Wednesday, March 19, 1997
Summary of GAO report

General Accounting Office report summary

United States GAO General Accounting Office
Washington, D.C. 20548
Resources, Community, and Economic Development Division
March 14, 1997

Congressional Requesters

Over 50 articles containing allegations of mismanagement and safety violations at the Department of Energy`s (DOE) Fernald site in Ohio appeared in the Cincinnati Enquirer last year. Located about 18 miles from Cincinnati, the Fernald site is undergoing the cleanup of contamination from its former uranium metal production activities. DOE has entered into an initial 5-year, $1.9 billion contract with Fluor Daniel Fernald to clean up the site. The contract to continue the cleanup will be up for a 1- to 3-year renewal in November 1997. DOE estimates that it will take an additional 13 years and about $2.4 billion to complete the cleanup. The seriousness of the allegations prompted both DOE and Fluor Daniel Fernald to create two ad-hoc groups to investigate the situation. Concerned about the implications that the allegations might have for the management and oversight of the site, you asked us to report on (1) the extent to which DOE is providing effective management and oversight of two key cleanup projects at Femald ‹ the vitrification pilot plant project and the uranyl nitrate hexdrate project ‹ that were reported on in the Cincinnati Enquirer, (2) DOE`S oversight of safety and health activities at the site, and (3) the contractor`s compliance with certain performance and financial system procedures. In this connection, you also asked us to provide you with information concerning DOE`S overall contracting and management initiatives and how they may resolve any problems identified at Fernald.

In addition, you asked for information on the major allegations and what is known about them, including the results of the two primary investigations of the allegations in each of these areas. (This information is discussed in apps. I, II, and III.) You also asked for information on the facts surrounding Fluor Daniel Femald`s recent announcement that 12 to 15 years may be necessary to complete the cleanup, rather than the previously agreed-upon 10-year time frame. (See app. IV.)

Results in Brief

DOE has not exercised adequate management and oversight of the vitrification and uranyl projects or of the contractor`s safety and health activities. In addition, the contractor has not complied with some required procedures in maintaining its major performance and financial systems. As a result of these weaknesses, costs have increased, schedules have slipped, and safety and health risks exist. The following are examples:

DOE provided limited oversight during the early stages of the two projects and did not prepare many of the required project management documents for the uranyl project. These and other DOE oversight weaknesses contributed to a total of $65 million in estimated (cost overruns and almost 6 years of schedule slippages for the two projects. These problems are characteristic of other major projects implemented by DOE contractors at other sites.

From 1993 to 1995, serious safety and health concerns were raised about DOE`s ability to ensure the contractor`s compliance with safety and health requirements. For example, DOE did not have adequate plans to supervise the contractor`s activities and was not conducting the required safety and health assessments. As noted in a May 1996 DOE report, DOE has improved its safety and health oversight at Fernald. However, continued weaknesses limit DOE`s ability to ensure that the contractor is adhering to requirements. They include weak planning of formal inspections and weak processes for ensuring that identified safety problems are adequately corrected.

Some of the contractor`s practices for maintaining the performance and financial systems make it difficult for DOE and the contractor to exercise effective control and oversight of the contractor`s costs and activities. For example, the contractor`s requests to change the cost and schedule baseline, on which the contractor`s performance isbased, do not always provide the required information for DOE`s approval. In addition, charges are routinely made to closed financial accounts and accounts are routinely reopened without the responsible account managers` knowledge. Consequently, assurance that only appropriate costs are being charged to accounts is weakened.

DOE has made some improvements in these areas. For example, in project management, DOE has increased the frequency with which it meets with the contractor to discuss the status of its most important projects. In the safety and health area, DOE has increased the number of assessments and is making other changes that are not far enough along to evaluate. Finally, DOE has directed the contractor to make changes to address weaknesses identified in recent reviews of the contractor`s financial and performance management, but it is too early to assess their impact. These actions address some of the weaknesses we identified.

DOE recognizes that contracting and management problems exist throughout the Department and is implementing major reforms to change the way it does business at Fernald and other sites. For example, DOE has published a contracting policy adopting a standard of full and open competition, developed strategic goals for the Department, and issued new requirements for managing major projects. It is too soon to assess the overall effectiveness of these reforms. Their implementation at Fernald will be a real test of DOE`s reforms.

