the day-to-day 
management of the contracts that carry out these projects. 

The three NNSA offices use essentially the same process to ensure 
contractors' work and payments made to them meet the specifications of 
the contract. After contractors or scientists complete a task, they 
send a deliverable (a technical report or other documentation of the 
work performed) and an invoice to the appropriate national laboratory 
or NNSA office for technical review and approval. If the technical 
reviewer approves the deliverable, he or she documents approval and 
forwards the documentation of the approval, along with the invoice, to 
the contract officer at the national laboratory or NNSA office. If the 
contract officer approves the invoice, in most cases, the national 
laboratory then makes payment to the contractors or 
scientists.[Footnote 6] In other cases, the deliverable and invoice 
then proceed to the relevant NNSA office for further review, and either 
the office or another organization makes the final payment to the 
contractors or scientists.[Footnote 7]

A key way for federal program managers to ensure accountability within 
such contracting processes, as well as to improve outcomes and minimize 
problems in their programs, is to implement appropriate management 
(internal) controls. As described in two GAO documents, Standards for 
Internal Controls in the Federal Government and Internal Control 
Management and Evaluation Tool, management controls can address many 
activities in a program or organization. Therefore, it is important 
that a program's management controls relate directly to its processes 
and activities. Thus, in the context of NNSA's nuclear nonproliferation 
projects, appropriate management controls mean that the three offices 
do the following with each component contract: 

* maintain complete records of deliverables and technical officials' 
review and approval of them;

* maintain complete records of invoices and contract officers' review 
and approval of them;

* maintain documentation of the above records for ready access by 
agency program managers, either at a national laboratory or 
headquarters, to facilitate active monitoring of the contract;

* use formal, procedural guidance that specifies processes for 
maintaining management controls; and: 

* periodically review management control processes and documentation to 
ensure they remain appropriate and effective. 

The National Defense Authorization Act for Fiscal Year 2004[Footnote 8] 
mandated that we assess the management controls used to carry out 
nonproliferation and threat reduction projects administered by DOE and 
the Department of Defense (DOD) and the effect of these controls on the 
execution of the projects. In response, we have issued two reports to 
date. The first report assessed how DOD and NNSA use their own 
strategies to guide their respective threat reduction and 
nonproliferation projects and how well the agencies have coordinated 
their strategies.[Footnote 9] The second report examined DOD's 
management controls for its Cooperative Threat Reduction 
program.[Footnote 10] This report, which completes our response to the 
mandate, assesses NNSA's implementation of management controls for its 
nuclear nonproliferation projects. 

To perform this assessment, we obtained from the three relevant NNSA 
offices a list of contracts for nuclear nonproliferation projects that 
were active between June 2001 and June 2004. From this list, we then 
identified contracts whose value exceeded $1 million. Going down this 
list, we selected a nonprobability sample of the largest 18 dollar- 
value contracts: two from NA-23, nine from NA-24, and seven from NA- 
25.[Footnote 11] This mix reflected the proportion of contracts among 
the three offices that were active from June 2001 through June 2004 and 
included at least one contract from each of the national laboratories 
cited on the original list of nonproliferation contracts that we 
received from NNSA--Brookhaven in New York, Los Alamos and Sandia in 
New Mexico, Lawrence Berkeley and Lawrence Livermore in California, Oak 
Ridge and the Y-12 National Security Complex in Tennessee, Pacific 
Northwest in Washington, and the Idaho National Laboratory. In 
addition, we obtained documents on the three offices and the 18 
contracts and interviewed officials from each of the offices and 
national laboratories.[Footnote 12] A more detailed description of our 
methodology is included at the end of this letter. 

We conducted our work from May 2004 to July 2005 in accordance with 
generally accepted government auditing standards. 

Results in Brief: 

Two NNSA offices, NA-23 and NA-25, documented management controls for 
almost all of their contracts that we reviewed; but the third office, 
NA-24, could not provide us with complete records related to its 
contracts, and thus could not document its management controls. 
Regarding NA-23 and NA-25, for eight of the nine contracts we reviewed, 
the staffs that manage these contracts provided to us complete records 
of deliverables, invoices, and evidence that technical reviewers 
approved the deliverables and contract officers approved the invoices. 
NA-23 and NA-25, as evidenced by their ability to provide us with key 
contract records, maintain the key contract documents at headquarters 
and the national laboratories, respectively, such that the records are 
quickly accessible for active monitoring by contract and program 
managers. In addition, NA-23 and NA-25 each use formal procedural 
guidance on how to maintain management controls for their contracts. 
Finally, according to NNSA officials, neither of the offices performs 
periodic reviews of their management control processes, although NA-23 
had a review performed on its management controls at the outset of its 
projects. 

Regarding NA-24, staff could not provide a complete set of 
deliverables, invoices, and approvals of deliverables and invoices for 
seven of the nine contracts we reviewed. The types of missing documents 
differed among contracts. For example, for one contract, NA-24 
documented that a technical official had approved work performed but 
provided no proof that a contract officer had approved the invoice for 
the work. On another contract, NA-24 provided us with fewer than half 
the deliverables and one-fifth of the invoices. Moreover, although NA- 
24 officials told us that the national laboratories maintain key 
contract records so that NA-24's managers have quick access to them, 
the inability of NA-24 to obtain these records suggests that this may 
not be the case. In addition, NA-24 does not use formal, procedural 
guidance on how to maintain management controls for its contracts. 
Finally, like NA-23 and NA-25, NA-24 does not periodically review its 
management control processes, as suggested by GAO management control 
standards, to ensure that the controls remain appropriate and 
effective. 

We are recommending that the Secretary of Energy, working with the 
Administrator of the National Nuclear Security Administration, require 
NNSA to take a number of actions designed to strengthen its management 
control processes. Specifically, we recommend that (1) NNSA develop 
formal, procedural guidance for its program managers that clearly 
states management control processes; (2) NNSA's program managers 
maintain quick access to key contract records such as deliverables and 
invoices that relate to management controls, regardless of the records' 
location; and (3) NNSA perform periodic reviews of its management 
controls to ensure their effectiveness. 

