INVESTIGATION OF MANAGEMENT PROBLEMS AT

LOS ALAMOS NATIONAL LABORATORY

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

FEBRUARY 26 and MARCH 12, 2003

Serial No. 108–13

Printed for the use of the Committee on Energy and Commerce

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INVESTIGATION OF MANAGEMENT PROBLEMS AT LOS ALAMOS

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INVESTIGATION OF MANAGEMENT PROBLEMS AT

LOS ALAMOS NATIONAL LABORATORY

HEARINGS

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

FEBRUARY 26 and MARCH 12, 2003

Serial No. 108–13

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

2

COMMITTEE ON ENERGY AND COMMERCE

W.J. ‘‘BILLY’’ TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

RICHARD BURR, North Carolina

Vice Chairman

ED WHITFIELD, Kentucky

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

ERNIE FLETCHER, Kentucky

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

DARRELL E. ISSA, California

C.L. ‘‘BUTCH’’ OTTER, Idaho

JOHN D. DINGELL, Michigan

Ranking Member

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

TOM ALLEN, Maine

JIM DAVIS, Florida

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

DAVID V. MARVENTANO, Staff Director

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida

CLIFF STEARNS, Florida

RICHARD BURR, North Carolina

CHARLES F. BASS, New Hampshire

GREG WALDEN, Oregon

Vice Chairman

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

(Ex Officio)

PETER DEUTSCH, Florida

Ranking Member

DIANA DEGETTE, Colorado

JIM DAVIS, Florida

JAN SCHAKOWSKY, Illinois

HENRY A. WAXMAN, California

BOBBY L. RUSH, Illinois

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

C O N T E N T S

Page

Hearings held:

February 26, 2003 ............................................................................................ 1

March 12, 2003 ................................................................................................. 91

Testimony of:

Browne, John C., Senior Research Scientist and former Laboratory Director, Los Alamos National Laboratory .......................................................... 181

Busboom, Stanley L., Staff Member and former Director, Security Division, Los Alamos National Laboratory ........................................................ 97

Darling, Bruce B., Senior Vice President, University Affairs and Interim

Vice President, Laboratory Management, University of California:

February 26, 2003 ..................................................................................... 66

March 12, 2003 .......................................................................................... 149

Dickson, Frank P., Jr., Laboratory Counsel, Los Alamos National Laboratory ................................................................................................................. 114

Doran, Steven L., Consultant, Office of the President, University of California .............................................................................................................. 20

Erickson, Ralph E., Manager, Los Alamos National Laboratory Site Office, National Nuclear Security Administration, U.S. Department of

Energy, Los Alamos ...................................................................................... 190

Friedman, Gregory H., Inspector General, U.S. Department of Energy ...... 50

Hernandez, John, former BUS-5 Team Leader, Los Alamos National Laboratory ............................................................................................................ 171

Marquez, Richard A., Associate Director for Administration, Los Alamos

National Laboratory ..................................................................................... 171

McDonald, Jaret ............................................................................................... 23

McTague, John P., Professor of Materials, Materials Department, former

Vice President for Laboratory Management, University of California,

Santa Barbara ............................................................................................... 184

Salgado, Joseph F., former Principal Deputy Director, Los Alamos National Laboratory .......................................................................................... 104

Walp, Glenn A., Consultant, Office of the President, University of California .............................................................................................................. 12

Additional material submitted for the record:

Salgado, Joseph F., former Principal Deputy Director, Los Alamos National Laboratory, letter dated April 10, 2003, enclosing material for

the record ....................................................................................................... 209

(III)

(1)

INVESTIGATION OF MANAGEMENT PROBLEMS

AT LOS ALAMOS NATIONAL LABORATORY

WEDNESDAY, FEBRUARY 26, 2003

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ENERGY AND COMMERCE,

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS,

Washington, DC.

The subcommittee met, pursuant to notice, at 1 p.m., in room

2322, Rayburn House Office Building, Hon. James C. Greenwood

(chairman) presiding.

Members present: Representatives Greenwood, Walden, Ferguson, Rogers, Tauzin (ex officio), Deutsch, and Schakowsky.

Also present: Representatives Wilson, Radanovich, Markey,

Eshoo, Tauscher, and Tom Udall.

Staff present: Ann Washington, majority counsel; Dwight Cates,

majority staff; Michael Geffroy, majority counsel; Young Choe, legislative clerk; and Edith Holleman, minority counsel.

Mr. GREENWOOD. Good afternoon. I apologize for the delay. This

hearing of the Oversight and Investigations Subcommittee will

come to order.

Without objection, the subcommittee will proceed pursuant to

committee rule 4(e). Is there objection to proceeding pursuant to

rule 4(e)? What is it? We need to know that. Committee rule 4(e)

is the new rule that allows that those members who are present

at the time the hearing is gaveled to order who wish to forgo an

opening statement will have an extra 3 minutes accorded to them

for questions. Without objection, we will pursue according to rule

4(e).