Background

After 36 years of using chemical and mechanical processes to produce slightly enriched uranium from ore, DOE`s Fernald site is faced with a variety of enviromental problems. As with other sites in DOE`s nuclearweapons complex, an emphasis on production versus safety has produced a legacy of contaminated radioactive and hazardous wastes at storage sites, in buildings that are deteriorating, or in seepage to undergroundwater supplies.

Also, as with other DOE sites, contract management has been an ongoing problem. Stemming from the special contracting arrangements for the development of the atomic bomb during World War II, DOE continued with lax oversight of contractors of the weapons complex for decades. For this reason, in 1990 we designated DOE`S contracting as a high-risk area vulnerable to waste, fraud, abuse, and mismanagement and have issued numerous reports and testimonies that provided an impetus for change.

The responsibility for the management and oversight of Fernald`s cleanup rests with two units at DOE`s headquarters ‹ the Office of Enviromental Management manages the technical financial, and overall safety aspects of the cleanup, while the Office of Environment, Safety, and Health conducts periodic reviews to independently evaluate safety and heath programs at the site. At the field level, DOE`S Ohio Field Office and Fernald Area Office provide the planning, budgeting, and oversight of cleanup activities. Fernald Area Office staff interact daily with Fluor Daniel Fernald staff, who either directly or through subconixactors actually conduct the cleanup.

As one of the flrst former weapons sites to be completely shut down ‹ temporarily in 1989 and permanently in 1991 ‹ Fernald, in 1992, became one of the sites to pilot test a new contracting concept called the enviromental restoration management contractor. DOE wanted to bring in new contractors, such as Fluor Daniel Fernald, that were experienced in enviromental restoration to focus solely on the management and oversight of the cleanup. The actual cleanup was expected to be carried out by subcontractors. In addition, Fernald was one of the first DOE cleanup sites to propose accelerating its schedule for completing work at the site from 25 to 10 years.

The management of the site`s activities has been complicated by reductions in the contractor`s workforce, DOE`s downsizing, and budget pressures common to other DOE sites. In 1993, shortly after Fluor Daniel Fernald assumed full responsibility for the site`s activities, DOE began a workforce reduction at the site to better match employees` skills with Fernald`s cleanup needs. As a result, about 250 company and subcontractor employees were released, and 62 employees retired or resigned. These separations caused unrest and concerns among the remaining employees.

For its part, DOE has not fully staffed the Fernald Area Office. From February 1992, when DOE established Fernald as a field office, through March 1994, when DOE proposed staffing for the newly created Ohio Field Office, DOE decreased Femald`s staffing authorization from 190 to 82. At the time, DOE officials at Fernald had hired 72 individuals. After transferring positions and staff to the Ohio Field Office, Fernald was left with 39 individuals and an authorized staff level of 68. By April 1996, DOE had decreased Fernald`s authorized staff level to 53 and had 47 individuals on board at the site.

Limited management oversight of projects has contributed to cost growth and schedule delays

DOE`S limited oversight early in the two key cleanup projects we reviewed contributed to cost increases and schedule slippages that mirror problems we have identfied across DOE. The two projects cited in The Cincinnati Enquirer are (1) the vitrification pilot plant project to confirm the feasibility of converting 20 million pounds of low-level radioactive waste into a glass-like form for disposal and (2) the uranyl nitrate hexahydrate (uranium ore dissolved in nitric acid) project to process and dispose of about 200,000 gallons of the substance. From a budget perspective these two projects represent about 5 percent of the site`s funding for fiscal years 1993 through 1996. The vitrification and uranyl projects are of similar size and complexity as some of the projects that DOE will undertake in the future.

For the vitrification project, which is still ongoing, the estimated schedule to complete the testing of the waste has slipped 19 months, from March 1996 to October 1997. The original cost estimate in February 1994 was $14.1 million. This estimate did not include the costs for operating, maintaining, decontaminating, and decommissioning the plant. By December 1994, when DOE included operating costs in the estimate, DOE increased the projects to about $20.6 million, assuming that a key part of the facility ‹ the melter used to superheat waste material ‹ could operate at 100-percent efficiency. In July 1996, the estimate increased to $56 million, reflecting cost overruns in the initial esimates, and a more conservative estimate of 33-percent operating efficiency was made for the melter, as well as operating, maintaining, decontaminating, and decommissioning costs. As of September 1996, the estimate was $66 million. For the uranyl project, the original estimates made in fiscal year 1990 increased from $750,000 to more than $I6.8 million and from 7 months to about 5 years for the project`s completion.

