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Prepared Witness Testimony The House Committee on Energy and Commerce
Procurement and Property Mismanagement and Theft at Los Alamos National Laboratory
Subcommittee on Oversight and Investigations
Mr. Bruce Darling
Mr.
Chairman, Mr. Deutsch and members of the Committee:My name is Bruce Darling, Senior Vice President of University Affairs for
the University of California.On
January 8, President Atkinson also appointed me interim Vice President for
Laboratory Management. I
appreciate the opportunity to appear before the Committee today to address the
management problems at Los Alamos National Laboratory.Let me assure you at the outset that I am not here to offer any excuses
for the business, property management, and procurement problems at the
Laboratory.On the contrary, the
University of California takes full responsibility for these problems and is
aggressively implementing the changes necessary to strengthen financial controls
and restore the American public's confidence in Los Alamos and the
University's management of it. Our
efforts have benefited greatly from the information made available by Glenn Walp
and Steven Doran, other Laboratory employees, the Department of Energy Inspector
General, the media and this Committee.All
have been invaluable in the University's effort to identify problems, to
expose abuses, and to resolve them in an effective and decisive manner.I want to acknowledge in particular the leadership of Chairman Greenwood
in this effort.If additional information becomes available today or at any
other time, we will pursue it immediately.And we will continue to work with the Committee, the Department of
Energy, and current and former employees at Los Alamos, including Mr. Walp and
Mr. Doran, to accomplish our corrective actions. Since
the problems at Los Alamos have been reported in the media and discussed at this
hearing, I will focus initially on the actions we have taken to date and then I
will describe why we did so: SWEEPING
MANAGEMENT CHANGES The University made sweeping management changes at Los Alamos starting in late December with the appointment of Vice Admiral George P. Nanos as Interim Director following the resignation of the Laboratory Director and the removal, and later termination, of the Principal Deputy Director. Admiral Nanos brings to Los Alamos a strong management background and valuable experience leading the U.S. Navy's nuclear weapons program.He also commanded the Naval Sea Systems Command, the Navy's largest acquisition command responsible for the design, construction, support and maintenance of all Navy ships and shipboard weapons systems, with four nuclear repair shipyards, seven Navy laboratories, 40,000 employees, and a $23 billion budget. Soon
thereafter, we removed the director of the Lab's Audit Office.We removed and reassigned the Chief Financial Officer and his
two deputies, and both the director and the deputy director of the Lab's
Security Division.We also rehired
Mr. Walp and Mr. Doran, with full back pay to the date they had been dismissed
by the former Laboratory management. At
the same time, senior University administrators took on direct, personal
responsibility for managing Los Alamos functions. UNIVERSITY
MANAGEMENT OF LOS ALAMOS AUDIT OFFICE The
University Auditor is now directly managing the Audit Office.In that capacity, he has already taken a number of
significant steps:
UNIVERSITY
MANAGEMENT OF LOS ALAMOS BUSINESS AND FINANCE The
Laboratory's finance and business operations are also now being managed by the
University's Vice President for Financial Management, who has extensive
corporate finance experience.In
that capacity, she has taken the following actions:
EXTERNAL
REVIEW OF PURCHASE CARDS AND PROCUREMENT Meanwhile,
the University has directed an External Review Team - made up of two
distinguished former federal Inspectors General and more than a dozen forensic
accountants from PricewaterhouseCoopers - to expand its recently completed
review of the Lab's purchase card system to include all other procurement
practices at the Laboratory, including Just-in-Time contracting, blanket
purchase agreements, and local vendor agreements.As soon as the expanded work is done, we will report the results to the
Committee and to the public and we will immediately address any deficiencies
identified by the External Review Team. EXTERNAL
REVIEW OF KEY BUSINESS PROCESSES The University has also retained Ernst & Young to conduct a comprehensive review and validation of the Laboratory's key financial processes; to review systems integration and controls; to assess the business organization and recommend the optimal organizational structure; to evaluate core competencies of the business organization personnel; and to recommend required employee skill sets.A team of over 30 Ernst & Young consultants has been at Los Alamos for several weeks now and is expected to report back to us next month. PROPERTY
INVENTORY Property
management is another high priority.To
that end, we are moving forward with a comprehensive property inventory - the
first since 1998.As you can
imagine, at a facility like Los Alamos, which covers 43 square miles and
includes some 2,000 buildings and $943 million in controlled property inventory,
a wall-to-wall inventory is a massive but important and necessary undertaking.We have also conducted a survey of all Laboratory delivery
sites, known as "drop points," in order to assess vulnerabilities in
security.Our external consultants
will recommend additional property management controls that we will be
instituting. INTERIM
OVERSIGHT BOARD More
strategically, President Atkinson has established an interim Oversight Board of
University Regents and scientific experts to guide Interim Director Nanos and to
ensure that necessary reforms are vigorously pursued at Los Alamos.Its membership includes three members of the Board of Regents, Richard
Blum, Peter Preuss and Gerald Parsky; UC San Diego Chancellor Robert Dynes, a
physicist; and Sidney D. Drell, a Stanford University professor emeritus and a
noted arms control advisor. Both