In its written comments to a draft of this report, NNSA stated that it 
will undertake a series of actions in response to our recommendations, 
but it believes that our report creates an inaccurate perception that 
the Defense Nuclear Nonproliferation Program, particularly NA-24, is 
lacking in the application of management controls. In response, we 
believe that the facts support our assessment and that the 
implementation of our recommendations will improve the effectiveness of 
the management controls we reviewed. We have incorporated technical 
changes into the report where appropriate. 

Management Controls Are in Place for Two of the Three NNSA Offices 
Administering Contracts for Nuclear Nonproliferation Projects: 

Two NNSA offices, NA-23 and NA-25, documented management controls for 
almost all of their contracts that we reviewed; but the third office, 
NA-24, could not provide us with the complete records necessary to 
document these controls. Similarly, NA-23 and NA-25 provide their 
technical reviewers and contract managers with procedural guidance that 
assists in maintaining these controls, while NA-24 did not provide this 
type of guidance. In addition, NA-23 and NA-25 maintain the key 
contract documents at headquarters and the national laboratories, 
respectively, in such a way that the records are quickly accessible for 
active monitoring by contract and program managers, as evidenced by 
their ability to provide us with key contract records. 

NA-23 and NA-25 Documented Management Controls for the Contracts We 
Reviewed: 

Two NNSA offices, NA-23 and NA-25, documented management controls for 
most of their contracts that we reviewed. As shown in table 1, for 
eight of the nine contracts we reviewed from these two offices, NA-23 
staff and national laboratory officials who manage NA-25's contracts 
provided us with complete records of deliverables and invoices as well 
as evidence that technical reviewers and contract officers reviewed and 
approved deliverables and invoices, respectively. (For the ninth 
contract, which involved comprehensive physical protection upgrades to 
a strategic rocket forces site in Russia, Oak Ridge National Laboratory 
did not provide complete documentation of approvals for deliverables.) 
For example, the two contracts we reviewed from NA-23--which are 
designed to construct or refurbish fossil-fuel plants for the Russian 
cities of Zheleznogorsk and Seversk so that each city can shut down its 
plutonium-producing nuclear reactor that it currently uses to generate 
heat and electricity--involve multiple contractors in the United States 
and Russia. Despite being by far the largest contracts by dollar value 
in our sample ($390 million for Seversk and $570 million for 
Zheleznogorsk--the next largest contract was valued at $29 million), NA-
23 headquarters provided us with, among other things, complete 
documentation of all invoices; photographs of the deliverables (i.e., 
construction work) completed to date; and evidence of the reviews and 
approvals of the invoices and payments to the foreign contractors and 
subcontractors. NA-23 also provided us with detailed breakdowns of work 
(called Work Breakdown Structures), work authorizations, and cost 
evaluations for each project. The documentation NA-23 provided us was 
among the most complete and organized of all the contracts we reviewed. 
An NA-23 official told us that this office makes efforts to specify in 
acute detail the work to be done and the costs for that work because 
this enables the office to effectively monitor and maintain a degree of 
control over the work of foreign contractors and subcontractors. 

Table 1: NNSA Documentation of Management Controls in Nuclear 
Nonproliferation Contracts, by Number of Contracts: 

NNSA Office: NA-23; 
Documents complete and management controls evident: 2; 
Documents and/or approvals incomplete: 0; 
Documents provide no clear audit trail: 0; 
Total: 2. 

NNSA Office: NA-24; 
Documents complete and management controls evident: 2; 
Documents and/or approvals incomplete: 4; 
Documents provide no clear audit trail: 3; 
Total: 9. 

NNSA Office: NA-25; 
Documents complete and management controls evident: 6; 
Documents and/or approvals incomplete: 1; 
Documents provide no clear audit trail: 0; 
Total: 7. 

Source: GAO. 

[End of table]

NA-25 officials also provided us with complete documentation of 
management controls for the contracts they manage. As shown in table 1, 
for six of the seven contracts we reviewed, the national laboratories 
that manage these contracts provided complete records of deliverables 
and invoices as well as evidence that technical reviewers at the 
national laboratories and/or contract officers at the national 
laboratories and/or NA-25 reviewed and approved the deliverables and 
invoices, respectively. (The seventh contract is the Oak Ridge 
contract, mentioned above.) For example, for the two contracts we 
reviewed that Brookhaven National Laboratory manages for NA-25, each 
invoice on the contracts received at least one approval from technical 
reviewers at the laboratory, and each financial transaction received 
two approvals from contract managers. In another contract involving the 
purchase of nuclear detection devices for deployment in Russia, the 
national laboratory managing the contract--Pacific Northwest--provided 
us with purchase orders for the contract as well as a receipt of 
delivery so that we could verify that the goods purchased had reached 
their destination prior to final delivery in Russia. 

Both NA-23 and NA-25 maintain copies of key records, such as 
deliverables and invoices within quick access to program and contract 
managers, as evidenced by the ability of each office to provide these 
records to us. NA-23 maintains these records at headquarters, while NA- 
25 maintains the records at the national laboratories that provide the 
day-to-day management over the contracts. However, it is important to 
note that the laboratories should be able to provide NNSA managers with 
complete and quick access to contract records, as the national 
laboratories are contractors to DOE, and it is NNSA that is ultimately 
responsible for monitoring the nonproliferation projects. 

NA-23 and NA-25 each apply formal, procedural guidance that assists 
technical reviewers and contract managers in maintaining management 
controls. For example, because the contracts involve capital 
procurement or acquisitions exceeding $5 million, NA-23 must apply the 
rules and procedures specified in DOE Order 413.3, Project Management 
for the Acquisition of Capital Assets. NA-23's contract managers 
receive program guidance through work authorizations signed by an 
authorized official at NNSA headquarters and guidance on the payment 
process via DOE's Contract Specialist Guide 42.8, which specifies 
procedures for review and approval of vouchers and invoices so that 
contract managers will handle them in a timely and efficient manner. 
According to NA-23 officials, Federal Acquisition Regulations also 
stipulate many of the specific steps that NA-23 must undertake in the 
planning, implementation, and review of the contracts that make up the 
Seversk and Zheleznogorsk projects. NA-25 developed its own procedural 
guidance, known as the Project Management Document, for technical 
reviewers and contract officials. This guide provides instructions on, 
among other things, project planning, funds management, reporting of a 
project's ongoing progress and costs, contract management, and 
procedures for putting important contract data into NA-25's Program 
Management Information System. 