DOE officials believe that (1) the Department`s deliberate policy of relying on the technical and managerial expertise of its new enviromental restoration and management contractor to accomplish cleanup objectives and (2) the technical complexity of the vitrification project led to many of the Department`s subsequent problems with the prcjects. Although we agree that these factors contributed to the projects` problems, other actions and decisions by DOE and the contractor helped cause the projects` cost increases and delays.

In fact, the projects suffered from several management and oversight weaknesses. For example, DOE had limited involvement during the early design and procurement stages of the vitrification plant and could have avoided major problems if it had exercised more oversight of the contractor`s early decisions. In addition, DOE and the contractor decided early on to accelerate the pace of this project without having fully tested the feasibility of the technology and underestimated the technical complexity of this first-of-a-kind project. DOE also allowed concurrent design and construction at the vitrification plant, which resulted in increased costs and schedule delays. Because the contractor built interfacing systems for a piece of equipment still in the design phase, about 225 design changes had to be made when the final components of the equipment differed from their preliminary designs. For the uranyl project, many of the required project management documents were not prepared until late or not prepared at all, contributing to the cost growth and schedule delays. For example, because a technical information plan was not prepared until late in the project, significant work was not done according to DOE`s requirements.

As a result of a December 1995 DOE study of the problems at the vitrification plant and preliminary evaluations of alternatives to the current vitrification strategy, DOE has decided to postpone the additional construction and testing of radioactive material at the plant and to convene a panel of experts to reexamine the Department`s strategy for cleaning up the area. DOE expects that by June 1997, the Department and its stakeholders will reach a consensus on the appropriate cleanup strategy for the area. Furthermore, for its most important projects, DOE has increased the frequency with which it meets with the contractor to discuss the status of the projects.

Cost overruns and schedule slippages similar to those for these two projects exist Departmentwide. They occurred in most of the 80 major systems acquisitions conducted across DOE from 1980 though 1996, one of which is the Fernald Enviromental Management Program. Over the years, we and DOE`s Inspector General have reported that cost and schedule overruns on DOE`S major acquisitions have occurred for a number of reasons, including technical problems, poor initial cost estimates, and the ineffective oversight of contractors` operations. Furthermore, we reported that underlying the problems were, among other things, a lack of sufficient DOE personnel with the appropriate skills effectively oversee contractors` operations and a flawed system of incentives both for DOE`S employees and contractors.

Despite Some Progress, Weaknesses Remain in Oversight of Safety and Health

As noted in a May 1996 report by DOE, the Fernald Area Office has made progress in its oversight of safety and health. However, the Area Office is still not complying with some oversight-related requirements and is in the early stages of planning changes to its program that may better address these requirements. However, because the plans have not been fully implemented, it is too early to assess whether they will fully comply with DOE`S standards and guidance.

The ongoing decontamination and decommissioning activities at Fernald involve radioactive hazards, such as contaminated facilities and nearly 16 million pounds of stored uranium, as well as chemical hazards, such as acids and process waste. To minimize the risks of potential hazards to the workers and the public, DOE requires the contractor to comply with numerous safety and health standards. They include radiation protection of workers and the public, nuclear criticality safety, and occupational safety and health, among others.

The Fernald Area Office is responsible for overseeing the contractor`s compliance with the safety and health requirements. The Area Office`s oversight activities include, among other things, formal assessments of the contractor`s processes, surveillance of items or activities, and walk-throughs to observe conditions in the site`s facilities. The Area Office`s facility representatives are responsible for monitoring the performance of the site`s facilities and serve as DOE`s primary points of contact with the contractor.