Blum and Parsky are highly regarded financial experts with long experience in
financial management.Parsky's
firm acquires and builds middle-market companies in the industrial sector of the
economy.Under his leadership,
Blum's firm has helped to build numerous publicly- and privately-owned
companies both in the United States and abroad. Drell
served in 2001-2002 as chair of the senior review board for the Intelligence
Technology Innovation Center and also served from 1992-2001 as a member of the
President's Foreign Intelligence Advisory Board. Dynes
is a physicist specializing in semiconductor research.He came to UC San Diego in 1991 after a 22-year career with AT&T Bell
Laboratories.He has two decades of
experience consulting and advising on national laboratory oversight issues,
including as vice chair of the President's Council on National Laboratories. Preuss
is President of the Preuss Foundation, which is involved in brain tumor
research.In 1970, he founded
Integrated Software Systems Corporation, the first software company specializing
in computer graphics.He is
chairman of the Regents' Committee on Oversight of Department of Energy
Laboratories. UNIVERSITY
GOVERNANCE AND OVERSIGHT At
the same time, we are working on a larger revamping of the University's
governance structure for the three national laboratories it operates for the
federal government. External
Oversight.We
are examining various national laboratory management models for elements that we
can draw upon to improve our own oversight: DOE's Sandia National
Laboratories, Argonne National Laboratory, Oak Ridge National Laboratory, and
Brookhaven National Laboratory; DOD's Draper Laboratory; and NASA's Jet
Propulsion Laboratory.Our goal is
stronger oversight by people with expertise in science and weapons, technology
businesses, and corporate governance who will hold the Labs and the University
accountable. For
the new governance board, we are currently developing a list of candidates with
experience relevant to national security laboratories.We are developing a charter and initial definition of roles and
responsibilities for this oversight structure and its relationship to the UC
Board of Regents, to the University President and Vice President for Laboratory
Management, and to the Laboratory Directors.We will include a list of expectations for Laboratory Directors in
creating and maintaining a culture of accountability at the Laboratories. Internal
Oversight.To
ensure that the University remains fully engaged in oversight, not just at Los
Alamos but also at the other two Laboratories, we are designing an improved
internal University structure.It
will integrate a broader array of University management expertise - business
and finance, audit, legal counsel, and human resources - into the oversight of
the Laboratories, create a strong support function and staff for the external
oversight body, integrate external expertise into the University's oversight,
and create our own clear set of expectations and culture of accountability. That's
where we are today.Now let me
explain the events that led us to this point. Without
addressing every allegation you may have read about in the press or heard about
in the hearing today, we clearly determined that the general thrust of many of
the allegations concerning control weaknesses are valid.It is clear, for example, that the purchase card program at
Los Alamos, which differed from the program used at the University's ten
campuses and two other UC-managed laboratories, lacked strong controls.The controls that did exist were not adequately enforced.It is also clear that Los Alamos did not impose the kinds of sanctions
and accountability that would have encouraged employees to keep track of
property for which they were responsible.And
it is clear that the dismissals of Mr. Walp and Mr. Doran were unwarranted. As
I explained earlier, we have been aggressively correcting these problems.We also accept the challenge posed to us by Chairman Greenwood during his
visit to Los Alamos last month to make our purchase card program a model for the
nation. PURCHASE
CARD EXTERNAL REVIEW TEAM Last
August, when we first heard allegations of procurement card abuse at Los Alamos,
the University immediately directed the Lab to establish the External Review
Team (described on Pages 4-5) to examine the Lab's purchase card program.This team reviewed 45 months of transactions totaling $120 million and
170,000 separate transactions.Following
issuance of the External Review Team's final report in December 2002, the
University Auditor, Patrick Reed, was dispatched to verify the Lab's efforts
to reconcile and review all questionable transactions raised by the External
Review Team. The
University Auditor, in turn, submitted his interim report in February.It concludes that there were approximately $320,000 in costs that were
questioned as to allowability.These
costs, including some that cannot be documented because of records lost in the
2000 Cerro Grande fire, will be fully reimbursed to the Department of Energy
immediately upon a determination by the DOE contracting officer that this
represents a full and fair accounting of the questioned transactions.In addition, the Lab adopted the University's purchase card program in
June 2002 and has reduced the number of purchase cards in use by the Lab's
8,500 employees from 1,100 to 561.Furthermore,
all current cardholders and "approving officials" have been trained on
purchase card policies and procedures.Numerous
changes have been made in the policies and procedures governing the purchase
card program in order to tighten internal controls and reduce the risk of fraud.We have decreased cardholder-spending limits and imposed requirements
that each transaction be approved by a supervisor.We have also banned the use of purchase cards to buy inventory-controlled
items.Finally, we have implemented
sanctions such as revocation and suspension of cards for inappropriate card
usage or non-completion of training requirements. UNIVERSITY
SPECIAL REVIEW TEAM While
the External Review Team was conducting its initial review, President Atkinson
directed me on November 21, 2002 to lead a Special Review Team of senior