Finally, according to NNSA's Director of Policy and Internal Controls 
Management and an NNSA official in charge of acquisitions in the Office 
of Defense Nuclear Nonproliferation, neither NA-23 nor NA-25 perform 
periodic reviews of their management control processes, although NNSA's 
Office of Engineering and Project Support, at the outset of NA-23's 
projects, did perform a general review of NA-23's management controls. 
GAO's management control guidelines state that agencies should monitor 
and regularly evaluate their control activities to ensure that they are 
still appropriate and working as intended. 

NA-24 Provided Insufficient Documentation on Management Controls: 

NA-24 could not provide evidence of the records necessary to document 
its management controls. Despite our numerous inquiries from January 
2005 to June 2005 and discussions with agency officials--including one 
with NNSA's Principal Assistant Deputy Administrator--the documentation 
we received on seven of the nine contracts we examined from this office 
was either incomplete or did not provide a clear audit trail that we 
could follow. (For the two other contracts, one managed by Brookhaven 
National Laboratory and one managed by Los Alamos National Laboratory, 
laboratory officials provided complete documentation of management 
controls.) For example, for one contract managed by the Idaho National 
Laboratory involving the discovery of bioactive compounds in Russia 
that may be used in watershed protection or carbon sequestration: 

* Ten of the 35 invoices did not include a document showing that NA-24 
had authorized payment to the Russian contractors. 

* Fourteen invoices on this contract did not include evidence that 
Idaho National Laboratory's technical reviewer for the contract 
approved the deliverable on which the invoice was based. 

For another contract managed through NA-24 headquarters, Foundation for 
Russian American Economic Cooperation (FRAEC), NA-24 provided us with 
documentation, but we were able to determine very little about the 
contract on the basis of this documentation because of the following 
reasons: 

* there appeared to be no explanation of the linkages between the work 
products outlined in the contract, the deliverables, and the invoices, 
and: 

* we received fewer than half of the invoices for the contract and 
fewer than one-fifth of the deliverables for the contract. 

Senior officials with NA-24 told us that it doesn't need to keep copies 
of key contract documents because the documents are maintained at the 
national laboratories managing the contracts and accessible to NA-24. 
However, the fact NA-24 was unable to obtain complete sets of records 
on seven of the nine contracts we reviewed suggests otherwise. In 
addition, NA-24 did not provide us with formal, written guidance that 
provides managers with the procedures on how to process and maintain 
key contract records, and the office appears to rely on each national 
laboratory to provide its own procedural guidelines. 

Finally, NA-24, like NA-23 and NA-25, does not perform periodic reviews 
of its management control processes. GAO's management control 
guidelines state that agencies should monitor and regularly evaluate 
their control activities to ensure that they are still appropriate and 
working as intended. 

Conclusions: 

On the basis of our review of the contracts, it appears that, if an 
NNSA program office provides its managers with procedural guidance on 
how to maintain management controls, the office does a better job at 
implementing and documenting these management controls. In our view, 
procedural guidance enables program and contract managers to implement 
and document management controls in a systematic way, as evidenced by 
the fact that NA-23 and NA-25 each use procedural guidance and were 
able to document their controls. 

In addition, maintaining managers' quick and complete access to key 
contract records--regardless of whether the records are located at the 
national laboratory or NNSA headquarters--appears to coincide with 
maintaining and documenting management controls. Officials at NA-24 
told us that they have access to all contract records through the 
laboratories that manage their contracts, yet the office was unable to 
provide us with these records. 

Finally, as required by GAO standards for management controls, periodic 
reviews of management controls would help the NNSA offices that we 
reviewed determine whether they are adhering to their management 
controls and whether these controls are relevant and effective. For 
example, if NA-24 had performed a review of its management control 
procedures, it might have discovered that it did not have on hand 
complete sets of invoices and approvals of deliverables for each of the 
office's nonproliferation contracts. 

Recommendations: 

To ensure that each NNSA office that we reviewed maintains complete 
documentation of its management controls, we recommend that the 
Secretary of Energy, working with the Administrator of the National 
Nuclear Security Administration, require NNSA to take the following 
three actions: 

* each NNSA office use formal, procedural guidance that clearly states 
management control processes;

* NNSA's program managers maintain quick access to key contract records 
such as deliverables and invoices that relate to management controls, 
regardless of whether the records are located at a national laboratory 
or headquarters; and: 

* NNSA perform periodic reviews of its management control processes to 
be certain that each program office's management controls can be 
documented and remain appropriate and effective. 

Agency Comments and Our Evaluation: 

We provided the Department of Energy's National Nuclear Security 
Administration (NNSA) with a draft of this report for its review and 
comment. NNSA's written comments are presented as appendix III. In its 
written comments, NNSA notes that it will undertake a series of actions 
in response to our recommendations, but also states that our report 
creates an incorrect perception that the Defense Nuclear 
Nonproliferation Program, particularly NA-24, is lacking in the 
application of management controls. 

In their comments to our draft report, NNSA's major points are as 
follow: 

1. We reviewed only contracts from a portion of NA-24, Global 
Initiatives for Proliferation Prevention (GIPP), and we did not receive 
complete documentation from NA-24 because we did not speak to the 
procurement officer for the GIPP program;

2. NA-24 has implemented "very stringent" management controls;

3. We mischaracterize the management controls on two contracts--one 
managed by the Idaho National Laboratory (INL) and the other managed by 
NA-24 headquarters staff;

4. For an NA-25 contract managed by Oak Ridge National Laboratory, we 
received incomplete documentation because of an initial 
misunderstanding by the laboratory rather than a control problem within 
NA-25, and that managers at Oak Ridge sent us the missing documents on 
August 16, 2005. 

5. NA-25 does conduct external program management reviews of its 
management controls through a Technical Survey Team (TST). 