Little Formal Oversight Existed Prior to 1995

Although many of the safety and health allegations in the Cincinnati Enquirer overstated the situation at Fernald, the site did have serious problems. From 1993 to 1995, the Defense Nuclear Facilities Safety Board and DOE`s headquarters offices raised serious concerns regarding the Fernald Area Office`s ability to ensure the contactor`s compliance with DOE`S safety and health requirements. For example, the Board found in 1992 and 1993 that the Area Office had inadequate plans to supervise the contractor`s activities, did not have the technical staff to ensure that safety requirements were adhered to, and did not stay on top of the daily activities of the contractor. The Board made several recommendations to correct these problems.

DOE`S Office of Environmental Management found in 1994 that the program for assessing operations at the site was unsatisfactory for a number of reasons. For example, the Area Ofrice was not conducting required assessments, did not systematically follow up on prioir assessments, and did not transmit the results of assessments to the contractor.

Two 1995 reports identified safety and health problems. The first report by DOE, Fluor Daniel Fernald, and consultants stated that an emphasis on meeting projects` target dates at Fernald contributed to a breakdown in contamination control and an increase in personnel contaminations in July and August 1995. The other report by the Office of Environment, Safety, and Health stated that the Area Office`s oversight program lacked šthe structure and resources necessary to validate the adequacy of the contractor`s operational safety and health program.‚ Specifically, the Area Office had not developed procedures for implementing its safety and health responsibilities, line managers did not conduct routine walk-throughs of Fernald facilities, and the Area Office did not have a formalized system for tracking and showing trends in the status of safety problems it had identified.

The low level of oversight activity in 1993 and 1994, according to the Associate Director for Safety and Assessment in the Fernald Area Office, was partly due to confusion over the level of oversight that DOE should exercise over the new environmental restoration management contractor and the change in primary responsibility for oversight from the Oak Ridge Field Office to the Fernald Area Office.

DOE`s Oversight of Contractor`s Activities Has Improved

As a result of these reviews, the Fernald Area Office has made a number of improvements over the years in its oversight of the contractor`s safety and health activities. For example, the Area Office developed a technical management plan for Fernald that outlined a detailed program for ensuring the contractor`s compliance with DOE`S safety and health requirements. The Office also established a group of facility representatives to monitor daily activities at the site and initiated a qualification program for these staff. The Office also increased the number of safety and health assessments from 1 in fiscal year 1993 to 15 in fiscal year 1996 and the number of surveillances from zero to 14.

The site`s record of persons contaminated by radiation is an indicator of improvement in DOE`s oversight program. Although Fernald had 69 contamination occurrences from January 1, 1993, through Febniary 12, 1996, several later assessments by DOE found that the radiological control program had improved. One DOE review compared Fernald`s personnel contamination events per 100 staff years with similar events at other comparable DOE remediation sites. The review concluded that while the type and number of occurrences indicated weaknesses in Femald`s program, the rate of occurrence was not excessive when compared with that of other remediation sites.

DOE`s and the contractor`s responses to correct a recently disclosed safety and health problem at the site is yet another indicator of improvements in the area.After a February 1996 surveillance by the contractor identified, among other things, that some inspection records of hazardous and radioactive wastes were missing, DOE and the contractor agreed in April 1996 to ensure that compliance personnel would perform weekly checks of the hazardous waste areas and examine records to ensure that inspections were performed and documented.

Some Oversight Requirements Are Not Being Met

Some recommended improvements in safety and health oversight have just been completed, but other aspects of the Fernald Area Office`s oversight still do not meet DOE`S safety and health standards and guidance. For example, in spite of a June 1993 Defense Board recommendation to immediately establish a group of technically qualified facility representatives, as of May 1996, only one out of six appointed representatives had completed the basic qualffication requirements, and not until November 1996 did four more representatives complete the requirements. In addition, despite a 1995 DOE recommendation to track and trend identified problems and corrections, the Fernald Area Office is just now implementing a computerized system to do so.

Furthermore, the Area Office did not fully implement it`s plan for assessments that it must perform in some areas, such as waste management and occupational medical programs, until fiscal year 1997, according to DOE. The Area Office also has not developed an assessment schedule for its facility representatives or a surveillane schedule for its other oversight staff. In addition, the Area Office has not developed guidelines for performing walk-throughs of facilities by DOE facility representatives. Such schedules and guidelines are intended to ensure the conduct of comprehensive and systematic reviews of all aspects of facility operations over an established period of time.