This afternoon we hold the first day of our hearing to examine

allegations of mismanagement and theft of government funds and

property at Los Alamos National Laboratory. The focus of today’s

hearing will be on the evidence and allegations of what went

wrong.

We will hear from the people who first discovered these problems

and first investigated the situation at Los Alamos, as well as others

brought in to investigate as matters quickly spun out of control.

The situation we begin to confront today is not your run of the

mill theft and misuse of taxpayer property, as much as that demands our urgent attention in its own right. We also must examine

what our committee investigators have learned is a disturbing

breakdown in management controls and oversight at, of all places,

an institution that pursues research critical to the Nation’s security.

2

At our next hearing, which we will hold within the next couple

of weeks, we will be able to raise these serious questions directly

with the management at the lab, those people charged with ensuring that things like don’t happen. But today we turn to the people

who identified the problems and their experiences in doing so.

By way of background, as many of you know, the committee has

been involved in an ongoing investigation of fraud, waste and

abuse in government procurement through the purchase card program since July 2001. In fact, we had the Department of Energy

before us just last April.

At that hearing, DOE testified that they had little or no idea how

the purchase card programs are operated at their contractor run facilities such as Los Alamos. Unfortunately, soon thereafter, we all

got a close look at what DOE didn’t know.

The committee quickly became involved in the situation at Los

Alamos in November of 2002 when press reports began to surface

that several laboratory employees were under investigation by the

FBI for misusing a government supply contract to buy goods for

personal use. Our investigation soon discovered that was just the

tip of the iceberg.

We have learned that the property theft and mismanagement

problems at Los Alamos extend far beyond the misuse of this one

government supply contract by two lab employees. We have learned

of a lab employee who allegedly attempted to use her government

purchase card to buy a $30,000 Ford Mustang, another employee

who used her purchase card at a local casino, and another employee who altered a travel voucher to obtain additional funds.

We have learned of hundreds of thousands of dollars in unchecked theft of government property, including scores, if not hundreds, of lab computers and hundreds of other lost items, simply

written off the lab’s books each year.

This property management system is surely in need of an overhaul. I find it astonishing that a laboratory that can develop the

most advanced nuclear weapons systems on the face of the earth

and technologies to rapidly detect radiological, biological or chemical attacks by terrorists cannot develop a system to simply keep

track of its sensitive property and prevent theft of government

property by its own employees.

Our other key finding is a lack of accountability among both the

lab’s officers and employees with respect to poor inventory and fiscal controls. Simply put, cases of theft, misuse or loss of government property are not aggressively investigated, and usually no

one is held accountable when it occurs.

Indeed, the most decisive action taken by the lab to deal with

this issue was its decision to unceremoniously fire the two security

officials who were aggressively investigating these instances of mismanagement, misuse and theft.

These two gentlemen, Mr. Glenn Walp and Mr. Steve Doran,

both of whom are very experienced law enforcement officers, are

here with us today. I very much look forward to hearing their testimony about their experiences at the lab when attempting to look

into allegations of wrongdoing, and their suspicions as to why they

were terminated from their positions.

3

Also with us today on the first panel is Mr. Jaret McDonald, who

works for a Los Alamos facilities management subcontractor and

who was the first person to raise with Los Alamos management the

concerns about theft. The determination to see these concerns addressed ultimately led to the current FBI investigation into the

misuse of a government supply contract to buy personal camping

and hunting equipment, among other things. He will describe his

lengthy, until recently, unsuccessful efforts to get anyone at the lab

to take his concerns seriously, and why he ultimately decided to

contact the FBI directly in June of 2002.

We will also hear today from the Honorable Greg Friedman, Inspector General for the Department of Energy. Mr. Friedman’s office opened an inquiry in November into the allegations of management coverup of property and procurement problems and the terminations of Mr. Walp and Mr. Doran.

Its initial report, issued last month, clearly expresses strong reservations about the manner in which senior laboratory management responded to these problems, including the terminations. I

am pleased to have Mr. Friedman with us today and look forward

to a more detailed discussion of his office’s findings and recommendations.

We are also joined today by Mr. Bruce Darling, the Interim VicePresident of Laboratory Management for the University of California, which operates Los Alamos under contract with the Department of Energy.

Mr. Darling also became intimately involved in the matter before

us when he traveled to the lab in November at the request of University of California President Richard Atkinson to review management concerns at the lab. We should note that, since UC’s direct

involvement in this matter began under Mr. Darling, UC has taken

a series of personnel administrative actions in an attempt to begin

reforming the lab management and systems, including replacing

the lab’s director and deputy director and the lab’s director and

deputy director of security.

UC has also rehired Mr. Walp and Mr. Doran to advise the Office

of the UC President as it continues its investigation into management problems at the laboratory. I am pleased to have Mr. Darling

here today to add his insight into what exactly happened at the lab

and what further plans UC has to correct these problems in the future.