First, regarding the scope of our review, at the outset of our work, we 
asked NA-24 for a list of all its contracts in Russia and other 
countries that were active from the beginning of June 2001 through the 
end of June 2004, then took a nonprobability sample of those contracts. 
We did not intentionally focus solely on NA-24's GIPP program. 
Regardless, as we state in the report, results from nonprobability 
samples cannot be used to make inferences about a population, and our 
statements about NA-24 relate to its ability to document the management 
controls for the contracts we examined. Regarding NNSA's comment that 
we did not meet with the GIPP procurement officer, it is unclear to us 
why NNSA is making this point. For most of the contracts we reviewed, 
NA-24 provided us with documents directly. After providing NA-24 with a 
fact sheet stating that we received incomplete documentation for seven 
of the nine the contracts we reviewed, we met with NA-24's Assistant 
Deputy Administrator on June 27, 2005, who provided us with additional 
documentation that she characterized as "complete". After a thorough 
review, we found much of this additional documentation to be 
incomplete, indecipherable, and often duplicative of the information we 
had already been given earlier in our review. On August 17, 2005, after 
submitting our draft report to NNSA for comment, we met again with the 
Assistant Deputy Administrator as well as the Associate Assistant 
Deputy Administrator, the Principal Assistant Deputy Administrator for 
Defense Nuclear Nonproliferation, and the GIPP procurement officer. At 
this meeting, the procurement officer provided us with no new 
documentation, and the NA-24 officials again asserted that the 
documents they provided us in June were "complete". Furthermore, during 
the meeting, while discussing some of the documents that we found to be 
missing, we asked the officials to produce a few of these documents at 
random from the materials they gave us in June. In most cases, they 
were unable to do so. In fact, in the case of one missing document, an 
NA-24 official stated that it "had to be somewhere in there" (included 
in the materials submitted in June), but it was not. 

Second, we disagree with NA-24's contention that it has implemented 
"very stringent" management controls. Although NNSA cites a number of 
actions that NA-24 has taken to strengthen its controls, the fact 
remains that NA-24 did not provide us with sufficient documentation for 
seven of the nine contracts we reviewed despite numerous requests from 
us to do so. For example, on one contract managed by the Y-12 National 
Security Complex, rather than providing a "real-time" technical 
reviewer's approval for each deliverable, NA-24 provided us with a 
single email from the technical reviewer, dated June 24, 2005, that 
purported to cover two years' worth of missing approvals. This post-hoc 
approval does not represent a satisfactory management control. Based on 
what NA-24 provided us, we believe that the office's controls for some 
contracts we reviewed are weak. In our view, NA-24 needs to implement 
actions that address and strengthen the specific management controls we 
identify in the report, and we are encouraged that NNSA has agreed to 
implement our recommendations. 

Third, for the INL-managed contract, NNSA asserts that it provided us 
in June with the documentation we sought. However, the documents were 
indecipherable to us because most were unlabeled, presented in no 
particular chronological order, and rely on emails in which neither the 
sender's nor recipients' positions were identified. For the 
headquarters-managed contract, NNSA contends that, at our meeting on 
August 17, 2005, it explained how the process of deliverables and 
invoices for this contract (providing assistance to the Foundation for 
Russian American Economic Cooperation) differs from the processes of 
other contracts we examined. Although this may be the case, the 
documents that NA-24 provided did not clearly explain or illustrate 
those processes. More importantly, the documents that NA-24 provided 
comprised fewer than one-half of the deliverables and one-fifth of the 
invoices that we identified in June as missing. 

Fourth, although we have fewer concerns about NA-25's management 
controls, in the case of one of the contracts managed by Oak Ridge 
National Laboratory, managers provided acceptable documentation of 
technical reviewers' approvals on only three of six deliverables. 
Although we agree with NNSA that officials at the laboratory did not 
initially provide us with complete documentation of technical 
approvals, as we state in the report, NNSA is ultimately responsible 
for the controls on its contracts, even if the contracts are managed 
day-to-day by someone else. In addition, the documentation that 
officials at the laboratory sent us on August 16, 2005, did not provide 
all the information that was missing. Rather, they provided 
documentation of one additional technical review and resubmitted 
materials that we had already informed Oak Ridge managers did not 
represent acceptable documentation. As a result, we stand by our 
recommendation that NNSA perform periodic reviews of management 
controls for each of the three offices we examined. 

Fifth, regarding NNSA's statement that TST performs external reviews of 
NA-25's management controls, it is important to note that the TST is a 
panel of experts established by DOE to determine if DOE-installed 
security systems at Russian nuclear sites meet departmental guidelines 
for effectively reducing the risk of nuclear theft. Moreover, we spoke 
to NNSA's Director of Policy and Internal Controls Management on August 
26, 2005, and he agreed that, while the TST provides useful project 
oversight, it does not provide the kind of comprehensive review of 
program management controls examined in our review. More importantly, 
during the course of our work, NA-25 did not provide evidence of any 
reviews of their management controls. 

Finally, we believe it is important to note that management controls 
were most evident on NA-24 and NA-25 contracts managed by national 
laboratories from which we were able to obtain all the necessary 
documentation directly, without any NNSA headquarters involvement. This 
was especially noteworthy in the case of NA-24 because both of this 
office's contracts that we determined demonstrated effective management 
controls were managed by a national laboratory - Brookhaven or Los 
Alamos - and in both cases we obtained all the necessary documents 
directly from the laboratory managers. 

Scope and Methodology: 

To assess the effectiveness of the NNSA's management controls of its 
nonproliferation projects, we identified the three offices within NNSA 
that currently oversee and manage the nonproliferation projects that 
fell within the scope of our work: (1) the Office of Nuclear Risk 
Reduction (designated by NNSA as NA-23), (2) the Office of 
Nonproliferation and International Security (NA-24), and (3) the Office 
of International Material Protection and Cooperation (NA-25). To 
identify what constitutes management controls, we consulted two GAO 
documents: Standards for Internal Controls in the Federal Government 
and Internal Control Management and Evaluation Tool. Using these 
documents, we focused on the management controls associated with NNSA's 
nonproliferation contracts. More specifically, we examined the 
supervisory actions designed to ensure that the work performed under 
the contract (known as "deliverables") meet the contract's 
specifications and that payments for that work receive required 
approvals and reach the intended recipients. To do this, we sought from 
NNSA the following documents for each of the contracts we reviewed: 

* statement of work;

* contract deliverables (or summary of the deliverable - as 
practicable);

* technical approval from an NNSA or national laboratory official for 
each deliverable;

* invoices for all deliverables;

* documentation of an independent payment authorization and review for 
each deliverable, which should include at least one signature from a 
national laboratory financial office official supervising the contract 
and/or one official at NNSA headquarters;

* approval letter from NNSA or the national laboratory authorizing the 
final payment of the contractors for a deliverable (as applicable);

* a guide to the process each national laboratory uses to approve a 
deliverable and authorize payment. 