Furthermore, although a lack of formal reporting is contrary to DOE`S standards and procedures, facility representatives generally do not formally document their findings. The purpose of this reporting is to transn-dt the findings and follow-up items from surveillances and walk-throughs to the contractor`s and Area Officie`s managers. Yet, the representatives usually relay their findings verbally. DOE`s Fernald Area Office is either in the process of making changes to its oversight program to correct these weaknesses or plans to do so. Because the efforts are not complete, it is too early to assess how well the efforts will correct the weaknesses.

Some Weaknesses Exist in Performance and Financial Systems

Fluor Daniel Femald`s compliance with procedures that we reviewed in the performance and financial systems was mixed, but some weaknesses make it difficult for both DOE`s and the contractor`s managers to exercise effective control and oversight of the contractor`s costs and performance. These weaknesses include such problenls as incomplete documentation for changing the contractor`s cost and schedule baseline, on which the contractor`s performance is based, and inadequate control of the opening and closing of financial accounts to ensure that only appropriate charges are made to them. DOE has directed the contractor to make numerous changes to address the weaknesses identified in recent reviews of the contractor`s financial and performance management, but it is too early to assess the impact.

Weaknesses Exist in Documentation and Approval Procedures to Change the Baseline

In some cases, the procedures for maintaining and updating the Documentation and performance measurement baseline were not followed, while in other cases the current procedures are limited or unclear. The baseline governs the expenditure of the site`s budget, which was about $266 million in fiscal year 1997, and defines what work has been authorized. The baseline is the standard against which DOE assesses the contractor`s cost and schedule performance. The baseline is approved by the Fernald Area Office and can be adjusted to reflect changes that are not under the contractor`s control, such as a change in the authorized level of funding or changes in costs due to amended labor rates. DOE`s and the contractor`s procedures define when and how the baseline is adjusted. When the contractor wants to change the baseline, a control account manager prepares a proposal to change it. The required level of approval for the change depends on the magnitude of the change.

On the basis of our random sample of 176 baseline change proposals, the contractor complied with most but not all of the site`s written procedures for controlling the baseline. For example, the contractor had maintained the required records that described and justified a proposed change for all but one of the randomly selected change proposals that we reviewed. The documentation was usually adequate to support the need for changing the baseline, except that in some cases, the required information on the impact of changes on site activities was not well documented. In addition, we estimated that for about 12 percent of the proposals, the documentation did not include the required source of funding for the change as required by the procedures.

In some cases, DOE`s and the contractor`s written procedures for maintaining and updating the baseline are unclear and do not facilitate the efficient review and approval by management of either organization. For example, neither the contractor`s nor the Area Office`s written procedures require that if a proposal is disapproved, the reasons for disapproval be formally documented on the proposal form. The procedures also do not require that the contractor clearly mark documents that support change proposals in order to indicate differences between the current approved baseline and the proposed change. The lack of such documentation inhibits the subsequent review or oversight of proposed changes.

As for requirements for the approval of change proposals, DOE`s and the contractor`s procedures for designating which level within each organization should approve change proposals do not clearly define the criteria for determining the approving officials. Although one of the criteria for determining approval levels is the amount of funds involved in the change, the procedures do not clearly define whether the criteria should be the net change in funds over 1 year or over several years. Because Area Office and contractor officials can interpret the criteria differently, change proposals that involve moving similar amounts of funds among activities may be approved at different levels within the organizations.

The incompleteness of the formal documentation highlights the degree to which the Fernald Area Office`s management relies on informal and verbal communications to support decision-making. The current procedures and quality of information do not facilitate DOE`S oversight process and also do not provide a complete official record for subsequent internal or external review.

Controls Over Accounts Are Not Always Adequate

In controlling financial accounts, some charges are posted to accounts after they have been closed, and the required approvals for opening and closing accounts are not always obtained. These practices make it difficult for DOE`s and the contractor`s managers to exercise effective control and oversight of the contractor`s costs and performance. The contractor processes several hundred thousand financial transactions each year to accumulate the costs in its accounts. Accounts are opened to allow costs for specific work to be charged against the appropriate account and closed when all related charges have been made to the account. Procedures require that the contractor`s control account managers, who are responsible for managing accounts and verifying the accuracy of charges, perform the opening and closing functions to ensure that a person knowledgeable about the scope of work and the related costs monitors and controls the charges that are made against the account.