I thank all of the witnesses for attending. I now recognize the

ranking member of the committee, Mr. Deutsch, for his opening

statement.

Mr. DEUTSCH. Thank you, Mr. Chairman. For many years this

committee has been investigating the management at the Los Alamos National Laboratory by the University of California. The University and the laboratory’s attempt to cover up management failures and its treatment of loyal employees who try to bring problems to management’s attention and get them fixed has been a continuing theme of those hearings.

Two years ago, the University promised that many changes

would be made. It set up a special laboratory management council

and committed to making changes in the Security Division. Our

4

first two witnesses, Glenn Walp and Steve Doran, were hired to

professionalize the criminal investigations and to make changes.

What they found is that the laboratory did not want change. As

a senior lab manager warned Mr. Walp a few months before he was

fired, the laboratory is famous for eating its own children. Mr.

Walp was told that he would be leveled with both barrels if he did

not keep management happy and protect the lab’s contract with the

Department of Energy and, as we will hear later, he was leveled

with both barrels.

Today, however, we are looking at an unprecedented situation.

Mr. Walp and Mr. Doran were actually rehired by the University,

while the laboratory’s director, deputy director, the director and

deputy director of security and the head of audits and assessments

were removed from their positions because of their management incompetence in controlling procurement and property and their failure to address the problems brought to their attention.

This incompetence was only exacerbated when they tried to control Mr. Walp’s and Mr. Doran’s investigation into what was basically relatively routine criminal activity. The laboratory did not

want any of this known, especially by this committee.

What we are going to hear today is that in less than 2 years

these systems allowed three people in just one division, by using

numerous suppliers and procurement vehicles, to buy all kinds of

camping and hunting gear, including 251 knives, 18 pair of binoculars, sleeping bags, Arctic jackets, hiking boots, Coleman lanterns, battery operated ice chests, and global positioning systems. They were not cheap. The binoculars cost up to $3,300 each, some of the knives $266 each. There were helmets and boxes of

gloves for all-terrain vehicles, floor sanding equipment for facilities

that had no wood floors, auto supplies when vehicles were maintained by the GAS, railroad ties for retaining walls that weren’t

built, welding tools for people who weren’t supposed to weld, and

over $5,000 of lock picking equipment, plus a CD containing instructions on how to pick locks, enough hand and shop tools to

maintain an army. The perpetrators couldn’t even figure out how

to use it all.

In addition, Mr. Chairman, our Federal dollars were going to pay

these lab employees—actually, there is a receipt that actually went

through the procurement process for Oakley sunglasses that, obviously, as you see from the copy, were approved, directly approved.

Thank you.

These were all ordered by a small group of people whose main

job was to supervise a subcontractor that did the actual maintenance work and brought its own tools and supplies. Shockingly, the

manager of this group was given high marks during these years for

his ability to control costs.

Even more shockingly, these purchases were rarely questioned

by any of the contract administrators, even though the purchase of

knives, for example, is not allowed in the laboratory, and what conceivable reason could they have for lock picking equipment.

Where did all these purchases go? It is difficult to tell, since the

majority of them do not appear to have gone through the regular

inventory delivery system to be marked, and most of them did not

require inventory controls, because they cost less than $5,000. But

5

some of them were found in the houses of the implicated managers

when the FBI raided them.

How did the lab handle this? When Jaret McDonald, who is one

of our witnesses today, went to the Security Division to ask for an

investigation, the investigator, who remains on the lab’s payroll

today, received a list of all these purchases, agreed that they were

suspicious, made a call to the FBI. But they did no serious followup for 7 months until Mr. McDonald went directly to the FBI.

The FBI has focused on one contract, but our investigation shows

that these same types of purchases were also made under several

other contractors and vendor agreements. This is not the only instance in which procurement and financial controls were weak or

nonexistent.

Another employee working directly for the head of procurement

used her credit card to get cash advances, as has been mentioned

by the chairman, at various casinos. Why wasn’t this picked up immediately, because like several other employees, she was both the

buyer and the approver of purchases on her credit card. The same

situation has been mentioned regarding purchase of a Mustang vehicle.

Yet another employee was able to convert $1,800 to her own personal use by simply sending electronically a bogus travel plan and

asking for an advance check. No supervisory approval was required. However, instead of allowing these instances to be handled

by the appropriate law enforcement agencies, Mr. Walp and Mr.

Doran, Joe Salgado, the lab’s principal deputy director, and Frank

Dickson, the lab’s counsel, quickly and personally took over the

management of the investigation.

When Mr. Walp and Mr. Doran tried to do their job and work

with outside law enforcement agencies to prosecute, Mr. Salgado

and Mr. Dickson had them fired based on a flimsy justifications,

some of which they knew were false. The real reason was that they

were not protecting the laboratory and its contract with the DOE.