To select a nonprobability sample of contracts, we obtained, from the 
three offices in NNSA, a list of all their nonproliferation contracts 
in Russia and other countries that were active from the beginning of 
June 2001 through the end of June 2004. We identified contracts whose 
value exceeded $1 million and arranged them in descending dollar value. 
We chose the 15 contracts with the largest dollar value, subject to the 
constraints that (1) no more than two contracts come from NA-23, 7 
contracts from NA-24, and six contracts from NA-25 and (2) a single 
national laboratory manages no more than three contracts in our 
sample.[Footnote 13] We chose these constraints so that (1) the mix of 
contracts among the three offices in our sample roughly reflected the 
mix of contracts among the three offices in our original list and (2) 
the sample would reflect a diversity of laboratories. Finally, we 
included one contract from each of the three remaining laboratories 
that were not yet included in our sample, bringing our final list to 18 
contracts. 

To ensure that NNSA's lists of its nuclear nonproliferation contracts 
were sufficiently reliable for our purposes, we obtained responses to a 
series of questions covering issues such as data entry, data access, 
quality-control procedures, and the accuracy and completeness of the 
data for the eight databases from which these data were drawn. Follow- 
up questions were added, whenever necessary. Based on our review of 
this work, we found these data to be sufficiently reliable for the 
purpose of using these lists to select a nonprobability sample of 18 
contracts for review. 

In addition to contract documents, we also interviewed NNSA officials 
in Washington, D.C., and Germantown, Maryland. To gather information 
about the contracts we selected for review, we traveled to Brookhaven 
National Laboratory in New York and Los Alamos and Sandia National 
Laboratories in New Mexico to meet with laboratory officials and 
program, project, procurement, and contract managers to explain our 
review; to learn about NNSA programs and projects, as well as 
procedures for implementing management controls; and to determine the 
kinds of project documents we would need. To gather information and 
documents on the remaining contracts, on the basis of what we learned 
during these trips, we sent detailed written communications and 
conducted teleconferences, numerous and frequent in some cases, with 
the requisite staff in headquarters and at other national laboratories. 
Specifically, we contacted staff at the Lawrence Berkeley and Lawrence 
Livermore National Laboratories in California, the Oak Ridge National 
Laboratory and the Y-12 National Security Complex in Tennessee, the 
Pacific Northwest National Laboratory in Washington, and the Idaho 
National Laboratory. We focused on identifying the controls implemented 
to ensure that former Soviet Union partners meet contract terms before 
the invoices for the deliverables are paid. 

After we gathered and evaluated all the available documentation from 
NNSA headquarters and the various national laboratories for each 
contract, we assessed the contracts on the basis of the completeness of 
their documentation and overall evidence of the implementation of 
management controls. We placed each contract in one of three 
categories: (1) contracts for which all or almost all of the necessary 
documentation was provided--especially the major contract documents 
(statement of work and task orders), deliverables, and technical and 
independent contractual/financial approvals of each deliverable-- 
providing clear evidence of the systematic implementation of management 
controls throughout the life-cycle of the contract; (2) contracts for 
which most of the documents were provided, suggesting that systematic 
implementation of management controls may be occurring but not clearly 
indicating as much; and (3) contracts for which there were significant 
gaps in necessary documentation, providing no basis to conclude that 
systematic management controls are implemented.[Footnote 14]

We conducted our review between May 2004 and July 2005 in accordance 
with generally accepted government auditing standards. 

We are sending copies of this report to interested congressional 
committees and the Secretary of Energy. We will also make copies 
available to others upon request. In addition, the report will be 
available on the GAO Web site at [Hyperlink, http://www.gao.gov] . 

If you have any questions regarding this report, please contact Mr. 
Aloise at (202) 512-3841 or [Hyperlink, aloisee@gao.gov]. Contact 
points for our Office of Congressional Relations and Public Affairs may 
be found on the last page of this report. GAO contacts and staff 
acknowledgments are listed in appendix IV. 

Signed by: 

Gene Aloise: 
Director, Natural Resources and Environment: 

[End of section]

Appendixes: 

Appendix I: NNSA Contracts: 

The following table lists all NNSA contracts that we reviewed. 

Project: Zheleznogorsk Fossil Fuel Plant; 
NA: NA-23; 
Managing Lab: HQ; 
$ Contract: $570,500,000. 

Project: Seversk Fossil Fuel Plant Refurbishment; 
NA: NA-23; 
Managing Lab: HQ; 
$ Contract: $390,000,000. 

Project: Luch - Task Order 1 - Blend-down HEU to LEU; 
NA: NA-25; 
Managing Lab: BNL; 
$ Contract: $29,024,700. 

Project: PBZ-C2 Comprehensive Physical Protection Upgrades to Russian 
Navy Site; 
NA: NA-25; 
Managing Lab: SNL; 
$ Contract: $10,737,740. 

Project: CBC-B2 Comprehensive Physical Protection Upgrades to Russian 
Navy Site; 
NA: NA-25; 
Managing Lab: SNL; 
$ Contract: $10,716,770. 

Project: TVZ01-Minatom Guard Railcar Procurement; 
NA: NA-25; 
Managing Lab: ORNL; 
$ Contract: $9,262,000. 

Project: COMP2BR-Comprehensive Physical Protection System Upgrades; 
NA: NA-25; 
Managing Lab: ORNL; 
$ Contract: $9,050,000. 

Project: Aquila - Purchase of Equipment to enhance the monitoring of 
nuclear materials; 
NA: NA-25; 
Managing Lab: BNL; 
$ Contract: $8,825,572. 

Project: FRAEC -Technical and administrative assistance in planning, 
establishing, and operating the international development centers; 
NA: NA-24; 
Managing Lab: HQ; 
$ Contract: $3,716,319. 

Project: Pipe Coating Facility (#63544) - Establish a production 
facility within the city of Snezhinsk for the production of insulated 
pipes; 
NA: NA-24; 
Managing Lab: BNL; 
$ Contract: $2,600,628. 

Project: T2-0192-RU - Development of a 3-D neutronics optimization 
algorithm for application to cancer treatment facilities; 
NA: NA-24; 
Managing Lab: LBNL; 
$ Contract: $1,620,000. 