Nearly all charges in the contractor`s financial system occurred when the accounts were properly opened in compliance with standard procedures. However, a small percentage of the charges were routinely made to accounts after the control account managers had closed them, making the effective control of the accounts difficult. This percentage averaged from 1 to 2 percent of the several hundred thousand charges that Fluor Daniel Fernald processes annually to accumulate costs in its authorized accounts. The system will accept charges to closed accounts, according to contractor officials, to allow for certain adjustments to be made, such as the allocation of sales tax to an account, which is posted monthly rather than after each invoice.

In addition to allowing charges to be made to closed accounts ‹ without reopening them ‹ the contractor`s financial system allowed some accounts to be reopened for charges without the required control account manager`s approval. On the basis of our random sample of 87 control accounts and their associated 239 charge numbers, we estimate that 46 percent of the contractor`s accounts were missing at least one of the documents required to open or close the account. Furthermore, some control account managers we interviewed said they were unaware that their accounts had been reopened until after they saw new charges appear in the accounts. Making charges to closed accounts and reopening accounts without the control account managers` awareness and approval make it difficult for the managers to effectively control what is charged to their accounts and thus ensure the accuracy of the cost data that DOE uses to make payments to the contractor.

DOE Is Implementing Contract and Management Initiatives to Improve Oversight

DOE recognizes that its management and contracting problems are Departmentwide and is implementing major reform efforts to improve these areas. For example, in contracting, a DOE team that was established in 1993 to evaluate the Department`s contracting practices recommended 48 actions to fundamentally change the Department`s way of doing business. In stark contrast to its historical contracting patterns, DOE has published a policy adopting a standard of full and open competition, developed guidance for contract performance criteria and measures, created incentive mechanisms for contractors, and developed training in perfomane-based contracting for DOE personnel.

DOE also has several initiatives under way that could help the Department better manage its affairs. For example, DOE has developed strategic goals to guide the Department and contractors; defined new requirements for managing major assets throughout their life-cycle; and is evaluating revisions to its management, financial, and business information systems to provide managers with more consistent and accurate information on their projects and budgets.

DOE`s Fernald site is participating in many of these contracting and management initiatives. However, because the Fernald contract was executed prior to most of DOE`s contract reform initiatives, it will take time for these new initiatives to be formalized into DOE`s relationship with the contractor at Fernald. The test of DOE`s success will occur as DOE implements and monitors the broad changes it is making, awards new contracts for managing its sites, and fine-tunes existing contracts to improve contractors` performance. At Fernald, DOE must decide by November 30, 1997, whether to extend Fluor Daniel Fermald`s contract for an additional 3 years or competitively award it.

Conclusions

At Fernaid, weaknesses existed in DOE`S management and oversight of the cleanup projects we reviewed, in DOE`s development of a safety and health oversight program, and in the contractor`s implementation of procedures for key financial and performance systems. Although DOE has already taken some actions to respond to the findings of recent reviews, some problems still remain unaddressed or need further action. Left uncorrected, these weaknesses could increase the cost, timing, and safety and health risks of cleaning up the Fernald site.

The expirationof DOE`S current contract with Fluor Daniel Fernald provides an opportune time for DOE to strengthen the specific oversight weaknesses we identified. The contract`s expiration also will provide a test of the implementation of DOE`S contract reform initiatives. DOE can demonstrate the effectiveness of its incentive mechanisms and contract performance criteria and measures, its commitment to a policy of full and open competition, and the effects of its training of DOE personnel in performance-based contracting.

Recommendations

In view of the approaching expiration of the contract with Fluor Daniel Fernald, we recommen that the Secretary of Energy ensure that (1) the contract reform initiatives that DOE has undertaken are fully integrated into the Fernald contract and that (2) the Area Office strengthen its oversight at Fernald in order to correct the project management, safety and health program, and performance and financial system weaknesses that we have identified.