Mr. Chairman, the procurement and property systems, but more

importantly, the entire management of Los Alamos National Laboratory needs a complete overhaul. It is not enough to say that

there is a great science at the lab. Employees have to remember

that they are public servants with public trust, and those individuals who bring fraud, waste, abuse and mismanagement to the

lab’s attention should be honored, not pursued and ostracized in

their community.

I hope this hearing will be the beginning of such a process.

Thank you.

Mr. GREENWOOD. The Chair thanks the gentleman and

recognizes——

Mr. DEUTSCH. Mr. Chairman, may I also just mention, the ranking Democrat on the full committee, Mr. Dingell, probably will not

be here, and if I could submit his statement for the record.

Mr. GREENWOOD. Without objection, the statement will be made

a part of the record.

[The prepared statement of Hon. John D. Dingell follows:]

6

PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

Thank you, Mr. Chairman, for holding this hearing, which I understand is the

first of three hearings on the University of California’s and the Department of Energy’s management of the Los Alamos National Laboratory. We have been holding

hearings on the lab for many years, with many promises of reform, mostly

unfulfilled. Today, we will hear more promises. The question that everyone, including the Department, must answer is whether they are too little, too late.

Over two years ago, the University promised the Congress and this Committee

that it would make major changes in its management of its Laboratories, particularly in the area of property control. Appendix O was added to the University’s contract. A senior laboratory management council was established that was going to

shape up the management. Security and safeguard efforts were going to be strengthened.

This management council did put the National Ignition Facility at Lawrence

Livermore National Laboratory back on track, but the day-to-day management of

Los Alamos—a billion-dollar business—appears to be worse than ever. There are

still no basic controls. It is still operating with its ‘‘unique’’ procurement systems

left over from the Manhattan Project days and outside of standard University operating practices.

I am particularly pleased that Glenn Walp, Steven Doran, and Jaret McDonald

are testifying today. They each have compelling stories. For example, Mr. Walp was

told when he went to Los Alamos that he was there to change things in security,

particularly in the investigation of property theft. But when he tried to make

changes that would hold Laboratory employees responsible for their criminal behavior, he was fired because his ‘‘customers’’—the top management of the Laboratory—

didn’t want the FBI or any other law enforcement agencies on its premises. This

management tried to run the investigations themselves, and when the FBI said they

had ‘‘screwed up,’’ they blamed Mr. Walp, firing him and his colleague Mr. Doran.

That was an outrage.

So now there is yet another management council and more promises that we will

hear about today. Two management consulting firms are at Los Alamos as we

speak. They will recommend more changes. But, once again, we cannot know if

these are only promises to make us go away, or if they have real meaning and will

actually be implemented.

And will people who in good faith try to make these changes be held in high repute in the Los Alamos community, or will they be seen as troublemakers and ostracized when the lights of the press fade? Already, one of our witnesses has been told

that his actions may not be good for his career. This reactionary attitude must be

rooted out. People who bring environmental, safety, procurement and property management, and fraud, waste and abuse to their managers’ attention should be rewarded.

The University of California must do better, or we must find someone who can.

There are many universities, government agencies and businesses that can do research without letting their property management, procurement, travel and other

systems be run like the proverbial cookie jar.

One last thing, Mr. Chairman. When Bill Richardson was Secretary of Energy, he

was pilloried mercilessly, and very often unfairly, by some on this Committee and

others for security and property control shortcomings at Los Alamos. The lab and

the University were, frankly, largely let off the hook in Congressional hearings. The

Department of Energy is ultimately responsible for what happens at Los Alamos,

but I also hope everyone now understands the University of California and the lab

management played the key role in these chronic management shortcomings. Now

the University has one last chance to fix things.

Mr. GREENWOOD. The gentleman from Louisiana, chairman of

the full committee, Mr. Tauzin.

Chairman. TAUZIN Thank you, Chairman Greenwood.

Let me first point out, as we’ve done very often, one of the most

essential functions of this subcommittee is to cast the bright light

of sunshine upon areas within our full committee’s jurisdiction that

are susceptible to waste, abuse of taxpayer dollars, and outright

fraud and theft, as this case may be.

The serious and disturbing problems with management and theft

of government property at Los Alamos National Laboratories demVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
7

onstrate very clearly why this investigative function is so important to this committee, to the Congress, and to the public at large.

The facts that this committee and its investigation have uncovered, which we will begin to explore today, reveal a troubling story

of looting at the lab. They also reveal what appears to be an utter

lack of interest by senior laboratory managers to do anything the

theft and fraud that was apparently going on right under their

noses.

In fact, we will hear today that the lab’s management not only

ignored this malfeasance, but in some cases actually tried to prevent others from exposing this malfeasance. Management actually

turned its back on the good guys trying to make matters right.

I won’t repeat the chairman’s discussion of the committee’s findings in detail except to say there appears to have been inadequate

inventory controls and oversight at Los Alamos.

Now I do have two other questions. How long has this gone on

at the facility, and what other gaps in property management and,

by extension, what other gaps in security exist at this vital lab?

