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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
The Honorable Gregory H. Friedman
Mr. Chairman and Members of the Subcommittee.Thank you for the opportunity to appear today to testify on the Office of
Inspector General's recent inquiry concerning Los Alamos National Laboratory. INTRODUCTION
For 60 years, the University of California (University) has operated the Los Alamos National Laboratory (Los Alamos) for the Department of Energy (Department) and its predecessor agencies.Among its many important missions and functions, Los Alamos has critical national security responsibilities, including helping to ensure the safety, security, and reliability of the nation's nuclear weapons stockpile. In recent years, Los Alamos has been the subject of
intense scrutiny during a number of controversies regarding allegations of
espionage, lax security, and related internal control failures.The Department and Los Alamos initiated actions intended to ensure that
the Laboratory was carrying out its missions with a heightened emphasis on
protecting national security interests.Realignment
of Los Alamos' security function, or "S"
Division, was one such action.On a
broader scale, Congress and the President created the National Nuclear Security
Administration (NNSA) as a semi-autonomous agency within the Department. In 2001, Los Alamos undertook a nationwide search to recruit an experienced leader for the Office of Security Inquiries within the "S" Division.In addition to various security responsibilities, the job announcement for this position provided that the person hired would conduct investigations into theft and property protection.Given the sensitive nature of much of the work at Los Alamos, imbuing this position with a sense of urgency for the protection of property - especially computers and other technology that may store classified and other national security information - was consistent with the Laboratory's stated goal to heighten national security awareness.The nationwide search culminated with the hiring of a new Security Inquiries Team Leader (Security Inquiries Leader) in January 2002. In February 2002, my office issued a report entitled,
"U.S. Department of Energy's Purchase Card Programs-Lessons Learned."In May 2002, I testified before this Subcommittee regarding the results
of that effort.Specifically, we
identified a number of concerns with respect to the Department's management of
purchasing activities.In recent
months our focus has turned to Los Alamos in light of allegations about
potential abuses at that facility. On November 5, 2002, the NNSA Acting Administrator requested that the Office of Inspector General review allegations that management of the Laboratory was engaged in a deliberate cover up of illegal activity and security concerns.We interviewed over 60 Laboratory officials and other parties, and reviewed thousands of pages of pertinent records.One of our first steps was to interview two Laboratory security officials, Glenn Walp, the Security Inquiries Leader, and Steven Doran.Both men are former law enforcement officers, and had been hired by the Laboratory in 2002 to help address an acknowledged deficiency in Los Alamos' handling of property loss and theft.Both men were vocal in their criticisms of Laboratory management's handling of these issues. Approximately one week after we interviewed the two
security officials, the Laboratory terminated their employment.This raised the specter that the terminations could have been
retaliatory.Consequently, we incorporated these actions into our inquiry. SUMMARY OF INQUIRY FINDINGS
Our recently-issued report of inquiry disclosed a series of actions by Laboratory officials that obscured serious property and procurement management problems and weakened relevant internal controls.These actions created an atmosphere in which Los Alamos employees were discouraged from, or had reason to believe they were discouraged from, raising concerns to appropriate authorities.In short, management's actions resulted in delayed identification and resolution of the underlying property and procurement weaknesses, and related security concerns.Specifically, we found that Laboratory management:
(1) inadequate or untimely analysis of, and
inquiry into, property loss or theft and security issues; (2) lack of personal accountability for property; (3) a substantial degree of dysfunction in the
Laboratory's communication and assignment of responsibilities for the handling
of property loss and theft concerns; and (4) inadequate controls over procurement and property
systems. We also found that Laboratory management:
We found, as well, that the Laboratory:
1. "Resist the temptation to 'spill your guts'"; 2. "Handwritten notes can be especially damaging..They are not easily disavowed"; and 3. "Finger pointing will just make the program look bad." Our inquiry corroborated a number of the concerns expressed by the two terminated security officials.The Laboratory's decision to terminate the employment of the two security officials during ongoing external reviews that were addressing some of the very same issues raised by these officials, was, in our judgment, an incomprehensible action on the part of the University of California.These events: · Raised doubts, in our judgment, about Los Alamos' commitment to solving noted problems; · Fostered a chilling effect on employees who may have been willing to speak out on matters of concern; and · Were inconsistent with Laboratory and University of California
obligations under its contract with the Department of Energy. As you know, the University recently announced that the two
security officials had been re-hired, albeit on a temporary basis, as a part of
the Office of the President. Our report of inquiry contained specific recommendations
for corrective action.In particular, responsible Department officials must ensure
that the University of California and the Laboratory's management is held
accountable for implementing and executing corrective actions resulting from the
current situation at the Laboratory. DETAILS OF INQUIRY FINDINGS A.Allegations of Cover-up/Questionable Management
Actions Laboratory
officials took a number of actions that, in our judgment, obscured serious
property management and security problems.These actions created an atmosphere in which Los Alamos employees were
discouraged from, or had reason to believe they were discouraged from, raising
concerns about property loss and theft, or other concerns, to the appropriate
authorities. In
short, management's actions made successful identification and resolution of
the underlying property, procurement, and security weaknesses problematic.The most overt action taken by Los Alamos was the firing of
the two security officials.This
action, taken amidst ongoing reviews of allegations of lax security controls,
was clearly and predictably controversial.Moreover, the officials were fired soon after they spoke with the Office
of Inspector General.It is
impossible to imagine that this action would not have had a chilling effect on
other employees who might have contemplated speaking out about problems at the
Laboratory.In our judgment, the
terminations undermined management's actions to address the core issue:identifying and correcting weaknesses in controls over national security
assets. In
addition to the firings, our inquiry disclosed that Laboratory management: · Issued,
then immediately rescinded, a memorandum requiring corrective actions to address
problems regarding the management of Government property. · Published
Laboratory documents that could be interpreted as discouraging Los Alamos
employees from reporting on the extent or severity of control weaknesses. Rescinded Memorandum In an April 2002, memorandum, addressed to all Laboratory
"Leaders," the Laboratory's Office of the Chief Financial Officer (CFO
Office) cited the need to "call your attention to disturbing negative trends
regarding Laboratory management of Government property and to engage your
support in taking corrective action."According
to the CFO Office, the concerns were that the amount of property missing during
the Fiscal Year 2001 inventory had nearly tripled from the previous year, to
$723,000; and, that substantial amounts of property, valued at $533,000, had
been reported lost or stolen during Fiscal Year 2001. The CFO Office's memorandum further stated that neither Los Alamos nor the Department could accept $1.3 million (the approximate total of the two categories listed previously) in unaccounted property.The CFO Office noted that the issue would negatively impact the Laboratory's rating in property management.Attached to this memorandum was organization-specific listings reflecting property losses. In a memorandum dated December 19, 2002, we were informed
that the April 10, 2002, memorandum had actually been rescinded the day after it
was distributed.We were told that
Los Alamos management decided that it would be more appropriate to provide each
division leader only the information relevant to his or her division and that it
served no purpose and was insensitive to people's privacy to publish the
entire list.Thus, an e-mail was
sent asking division leaders to disregard the memo of the previous day.Although a version of this memorandum was subsequently reissued a number
of the corrective action mandates were never fully effectuated. This chain of events raised doubts as to
management's commitment to address identified control weaknesses. Laboratory Documents During our inquiry, two other significant documents came to
our attention that could be interpreted as discouraging Los Alamos employees
from reporting on the extent or severity of control weaknesses. We reviewed briefing materials for a training course to be attended by Los Alamos employees in anticipation of a November/December 2002 Department of Energy Inspection & Evaluation (I&E) review on Laboratory cyber security.The briefing materials, which were prepared by the Laboratory's Office of Chief Information Officer (CIO Office), were titled, "Surviving the [I&E] Audit," and included the following suggestions:
disavowed."