University administrators to assess first-hand the scope of the problems at the
Laboratory.During our visit to Los
Alamos four days later, we identified weaknesses in the Laboratory's purchasing,
property management, audits and assessments, financial management, security, and
public communications programs and issued a report with nine findings and
recommendations.To cite a few
examples, we learned that:
TERMINATION
AND SUBSEQUENT REHIRING OF MR. WALP AND MR. DORAN In
addition, our report to the President strongly recommended that the
circumstances surrounding the dismissals of Mr. Walp and Mr. Doran - which,
unbeknownst to us, occurred the morning of November 25 when the first Special
Review Team met in Los Alamos - be referred for investigation to the Inspector
General and that the University also investigate the dismissals, but in a way
that would not interfere with the Inspector General's investigation.Both investigations subsequently concluded that the
dismissals were unwarranted. On December 16, President Atkinson directed me to lead a second University Special Review Team to explore the circumstances related to the dismissals of Mr. Walp and Mr. Doran.We had already written both gentlemen on December 11 to request their assistance in addressing the procurement and property problems.On December 18, we interviewed ten Los Alamos officials and departed with serious questions about the events leading to, and the judgments exercised in, terminating their employment.We interviewed four additional witnesses the following day and, as a result, on December 20 we took two actions:
FULFILLING
THE LABORATORY'S MISSION TO THE NATION I
want to assure you that, while we have been identifying and remedying these
problems at Los Alamos, we have also been focused on fulfilling the Lab's and
the University's mission to the nation, especially at this critical time in
world events.We are focused on
ensuring that:
As
you know, since the days of Professor and Nobel Laureate Ernest O. Lawrence and
his colleague Robert Oppenheimer, the University of California has had the
privilege of managing Los Alamos to contribute to our nation's security.Over the last 60 years, the University and the Lab have become an
integral system, both through the research collaborations conducted with our ten
campuses, as well as the lasting ties to the Los Alamos workforce.Through this unique partnership with the federal government, the
University is proud to have contributed to every area of science and technology
related to national defense. The
Lab has developed two-thirds of the nuclear weapons in the U.S. arsenal.When nuclear weapons testing ended, the nation looked to Los Alamos and
Livermore to find ways to use the most advanced scientific and computational
assets to simulate nuclear testing and to ensure the continued viability of our
nuclear weapons stockpile. And today, as the Committee knows, Los Alamos is
front-and-center in the effort to bolster homeland security, especially in the
areas of counter-terrorism, non-proliferation, and prevention and preparedness
for nuclear, biological, and chemical attacks.The International Atomic Energy Agency inspectors that are in Iraq at
this very moment were trained at Los Alamos, and scientists at the Lawrence
Livermore Lab provide broad country analyses of potential proliferant countries,
such as recent information about North Korea's nuclear developments. I
raise all this to underscore the University of California's continuing
commitment to the nation even as we resolve the business and administrative
deficiencies at Los Alamos.The
business practices need to be raised to the same level of quality as the science
and weapons programs.We owe this
to the American people, who are paying for the work of the Lab, and whose
security is dependent on the Lab. Let
me reemphasize that managing the national security laboratories for the last 60
years has been an honor and an awesome responsibility, and we will address any
challenges that might detract from our ability to fulfill our obligations to the
American people. Finally,
I would be remiss not to mention the dedication and commitment with which
Interim Director Pete Nanos has tackled his responsibilities at such a difficult
time.He and Los Alamos National
Laboratory's employees are energized and working diligently to bring about a
change in the culture of Los Alamos to one that welcomes open communication and
encourages employees - without threat of retaliation - to step forward with
their concerns.Every indication is
that he is succeeding, but the challenge will be to solidify his efforts and
sustain them over the long-term. In
conclusion, let me apologize to you on behalf of President Atkinson and the
University's Board of Regents.The
problems I have outlined reflect poorly on Los Alamos and on the University, and
detract from our many accomplishments on behalf of the nation.Moreover, they are a disservice to the thousands of honest
and hardworking scientists, technicians and support personnel who are working to
protect American troops and the American homeland.They deserve better from the Laboratory's management and
the University of California. Let
me assure you that the University of California, including the new management
team at Los Alamos, shares with the Committee, the Department of Energy, and the
National Nuclear Security Administration the urgency to fix the problems that
have emerged.This has been a
difficult time, both for the University and for the Laboratory, but we have
benefited enormously from the intense scrutiny and from the active involvement
of the Secretary of Energy, the NNSA Administrator, and this Committee in
helping to identify the problems we are discussing today and to develop
appropriate remedies.Far from
weakening us, this experience has strengthened us; it has further bolstered our
resolve to restore the confidence of the Nation in the service we are determined
to perform in time of peace and in time of war. Thank
you again for this opportunity to address the Committee.I would be pleased to answer your questions.
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