What I found most astonishing in this investigation is that this

theft, this fraud, this abuse, takes place in such a vital facility for

this Nation. It is a facility this country, this Nation, puts an awful

lot of trust in with some of the most sensitive information that our

government and our people are entrusted with.

Mr. Chairman, we will begin the examination today, as you suggested, and give this our most close—our closest scrutiny, but we

must understand as best we can what happened and why, and then

do everything in our power to fix it.

Now we have some serious matters, obviously, before us, but I

am confident that you as chairman of this important subcommittee—I’ve seen your work before. We are going to get to the

bottom of this, and we will have some recommendations about how

to make sure this doesn’t happen anymore. But I want to extend

my personal welcome to the witnesses before us.

I want you to know how much the committee appreciates the fact

that some of you had to go through an awful lot in recent months

as you’ve tried to do what was right, and particularly to Mr. Walp

and Mr. Doran, I want to thank you for being here and for doing

your job.

I was pleased that our committee—our committee letter insisting

that you be rehired and put back on the job was honored and that

you’ve had a chance to follow through on your investigation.

I am particularly pleased to welcome Mr. McDonald. Like

Sherron Watkins before us in the Enron investigations, we learned

the importance of whistleblowers, of people who put themselves in

the terrible, awkward position we know you feel yourself in today,

Mr. McDonald, who went not once, but twice, to management trying to tell them what was going on and, frustrated with the lack

of response you got, eventually had to go to the authorities, as you

have to the FBI.

I realize you are here under friendly subpoena, and that is kind

of interesting that we had to do this to facilitate your attendance

here, and the information you bring us also had to be delivered by

subpoena.

8

I note that for the record, but I most of all want to say thank

you to you and emphasize again, Mr. Chairman, and to all the

members of this most important committee of our full committee

how critical it is that this country protect whistleblowers who try

to do the right thing and who come forward, as you have, Mr.

McDonald, and try to protect investigators such as the other two,

to make sure that we honor and respect the role you play in this

most awkward circumstance.

I want to say one more time that we will not tolerate any ill

treatment of any DOE, Los Alamos or subcontract employee who

is willing to assist this committee as we move forward with this investigation. We will not tolerate it. We will insist that you be treated fairly and that anyone else who wants to assist us is not harmed

in any way by their willingness to assist this committee in its

work, and this country in solving the problems that are presented

to us in this awful mess.

Again, Mr. McDonald, you are to be commended, as we commended Sherron Watkins, and I notice that Time magazine commended whistleblowers like yourself. You are critical to this country and to the taxpayers of this country, and we honor and respect

you for being here today. Thank you.

[The prepared statement of Hon. W.J. ‘‘Billy’’ Tauzin follows:]

PREPARED STATEMENT OF HON. W.J. ‘‘BILLY’’ TAUZIN, CHAIRMAN, COMMITTEE ON

ENERGY AND COMMERCE

Thank you, Chairman Greenwood. You know that I’ve pointed out before that one

of the essential functions of this Subcommittee is to cast a bright light on areas

within the Full Committee’s jurisdiction that are susceptible to waste and abuse of

taxpayer dollars—and outright fraud and theft, as this case may be.

The serious and disturbing problems with mismanagement and theft of government property at Los Alamos National Laboratory demonstrate very clearly why

this investigative function is so important to the Committee and to the public.

The facts that this Committee’s investigation has uncovered, which we will begin

to explore today, reveal a troubling story of looting at the lab. They also reveal what

appears to be an utter lack of interest by senior laboratory managers to do anything

about the theft and fraud going on right under their noses.

In fact, we’ll hear today that the lab’s management not only ignored this malfeasance, but in some cases actually tried to prevent others from exposing this malfeasance. Management actually turned its back on the good guys trying to make matters right.

I won’t repeat the Chairman’s discussion of the Committee’s findings in detail, except to say that there appears to be very inadequate inventory controls and oversight at Los Alamos. But I do have two other questions: How long has this gone

on at this facility? And what other gaps in property management and—by extension—security exist here?

What I find most astounding about this management and oversight mess, this

fraud and theft and abuse, is that it takes place at such a vital facility. It takes

place at a facility that our Nation trusts with some of our most sensitive information.

Mr. Chairman, what we begin to examine today, as you suggested, requires our

closest scrutiny. We must understand as best we can what has happened and why—

and then do everything within our power to ensure that it is fixed.

We have serious matters before us. But I am confident that, with the help of

Members on both sides of the aisle, this Committee will pursue them and help fix

them.

Let me extend my welcome to the witnesses. And let me also add that the Committee appreciates very much that some of you have gone through quite a lot in recent months as you tried to do what was right. Sometimes it does just take a few

good men (and women, of course) to set things right. We commend you for that. And

let me assure you that this Committee will not tolerate any ill treatment of any

DOE, Los Alamos or subcontractor employee who assists this Committee and this

Nation in getting to the bottom of this mess at Los Alamos.