When shown these materials, a senior Los Alamos management
official said that he had not previously seen them and that they were
"stupid."Subsequently, on
December 16, 2002, a memorandum was sent to certain employees clarifying the
purpose of these materials in light of their "potential for
misinterpretation." A second document was a Code of Ethical Conduct statement.The document was based on the Institute of Internal Auditors (IIA) Code
of Ethics, but departed from the IIA code by requiring auditors not to use
information in a manner that could be perceived as ".detrimental
to the University of California, the Los Alamos National Laboratory, or the
Audits and Assessments Office."While it may not have been the intent of the document, reporting
erroneous payments or surfacing other internal control weaknesses -
traditional responsibilities of internal auditors - could be perceived as "detrimental"
to Los Alamos.Los Alamos auditors
were also asked to "exhibit
loyalty in all matters pertaining to the affairs of the University of
California, the Los Alamos National Laboratory, and the Audits and Assessments
Office.."The conduct
statement created, in our opinion, the appearance of a lack of independence for
Los Alamos auditors. B.Security
Officials' Terminations We endeavored to evaluate the Laboratory's decision to
terminate the employment of the two security officials consistent with the
Department's standards for protecting contractor employees from retaliatory
actions.Based on our evaluation,
we believe it will be difficult for the University of California to sustain its
burden under the prevailing standard for adjudicating these matters. Specifically, under the Department's procedures, once an
initial case of retaliatory termination is established, the burden shifts to the
contractor entity to demonstrate, by clear and convincing evidence, that the
contractor entity would have taken the same action without the contractor
employee's disclosure or other protected activity. In this regard, our inquiry disclosed that:
The timing of the terminations was, itself, suspect. A memorandum documenting the Laboratory's stated rationale for
the terminations is dated the same day (November 20, 2002) as the Office of
Inspector General's interview of one of the two security officials.We were advised by the Security Inquiries Leader, and
Laboratory documentation confirmed, that he had informed his management, in
advance, that he and his staff were to be interviewed by the Office of Inspector
General inquiry team. In the November 20, 2002, memorandum cited above, a senior
Los Alamos official documented what he believed to be valid reasons for the
terminations.We evaluated these reasons, and concluded that a substantial
number of them do not withstand scrutiny. C.Internal Control Weaknesses In a March 26, 2002, memorandum to Los Alamos management, the Security Inquiries Leader expressed significant concern with the manner in which Los Alamos addressed property loss and potential theft.Our inquiry corroborated a number of those concerns.Specifically, we found: (1) inadequate or untimely analysis of, and inquiry into, property loss or theft and security issues; (2) lack of personal accountability for property; (3) a substantial degree of dysfunction in the Laboratory's communication and assignment of responsibilities for the handling of property loss and theft concerns; and (4) inadequate controls over procurement and property systems. Property and Security Issues We noted that property loss and theft issues, and related
security considerations, were not subject to thorough and consistent analysis.For example, in 2001, a report documenting the loss of a security radio
was inadequate.It did not provide
information concerning what frequencies might have been compromised. The Security Inquiries Leader expressed this and related
concerns in his March 2002 memorandum, including those with respect to the entry
into a law enforcement tracking system of Laboratory property theft reports.Although he noted that such reports were being provided to the Los Alamos
Police Department and the FBI, the Security Inquiries Leader asserted that those
agencies were not entering the property information into the National Crime
Information Center records because the reports were of poor quality. As noted by a counterintelligence official, the theft of
Laboratory property can have national security implications.In this vein, with respect to previous Laboratory property reports he
reviewed, the Security Inquiries Leader observed: "The reports indicate that no questions were asked
pertaining to the type of data that may have been on stolen computers, laptops,
PDAs[1],
and digital cameras.It is possible
that they may have had sensitive or proprietary materials on those systems, but
inquiry personnel failed to explore that potential; at least one can assume this
view based on the data contained in the inquiry reports." Based on these
concerns, we requested that Los Alamos explain the steps taken to account for
lost computers and other sensitive equipment.We also inquired as to any efforts made to evaluate whether classified or
other protected information had been compromised as a result.The Laboratory produced a draft memorandum, dated December 18, 2002, in
which the Chief Information Office (CIO) concluded that none of the lost,
stolen, or unlocated computers identified by Los Alamos contained classified
information.The CIO's memorandum
also concluded that there were at least 258 computers lost, 44 computers stolen,
and 61 computers unlocated for Fiscal Years 1999, 2000, 2001, and 2002[2].We did not validate these numbers, or the CIO's conclusion concerning
the non-compromise of classified information.In fact, a CIO official told us that there were inconsistencies between
these numbers and previous reports provided by the CFO and the Office of
Security Inquiries. A CIO official acknowledged that the Laboratory's
processes for reporting lost, stolen, and unlocated computers are
"fragmented."He noted
inconsistencies between computers reported lost and stolen to the Office of
Security Inquiries and data available to property management officials.Another Laboratory official confirmed that these reporting
mechanisms are not integrated throughout the Laboratory, and both of these key
officials asserted that they have recently recommended corrective action to