Project: Nuclear Non-Proliferation Center -The Analytical Center for 
Nuclear Non-Proliferation will carry out research on several projects, 
including a Quarterly Information Bulletin and Internet Analysis and 
creation of an Internet page; 
NA: NA-24; 
Managing Lab: HQ; 
$ Contract: $1,500,000. 

Project: T2-0186-RU - Development of a Tank Retrieval and Closure 
Demonstration Center in the Mining and Chemical Combine (MCC) to help 
in retrieval and processing of radioactive wastes generated during 
production of plutonium for nuclear weapons; 
NA: NA-24; 
Managing Lab: SNL; 
$ Contract: $1,350,000. 

Project: T2-0194-RU - The use of new technologies to process important 
Ti alloys for medical applications and aerospace industries; 
NA: NA- 24; 
Managing Lab: LANL; 
$ Contract: $1,290,000. 

Project: T2-0204-UA - Welding and Reactive Diffusion Joining (RDJ) 
repair technologies for use in aircraft and land-based turbine engines; 
NA: NA-24; 
Managing Lab: ORNL/; Y-12; 
$ Contract: $1,260,000. 

Project: SAIC/P.O. # 14436 - Nuclear material detectors for border 
guards; 
NA: NA-25; 
Managing Lab: PNNL; 
$ Contract: $2,330,700. 

Project: T2-0244-RU - Development of an explosives detection system; 
NA: NA-24; 
Managing Lab: LLNL; 
$ Contract: $1,260,000. 

Project: T2-2002-RU - Discovery of bioactive compounds from selected 
environments in Russia for products such as watershed protection and 
carbon sequestration; 
NA: NA-24; 
Managing Lab: INL; 
$ Contract: $1,110,000. 

Source: GAO. 

[End of table]

[End of section]

Appendix II: Documentation of Management Controls - GAO Assessment by 
Contract: 

NNSA Office: NA-23; 
Managing Lab: HQ; 
Project: Zheleznogorsk Fossil Fuel Plant; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-23; 
Managing Lab: HQ; 
Project: Seversk Fossil Fuel Plant; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-25; 
Managing Lab: BNL; 
Project: Luch Task Order 1 - Blend-down HEU to LEU; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-25; 
Managing Lab: SNL; 
Project: PBZ C2 - Security Upgrades to Russian Navy Site; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-25; 
Managing Lab: SNL; 
Project: CBC B2 - Security Upgrades to Russian Navy Site; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-25; 
Managing Lab: ORNL; 
Project: TVZ01-Minatom Guard Railcar Procurement; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-25; 
Managing Lab: ORNL; 
Project: COMP2BR - Comprehensive Physical Protection Systems Upgrades; 
Documents and/or approvals incomplete: 1. 

NNSA Office: NA-25; 
Managing Lab: BNL; 
Project: Aquila - Enhanced nuclear materials monitoring systems; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-24; 
Managing Lab: HQ; 
Project: FRAEC - Technical and administrative assistance in planning, 
establishing, and operating international development centers; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-24; 
Managing Lab: BNL; 
Project: SEST #63544 - Pipe Coating Facility; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-24; 
Managing Lab: LBNL; 
Project: T2-0192-RU - Neutronics Algorithm for Cancer Treatment; 
Documents and/or approvals incomplete: 1. 

NNSA Office: NA-24; 
Managing Lab: HQ; 
Project: Nuclear Non- Proliferation Center; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-24; 
Managing Lab: SNL; 
Project: T2-0186-RU - Tank Retrieval; 
Documents and/or approvals incomplete: 1. 

NNSA Office: NA-24; 
Managing Lab: LANL; 
Project: T2-0194-RU - Ti Alloys for Medical Applications; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-24; 
Managing Lab: ORNL/Y-12; 
Project: T2-204-UA - Welding and Reactive Diffusion Joining; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-25; 
Managing Lab: PNNL; 
Project: SAIC/P.O. #14436 - Nuclear material detectors for border 
guards; 
Documents complete and management controls evident: 1. 

NNSA Office: NA-24; 
Managing Lab: LLNL; 
Project: T2-0244-RU - Explosive Detection System; 
Documents and/or approvals incomplete: 1. 

NNSA Office: NA-24; 
Managing Lab: INL; 
Project: T2-2002-RU (subcontract 240) - Discovery of Bioactive 
Compounds; 
Documents and/or approvals incomplete: 1. 

Total; 
Documents complete and management controls evident: 10; 
Documents and/or approvals incomplete: 5; 
Documents provide no clear audit trail: 3. 

Source: GAO. 

[End of table]

[End of section]

Appendix III: Comments from the Department of Energy: 

Department of Energy:
National Nuclear Security Administration: 
Washington, DC 20585:

AUG 23 2005:

Mr. Gene Aloise: 
Director:
Natural Resources and Environment: 
Government Accountability Office: 
Washington, DC:

Dear Mr. Aloise:

The National Nuclear Security Administration (NNSA) appreciated the 
opportunity to have reviewed the Government Accountability Office (GAO) 
draft report, GAO-05-828, "NUCLEAR NONPROLIFERATION: Better Management 
Controls Needed for Some DOE Projects." We understand that this title 
will be modified to reflect projects in Russia. We further understand 
that this report is the result of a request from the House and Senate 
Armed Services Committees to assess how we implement management 
controls, i.e., the processes designed to ensure that work performed 
under a contract meets contract specification and that payments go to 
the contractors as intended.

The draft GAO report creates an incorrect perception that an important 
element of our Defense Nuclear Nonproliferation Program is lacking in 
the application of management controls related to oversight of 
contracts. The Administrator and NNSA take very seriously their 
responsibilities for internal controls and the appropriate management 
of funds. We are required to abide by the Department's guidelines and 
regulations, as well as specific NNSA implementation guidance, 
regarding the distribution of funds and program management. In addition 
to continuing our longstanding efforts to improve program and project 
management across the board, we intend to implement each of the 
recommendations noted in the draft GAO report either through the 
appropriate program element, NNSA's Head of Contracting Activity, or 
the Service Center.