9

Thank you again, Mr. Chairman. I look forward to the testimony and the questions, and yield back the remainder of my time.

Mr. GREENWOOD. But we can’t guaranty you to be on the cover

of Time magazine.

The gentlelady from Illinois, Ms. Schakowsky. Do you wish to

make an opening statement or have 3 extra minutes?

Ms. SCHAKOWSKY. I would like to.

Mr. GREENWOOD. The gentlelady is recognized for an opening

statement.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman and ranking member Deutsch, for convening today’s hearing and for your leadership

on this important subject.

In my previous role as the ranking Democrat on the Government

Reform Subcommittee on Government Efficiency and Financial

Management, I had the opportunity, along with my chairman,

Steve Horn, to look at government procurement practices and, unfortunately, the numerous cases of abuse that exist. We were particularly focusing on the Department of Defense, but it suggested

that this may be occurring throughout the U.S. Government.

The committee today will review findings that are even more

concerning, because it suggests a lack of attention to critical information at one of the Nation’s most critical national security installations, the Los Alamos National Laboratory.

We will hear about illegal use of taxpayer funds, theft of government property, lax to nonexistent inventory controls, and a culture

of denial and deceit at Los Alamos. What is most troubling to me,

though, is the fact that management at the Los Alamos National

Laboratory knew about the problems and were more concerned

with self-preservation and the image of the lab than with their responsibility to the American public.

One would think that news of individuals using government

funds to procure items such as lockpicking sets, hunting knives,

golf equipment, and numerous other illegitimate purchases would

immediately raise flags and touch off disciplinary and other actions.

What little we have seen at Los Alamos in that regard came only

after inquiries by this committee, the press, and the Department

of Energy’s Inspector General. Energy and Commerce Committee

staff uncovered serious problems. The staff investigation brought to

light the fact that Los Alamos National Laboratory has no system

in place to conduct inventory review for items that are either not

sensitive, computers and the like, or cost less than $5,000.

In fact, the Department of Energy does not require inventory

controls for such items. According to committee documents, as of

February 2002 items that were either sensitive or worth more than

$5,000 went unaccounted for to the tune of $723,000, and millions

of dollars worth of very expensive equipment were stolen as well.

This leads me to the question whether the problems we are seeing at Los Alamos extend to the broader Energy Department, and

Mr. Chairman, I hope you will consider calling Secretary Abraham

and Acting National Nuclear Security Administration Administrator Brooks to come to discuss these issues with the subcommittee.

10

Beyond the staff mismanagement and illegal procurement issues,

what troubles me most is the retaliation against Los Alamos personnel who tried to investigate allegations of abuse of taxpayer

funds, and it sounds like from the opening statements so far that

this is a major concern to the committee and its leadership.

These individuals were doing their patriotic duty by raising concerns over Los Alamos’ serious management failures, and instead

of being commended and encouraged, they were fired.

Mr. Chairman, I want to thank you again for convening this important hearing. Improving homeland security and taking care of

our struggling economy are top priorities for my constituents and

those around the country. What went on at Los Alamos undermines both of those important efforts, and I look forward to working with you to improve the situation.

If we cannot at least root out theft and mismanagement at Los

Alamos, how can we confidently guaranty the security of the Nation’s nuclear weapons stockpile to the American people? I welcome

our witness and look forward to their testimony.

Mr. GREENWOOD. The Chair thanks the gentlelady. The gentleman from Oregon, the vice chairman of the subcommittee, Mr.

Walden, do you wish to make an opening statement?

Mr. WALDEN. Thank you, Mr. Chairman. I am going to waive my

opening statement under our rules to give my time at Q&A.

Mr. GREENWOOD. Very well. Mr. Ferguson has come and gone.

Mr. Rogers?

Mr. ROGERS. I will waive my statement, Mr. Chair.

Mr. GREENWOOD. All righty. Now we are joined by other members of the full committee who are not members of the subcommittee, Mr. Radanovich, Ms. Wilson, Ms. Eshoo. Mr. Markey is

expected. We are also joined by Ms. Tauscher of California and Mr.

Udall of New Mexico who will be observing. Glad to have their

presence as well.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. GEORGE RADANOVICH, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Chairman, today’s hearing is a vital step in restoring and maintaining confidence in the national security of our nation. I strongly believe in the outstanding

work of Los Alamos and in its employees.

The most unfortunate aspect of the issue before us today is that the apparent

wrongdoing by a few employees has reflected badly on the exceptional work by so

many others who devote themselves to the nation’s security.

I continue to have confidence in the high quality of the weapons program and the

scientific and technical work of Los Alamos. By taking many corrective steps, I believe the lab recognizes that the business and administrative practices of the laboratory need to be revamped so that they will rise to a level of quality similar to the

quality of the science at the lab.