ensure that appropriate systems are integrated. The timing of the Laboratory's effort to reconcile these important questions is, in and of itself, troubling.It was not until the November-December 2002 timeframe that there was intensive effort in this regard. Property Accountability According to a Los Alamos official, Laboratory employees
have not been routinely held liable or accountable for lost property under their
control.This official explained
that when an employee first takes custody of an item of property, the employee
signs an "accountability" statement.However,
Los Alamos management generally chose not to enforce the statements, according
to this official, but rather chose to "write off" the missing property at
the end of an inventory cycle.An
accounts receivable official could not recall ever receiving any restitution
from any Los Alamos employee for a lost or stolen item for which he or she was
responsible.The Security Inquiries
Leader made a similar point in his March 2002 memorandum. Another issue we identified relates to Los Alamos' use of
"drop points" for the delivery of new equipment.Under the drop point system, Laboratory property is not delivered,
uniformly, to a central, secure location.At
such a secure central location, the equipment can be tagged, inventoried, and
consistently tracked.We were told
that many of these Laboratory drop points are in open spaces with little or no
security.A number of key officials
advised that there have been insufficient Laboratory efforts to ensure that
equipment delivered to Laboratory drop points is safeguarded.We were also told that property would be left at these locations for
inordinate amounts of time, without being checked by property administrators. Communication and Responsibilities Our inquiry disclosed a substantial degree of
dysfunction in Los Alamos' communication and assignment of responsibilities
and authorities for the handling of property loss and theft concerns.For example, Laboratory management sent mixed messages to the two former
security officials with respect to the scope of their authorities and
responsibilities.Security
Inquiries officials were told that they were not "investigators."At the same time, our inquiry disclosed that one of the terminated
security officials was directed by a senior Los Alamos official to travel off
site, to another state to interview a private citizen, to obtain information
concerning a matter (the alleged improper purchase of a Mustang automobile),
which included the possibility that it was criminal in nature.This appeared inconsistent with previous direction, and other management
communications to these officials, about the scope of their responsibilities and
authorities. Further, Laboratory management acknowledged that there were
inadequate Laboratory policies that governed when and under what circumstances
Laboratory activities must be reported to law enforcement.Laboratory officials had been drafting such a policy since the spring of
2002, but the policy remained in draft at the time of our inquiry. Our inquiry also disclosed organizational inconsistency between the roles of the Office of Audits and Assessments and the Office of Security Inquiries.The Office of Audits and Assessments was tasked with the internal review of Laboratory "waste, fraud, and abuse" concerns, whereas the Office of Security Inquiries was responsible for reviewing alleged "theft."This left not only the potential for "overlap" in responsibilities, but "underlap," as one senior security official characterized this condition to our inquiry team. Procurement and Property Systems As we completed our inquiry fieldwork, the final report of
the Laboratory's external review team was completed.That report noted a number of Laboratory "programmatic weaknesses"
with respect to Los Alamos' controls over purchase cards, including:
The external review team recommended a number of corrective
actions, and noted that they had not validated the Laboratory's implementation
of recent corrective actions. We also noted during our inquiry that NNSA had completed an assessment of the Laboratory's "Personal Property Management" and "Procurement Management," in December 2002, and rated the Laboratory as "excellent" in both categories.Although we did not evaluate the process by which NNSA arrived at such a rating, we believe the process should be re-evaluated in light of events. RECOMMENDATIONS Beyond this special inquiry, Mr. Chairman, we have a number of recently completed reviews and ongoing efforts at the Laboratory.Our most recent report, issued on February 21, 2003, examines internal controls of firearms at Los Alamos.We concluded that weaknesses exist in the administration of the firearms inventory, which included over 1,600 guns.We found, for example, that 12 firearms received in 1999 were not entered into the Laboratory's inventory.Also, separate firearms inventories maintained by Los Alamos and the security subcontractor were inconsistent and had not been reconciled.In addition, all firearms were not processed through a central receiving point, resulting in delays in entering some firearms into the Los Alamos property management database.In fact, some firearms never made it into the database.Management asserted that the problems we encountered concerned receipt of firearms and not accountability of firearms.However, in our judgment, the failure of Los Alamos to provide an accurate firearms inventory; the lack of reconciliation of the Los Alamos inventory with the security force inventory; and the acknowledged problems in the process for receipt of firearms and their inclusion in the official Laboratory inventory raised additional doubt about the property control system at Los Alamos.In response to our report, management indicated that corrective actions would be taken. Other ongoing Office of Inspector General reviews and investigations, as well as matters under the purview of the Federal Bureau of Investigation, are continuing to address a number of relevant concerns.The OIG efforts include:
The criminal investigations are being worked in
coordination with the United States Attorney's Office in New Mexico.Due to the sensitive nature of ongoing investigations, we will be unable
to provide specific information on the individual cases. Mr. Chairman, as noted previously, our work at Los Alamos
National Laboratory continues with the objective of addressing a number of
concerns that have been raised regarding Laboratory operations. [1] "Personal Digital Assistants." [2] The memorandum identified an additional 75 computers requiring follow up and resolution status.
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