NNSA has several areas of concern, however, with the GAO report that we 
believe GAO should consider. First, while the NA-24 program element was 
referred to repeatedly in this report, the audit was performed on the 
Global Initiatives for Proliferation Prevention (GIPP) program - not NA-
24 as a whole, which includes over a dozen other programs. This audit, 
therefore, only covered the GIPP component of the NA-24 portfolio. GIPP 
consists of two program elements: the Initiatives for Proliferation 
Prevention (IPP), and the Nuclear Cities Initiative (NCI). GIPP 
contracts through several mechanisms including two international 
organizations, a government organized non-governmental organization, 
and our own procurement element. For those projects contracted by NNSA, 
our procurement function maintains contract files that include eight of 
the nine categories of documents requested by GAO. Regrettably, the 
GIPP procurement officer was never contacted by GAO during its review 
and was therefore never requested to provide the documentation now 
cited to be lacking.

We believe that this report will mistakenly give the impression that 
management controls are weak or nonexistent for the GIPP program when, 
in fact, the opposite is true. Over the past six years, GIPP has 
enacted very stringent management controls, in response to GAO, 
Congressional, and White House guidance over the past several years. 
With respect to IPP, for example:

* Fixed-price contracts are negotiated with schedules of deliverables 
and costs prior to initiation of work;

* Technical monitors verify that deliverables comply with the contract 
specifications prior to payment;

* Funds are paid directly to individual bank accounts of scientists 
participating in the program; and,

* The Defense Contract Audit Agency (DCAA) performs independent annual 
audits. These independent DCAA audit findings for several years 
indicate that there are no cases in which funds have been lost or 
diverted, illustrating another measure of our internal control of funds.

For its part, NCI has:

* Mandated exhaustive project reviews prior to approving any project 
proposal, including independent review for projects exceeding $500K; 
Instituted a Management Information System (MIS), with monthly 
financial reporting requirements; and,

* Tied disbursement of funds to achievement of specific and measurable 
milestones, and documented in the MIS and through quarterly and monthly 
financial reports.

We also want to highlight several statements in the report we believe 
to be misleading. For example, the report states that certain 
documentation was not provided for a project managed by Idaho National 
Laboratory (INL), including evidence that INL's technical reviewers had 
approved each deliverable and that NNSA had authorized payment to the 
Russian contractors. In fact, NNSA provided an e-mail certification 
from the INL technical reviewer for each of the fourteen projects 
identified; that certification indicates that the deliverable(s) had 
been reviewed and approved. In addition, the authorization for payment 
by NNSA for each project is in the form of signed task assignments, 
which accompany each invoice forwarded to our procurement office.

Second, GAO's statement that "there appears to be no linkage between 
contract work products, deliverables and invoices in the contract with 
the Foundation for Russian American Economic Cooperation (FRAEC)" is 
inaccurate. In an August 17, 2005 meeting with GAO, NNSA thoroughly 
explained the explicit linkages between contract work products, 
deliverables and invoices in the FRAEC contract. NNSA manages and 
oversees the FRAEC contract directly, with no lab participation. FRAEC 
operates two facilities for GIPP and submits detailed invoices for 
their operating costs. FRAEC reports to NNSA on its activities on a 
monthly and quarterly basis. We maintain additional operational 
oversight of contractor activities through U.S. representation on the 
IDC Board of Directors and through regular meetings with IDC staff. 
Although the GAO correctly stated that there are no deadlines 
associated with each task in the FRAEC contract, the ongoing nature of 
FRAEC's responsibilities to operate the facilities does not lend itself 
to a deliverable-based set of deadlines of the sort found in other 
contracts. However, NNSA receives a detailed package on a monthly basis 
with a breakdown of FRAEC's operational costs and receipts. Those 
invoices are not accepted until all documents are reviewed and approved 
by our contracting officials. We maintain that the level of detail 
contained in the sample packages provided during the August 17 meeting 
constitutes a substantial audit trail, and consequently, we request 
that GAO reconsider its determination to the contrary, and to 
reconsider its portrayal of management controls over the FRAEC 
contract. In short, GIPP exercises extensive controls to ensure that 
funds are tracked and deliverables verified at multiple points during 
the implementation of a project.

Insofar as NA-25 is concerned, another program element mentioned in the 
draft report, we acknowledge the statement, "For the ninth contract, 
which involved comprehensive physical protection upgrades to Strategic 
Rocket Site in Russia, Oak Ridge National Laboratory did not provide 
complete documentation of approvals for deliverables or invoices," made 
by the GAO in this report. We believe that this was a misunderstanding 
on the part of the contractor.

The incomplete documentation referred to in the report was related to 
the technical reviewer's approval of deliverables. Since the technical 
personnel and financial personnel are co-located, approved deliverables 
were verbally communicated and personally delivered to these personnel 
in some cases, and followed up with signed invoices or email approvals, 
as applicable. Because the original request for information was 
misunderstood, Oak Ridge National Laboratory (ORNL) did not provide the 
backup documentation for those few deliverables that were, at first, 
verbally approved. Correspondence sent to the GAO auditor on August 16, 
2005, contains the information originally submitted and the scanned 
copies noting approval on those deliverables/invoices that were not 
included in the original transmission. We hope that this response has 
cleared up any issues. There was no intention to withhold information 
and the information was readily available and accessible when 
requested. 

In addition, NNSA is concerned with the accuracy of the description of 
NA-25's review of its management control process. As with other NNSA 
activities, our projects follow guidance from work authorizations, 
adhere to the appropriate Federal Acquisition Regulations, and also 
follow the NA-25 Project Management Document, which is updated 
annually. During the annual update process, we conduct reviews of our 
program management controls and procedures for completeness. 
Additionally, we have an external method to review program management 
controls in the form of a Technical Survey Team (TST). The TST performs 
annual reviews on each project in order to determine that proper 
oversight has been exercised, that all guidance in the Project 
Management Document has been followed and that, in general, the proper 
management controls are in place. They look for good project 
management, check contracts, deliverables and payments, and also review 
the technical content of the projects. TST reports go directly to the 
appropriate Assistant Deputy Administrator (ADA) with issues identified 
that may need management attention.

NNSA will take the following specific actions related to the 
recommendations mentioned in the draft report:

* The Office of Defense Nuclear Nonproliferation, under which all three 
cited offices operate, is in the final stages of publishing its own 
Program Management Manual, which will establish execution, evaluation, 
and reporting requirements for all nonproliferation programs, including 
training and certification standards for all program managers.