Agency Comments and Our Evaluation

We provided a draft of this report to DOE for its review and comment, and DOE provided its comments in a letter and two enclosures. DOE`S letter and and enclosure I contain the Department`s overall comments, its response to our recommendations, and DOE`S major concerns regarding our presentation of the allegations, management and oversight of the two projects we reviewed, safety and health oversight, and compliance with performance and financial system procedure). This section of the report contains our response to those comments. DOE`s enclosure II, which is not included in this report, contains more detailed comments that we incorporated into the report as appropriate. Overall, DOE plans to take actions related to our report recommendations.

DOE says it will convene a panel to consider the opportunity to integrate additional contract reform initiatives into the next Fernald contract and will continue to focus attention on and strengthen oversight of the contractor`s activities.

DOE had four major concerns with our draft report. First, DOE was concerned that our report did not bring closure to what DOE characterized as the two key issues raised by the allegations ‹ The Cincinnati Enquirer`s broad conclusions that the site has jeopardized the safety of site workers and neighhbors and that the government is being systematically cheated out of millions of dollars. The scope and objectives of our work, however, were not so broad that we could either validate or dismiss the conclusions drawn from the allegations. Rather, our work points out specific weaknesses that exist in both the safety and health and financial areas that diminish the assurance that safety is adequately addressed and costs are adequately controlled at Fernald. For example, weak processes exist for ensuring that identified safety problems are adequately corrected, and failure to correct such deficiencies present safety risks to workers and the public. In controlling financial accounts, some charges are posted to accounts after they have been closed, and the required approvals for opening and closing accounts are not always obtained. These practices make it difficult for DOE and the contractor`s managers to exercise effective control and oversight of the contractor`s costs and performance.

Second, with regard to the oversight and management of two key cleanup projects at Fernald ‹ the vitrification pilot plant and the uranyl nitrate hexahydrate project ‹ DOE generally did not dispute the lack of oversight or the cost and schedule increases, but it did disagree with the reasons for them. DOE cited the transition to the new environmental restoration management contract at Fernald and the technical complexities of the project. We agree that DOE`s approach for implementirig the new contracting concept contributed to DOE`s initial limited oversight of the project and have added language to the report to this effect. We also agree that the vitrification project was technically complex. However, we continue to believe, as stated in our report, that other factors, such as DOE and the contractor`s decisions to accelerate the pace of the project and the contractor`s decision to allow concurrent design and construction of key parts of the plant also contributed to the delays and cost increases.

Third, DOE disagrees with our characterization of the weak safety and health oversight program from 1992 to 1995 and the representation of the present program as continuing to have weaknesses. DOE maintains that it has shown continuous improvement in its safety and health oversight program since 1992 and that a 1996 DOE review reported that the program was effective. We agree that DOE has made improvements and recognize that in our report. However, prior to 1995, DOE demonstrated little formal oversight, with most of the improvements occurring more recently. In addition, we acknowledge in our report that the 1996 review found the program to be effective. However, the DOE report also identified numerous weaknesses which we also acknowledge, such as the many unstructured and informally documented activities of the facility representatives which are subsequently not useful for tracking and trending safety problems.

Fourth, DOE stated that appendix III of our report showed that there was no evidence to the allegation that charges were made to cost account with no budget and that the tests we conducted showed that the accounting system was functioning properly. In addition, DOE cited two reviews that it believes indicate that the performance system is performing adequately and that strong controls exist over selected financial activities.

We did not perform the type of testing that would allow us to say that no unauthorized work was performed or that all charges in the accounting system were valid. For example, we reviewed only selected control accounts, which did not constitute a statistically valid sample In addition, while our testing showed that the contractor`s system will not accept charges against fictitious accounts, our work also revealed that charges are routinely made against closed accounts and that accounts are routinely reopened without the knowledge of the responsible account manager.

In this connection, partly because the Chief Financial Officer`s 1996 review covered the work authorization process, control of funds, and invoice review, our work did not cover those aspects at Fernald. However, while the Chief Financial Officer`s report characterized some areas as strong, it also states that the team identified areas where controls should be strengthened and made several recommendations for changes at the site, such as strengthening certain controls over expenditures of funds to ensure that overexpenditures that have occurred in the, past do not recur.

An additional concern raised by DOE was the cleanup schedule, which DOE thought should be brought up into the report summary. However, because we did not consider this a major objective, as we explain earlier in this report, we present this information in appendix IV.

Sincerely yours,
Victor S. Rezendes
Director, Energy,
Resources, and Science Issues
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