In order to restore the confidence of the nation, the lab has implemented numerous oversight changes involving administrative and business operations:

• The University has made sweeping management changes at Los Alamos, and senior University administrators have taken on direct, personal responsibility for

managing Los Alamos functions;

• President Atkinson has established an interim Oversight Board of University Regents and scientific experts to guide the Interim Director;

• All administrative and business operations will report to the University of California Office of the President, for the purpose of ensuring that the recommended

changes to laboratory business practices are implemented in a timely and effective manner;

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• the University has directed an External Review Team to expand its recently completed review of the Lab’s purchase card system;

• As soon as the expanded work is done, the Lab will report the results to the Committee and to the public and will immediately address any deficiencies identified by the External Review Team.

These changes reflect the University’s deep concern about the allegations that

have been made about Los Alamos business practices and their absolute and steadfast commitment to addressing them in a timely manner.

I trust the Lab will continue to cooperate fully with the legislative bodies and

agencies investigating these matters, and to support the thousands of dedicated employees at Los Alamos so that they can remain focused on their valuable work on

behalf of the American people in a time of war.

Mr. Chairman, I look forward to working with you to ensure that Congress and

this committee are satisfied that the University of California lives up to its long history of exceptional service to this nation.

PREPARED STATEMENT OF HON. MIKE FERGUSON, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF NEW JERSEY

I would like to thank the Chairman for holding this important hearing and for

his ongoing work investigating fraud and the abuse of government procurement procedures.

My constituents expect their tax dollars to be managed properly, and I know they

appreciate the Chairman’s scrutiny of matters where the public’s trust is broken.

We are here today to investigate possible wrongdoing at a vital national institution, where order, secrecy and adherence to regulation are essential.

Last fall, word of procurement improprieties at the Los Alamos National Laboratory came to the Committee’s attention, prompting swift and necessary action.

The allegations surfacing from Los Alamos are startling. It is reported that audits

have revealed that the lab has lost $2.7 million in computers and other technical

equipment. In addition, a lab-sponsored audit has uncovered millions of dollars in

unsubstantiated procurement credit card purchases, allegedly ranging from camping

equipment to a Ford Mustang.

Mr. Chairman, Homeland Security must be one of our highest priorities, and it

goes without saying that security at our nation’s nuclear institutions is essential.

I look forward to hearing from the witnesses today, identifying the problems at the

lab and working to continue the process of securing the Los Alamos facility.

It is crucial that corruption and wrongdoing are rooted out from our most sensitive facilities, and I believe that this hearing is a step toward that goal. Thank

you again, Mr. Chairman for you continued scrutiny of this matter.

PREPARED STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF CALIFORNIA

I’d like to thank Chairman Greenwood and Ranking Member Deutsch as well as

the Chairman and Ranking Member of the full Committee Mr. Tauzin and Mr. Dingell for allowing me to participate in this important hearing.

The accusations of fraud, mismanagement, and reprisals against whistleblowers

at the labs managed by the University of California, both Los Alamos and Lawrence

Livermore Labs, are extremely serious and sobering.

Clearly, there have been errors that the University of California must take full

responsibility for.

Systemic changes must be instituted to ensure that whistleblowers are protected,

respected and never against.

The University of California must also resolve these serious abuses in a way that

provides the Members of this Committee, the full Congress and the American people

a certainty that they will not occur again.

This hearing offers the University of California the opportunity to tell the Congress and the American people what it has found and what they are doing to remedy the serious problems at Los Alamos.

It is important for this hearing to be followed by six-month progress reports for

the foreseeable future.

It is critical that the University of California demonstrably reaffirm that the protection of our national security is its highest priority and that it has not been compromised.

The work done by the labs includes some of our nation’s most guarded secrets.

12

We must be confident that these secrets and the work of the labs has not and

will not be compromised.

As we examine the management problems that have been uncovered by this Committee, the Inspector General, and through the University of California’s own internal investigation, we must also keep the important work done at the labs in proper

perspective.

This important work and the research that the labs conduct are critical to protecting America from hostile regimes and terrorist organizations.

Recent events have illuminated this work.

For example, shortly after the September 11th terrorist attacks, Lawrence Livermore National Laboratory reported that North Korea was resuming its nuclear

weapons program.

The International Atomic Energy Agency weapon’s inspectors who are currently

in Iraq were trained at Los Alamos.

We’ve recently read about a new weapon developed jointly at Lawrence Livermore

and Los Alamos that could knock out a region’s electric circuitry without harming

civilians.

The work the Labs is ongoing and critically important to our collective homeland

security.

Finally, the University of California must demonstrate their commitment to

changing the culture of mismanagement that has existed at the Labs over the years.

This is indisputable.

I encourage this Committee to continue its important role in overseeing this commitment, affording the University of California the opportunity to see them through.

Mr. GREENWOOD. With that, I would ask unanimous consent.

One of the witnesses, Mr. Jaret, has photographs that supplement

his testimony, and without objection—well, I would ask for unanimous consent that he be permitted to show the photographs. Seeing no objections, that will be in order.