* GIPP is updating and developing more extensive guidance detailing 
procedures and documentation, to be adhered to by all program 
participants.

* GIPP is developing a system to track projects on a deliverable level 
and record when payment has been initiated and paid. This system will 
ensure timely access to contracts information at Headquarters. This 
system will also allow for quick reference to project milestones, so 
progress can be closely tracked.

* We will conduct reviews of our management controls on an annual 
basis. 

* The first GIPP review is currently underway as a part of the study to 
develop the project tracking system discussed above and will continue 
its DCAA audits on an annual basis.

* NA-23's first review will focus on the Earned Value Management System 
of the Seversk Project and is scheduled for the first quarter of FY 
2006. This review will be led by the U.S. Army Corps of Engineers.

* NA-25 will continue to review its management controls through the 
process described above.

Should you have any questions related to this response, please contact 
Richard Speidel, Director, Policy and Internal Controls Management.

Sincerely,

Signed by: 

Michael C. Kane: 
Associate Administrator for Management and Administration:

cc: Deputy Administrator for Defense Nuclear Nonproliferation: 
Senior Procurement Executive:
Director, Service Center: 

[End of section]

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

F. James Shafer (202) 512-6002: 

Staff Acknowledgments: 

In addition, Nancy Crothers, Greg Marchand, Judy Pagano, Daren Sweeney, 
and Kevin Tarmann made significant contributions to this report. 

(360470): 

FOOTNOTES

[1] Title 32 of the National Defense Authorization Act for Fiscal Year 
2000 (Pub. L. No. 106-65 (1999)) created NNSA as a separately organized 
agency within DOE. 

[2] Countries in the former Soviet Union receiving these contracts 
include Ukraine, Armenia, Georgia, Kazakhstan, Uzbekistan, and the 
Kyrgyz Republic. Other countries involved in NNSA nonproliferation 
projects include Greece and Turkey. However, of the 72 nonproliferation 
projects that NNSA provided us, 66 of the projects, representing over 
99.4 percent of their dollar value, involved work in Russia. 

[3] DOE oversees the largest laboratory system of its kind in the 
world. The mission of DOE's 23 national laboratories has evolved over 
the last 55 years. Originally created to design and build atomic bombs 
under the Manhattan Project, these national laboratories have since 
expanded to conduct research in many disciplines--from high-energy 
physics to advanced computing at facilities throughout the nation. Nine 
of DOE's laboratories are large, multiprogram national laboratories 
that dominate DOE's science and technology activities. 

[4] Two other NNSA offices also do nonproliferation work in Russia: the 
Office of Global Threat Reduction (NA-21) and Office of Fissile 
Materials Disposition (NA-26). NA-21's mission is to identify, secure, 
remove, and/or facilitate the disposition of vulnerable, high-risk 
nuclear and other radiological materials that pose a threat to the 
United States. Many of NA-21's projects were previously administered by 
NA-24 and NA-25. NA-26's mission is to reduce inventories of surplus 
fissile materials in a safe, secure, transparent, and irreversible 
manner. NA-26's projects were not included because at the time we began 
our work, they did not have significant nonproliferation contracts 
under way outside the United States. 

[5] See GAO, Nuclear Nonproliferation: DOE's Effort to Close Russia's 
Plutonium Production Reactors Faces Challenges, and Final Shutdown Is 
Uncertain, GAO-04-662 (Washington, D.C.: June 4, 2004). 

[6] For some contracts under the auspices of NA-24's Initiatives for 
Proliferation Prevention (IPP) program, the International Science and 
Technology Center (ISTC) in Moscow, or the Science and Technology 
Center of Ukraine (STCU) in Kiev manage the contract and make all 
payments. In these cases, quarterly payments may be made before the 
technical review is completed but, if the technical reviewer is not 
satisfied with the progress of the work, the next quarter's payments 
may be withheld until the issue is resolved. These centers were the 
subject of an earlier GAO report, see GAO, Weapons of Mass Destruction: 
State Department Oversight of Science Centers Program, GAO-01-582 
(Washington, D.C.: May 10, 2001). See also Nuclear Nonproliferation: 
DOE's Efforts to Assist Weapons Scientists in Russia's Nuclear Cities 
Face Challenges, GAO-01-429 (Washington, D.C.: May 3, 2001). 

[7] Those IPP contracts not managed by one of the science centers are 
managed by a national laboratory or NNSA headquarters directly. In 
these cases, the process for technical approval of deliverables is 
similar, but NNSA headquarters must also approve deliverables before 
payments are approved. The actual payments are made via the U.S. 
Civilian Research and Development Foundation (CRDF). All IPP program 
deliverable payments are made via third parties (ISTC, STCU, and CRDF) 
directly into former Soviet weapons scientists' or engineers' bank 
accounts in order to comply with the congressional requirement that all 
payments be made tax free; these three organizations have the legal and 
technical wherewithal to do so. 

[8] Pub. L. No. 108-136, § 3611 (2003). 

[9] See GAO, Weapons of Mass Destruction: Nonproliferation Programs 
Need Better Integration, GAO-05-157 (Washington, D.C.: Jan. 28, 2005). 

[10] See GAO, Cooperative Threat Reduction: DOD Has Improved Its 
Management and Internal Controls, but Challenges Remain, GAO-05-329 
(Washington, D.C.: June 30, 2005). 

[11] Results from nonprobability samples cannot be used to make 
inferences about a population, because in a nonprobability sample, some 
elements of the population being studied have no chance or an unknown 
chance of being selected as part of the sample. 

[12] Although one of the contracts we examined involves work in 
Ukraine, the other 17 contracts involve work in Russia, so we refer to 
all work as being in Russia for simplicity of discussion. 

[13] Only two contracts from NA-23 had dollar values exceeding $1 
million. 

[14] The Federal Acquisition Regulation and the Department of Energy 
Acquisition Regulation provide regulatory requirements that may apply 
to NNSA and laboratory contracts. These requirements include, for 
certain contracts, systems for filing and maintenance of documents and 
the necessity for implementation of management controls in accordance 
with Comptroller General standards. We did not evaluate whether the 
contracts reviewed for this report were managed and documented in 
accordance with any applicable contracting regulations. 

GAO's Mission: 

The Government Accountability Office, the investigative arm of 
Congress, exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
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