At this time, I would advise our witnesses that, pursuant to the

rules of this subcommittee and the rules of this House, you are entitled—well, we take our testimony under oath here. Do you have

any objections to giving your testimony under oath? Okay.

You are also entitled to be represented by counsel. Do any of you

wish to be represented by counsel this afternoon? In that case, if

you would stand and raise your right hands, I will swear you in.

[Witnesses sworn.]

Mr. GREENWOOD. So saying, you are all under oath, and we will

recognize Mr. Walp first for your opening statement, sir. Welcome.

TESTIMONY OF GLENN A. WALP, CONSULTANT, OFFICE OF

THE PRESIDENT, UNIVERSITY OF CALIFORNIA; ACCOMPANIED BY STEVEN L. DORAN, CONSULTANT, OFFICE OF

THE PRESIDENT, UNIVERSITY OF CALIFORNIA; AND JARET

McDONALD.

Mr. WALP Thank you. Honorable Chairman Greenwood and Honorable Members of the subcommittee, ladies and gentlemen, good

afternoon. My name is Glenn Walp. I was Director of the Office of

Security Inquiries (OSI) at the Los Alamos National Laboratory

from January 22, 2002, until Laboratory officials terminated my

employment on November 25, 2002.

I hold a bachelor’s and a master’s degree in criminal justice, and

I am in the proposal stage of my doctorate in criminal justice. I am

graduate of the FBI National Academy, the FBI National Executive

Institute. Among the many law enforcement positions I have held,

I was Commissioner of the Pennsylvania State Police, the largest

State police organization in America, a member of the Governor’s

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cabinet, and responsible for administering a budget of over $400

million.

When I first came to Los Alamos, Mr. Stanley Busboom, my second level manager, and Mr. John Tucker, my immediate supervisor, told me that I was hired because of my expertise in law enforcement. They told me to professionalize all OSI operations, and

candidly acknowledged to me that much of the OSI staff was incompetent, and their work product was severely deficient.

They told me to bring in new staff, which I did. In the first few

months, I improved the OSI reporting system, which was in disarray, ensured training of OSI personnel in good investigative practices, and initiated investigations on major security and safeguards

issues.

Although many lab employees told me that they were delighted

to see my office address the serious and pervasive problems of theft

and gross waste of government funds, it was not long before my supervisors began to obstruct my efforts and those of other OSI employees.

With the encouragement of senior management, on March 26,

2002, I completed a report that identified the total failure of laboratory management to do anything about massive theft at the laboratory. I later proposed to Mr. Tucker a plan to have the FBI get

involved in investigating these problems. Mr. Tucker adamantly rejected my proposal on the ground that the lab did not want the FBI

back at the lab after the Wen Ho Lee case and missing hard driver

computer case—or missing hard drive incident.

Mr. Tucker also told me, in what became a very common refrain,

that if I pursued the theft problems, it could not be good for upper

management or the laboratory’s image. When I found that much of

the stolen property at the lab was deliberately mischaracterized as

lost, salvaged or dismantled, my findings were ignored.

When Mr. Steve Doran, working under my supervision, corroborated that two facility managers had purchased almost $400,000 in

questionable goods through the laboratory’s purchase order system,

Mr. Frank Dickson, the lab’s chief counsel, told me that Mr. Joseph

Salgado, the Deputy Director, and he were concerned that my investigation could bring negative publicity to the lab and adversely

affect the University of California’s contract with the Department

of Energy.

When I continued to pursue the issue, Mr. Dickson obstructed

my office and the FBI’s efforts to obtain necessary documents.

When we persevered in our efforts, Mr. Busboom told Mr. Doran

and me directly that Mr. Dickson would level me with both barrels

and would fire Mr. Doran if we interfered with Mr. Dickson’s relationship with the FBI, the DOE IG or the U.S. Attorney.

It was the same with all of our other investigations. That is, inquiries into problems with local vendors, the credit card system,

and the purchase order system. Mr. Salgado, Mr. Dickson, Mr.

Tucker and Mr. Busboom obstructed our investigations, administratively resolved matters so as to cover up Federal felonies, and

ultimately fired Mr. Doran and me. The reasons the managers gave

for their actions were always the same: Our job was to protect UC

and UC’s contract, not the United States taxpayer.

14

What we know now is that Mr. Salgado and other lab managers

believed that Mr. Doran and I were the source of documents leaked

to the press that revealed massive fraud by lab employees, and in

order to prevent us from talking to DOE Inspector General investigators which came to investigate the fraud allegations, they willfully fired Mr. Doran and I. The only reason they gave later was

that we did not fit.

They were accurate about that. We did not fit. We were intent

on doing our jobs with integrity and stopping the massive fraud

and mismanagement at the lab. Even today, despite all the publicity, the Congressional interest, and the DOE investigations, the

lab has not changed.

Many of the same lab managers responsible for obstructing us

and the FBI are still at the lab, drawing their same salaries. Although administrative regulations and laws have been violated, no

action has been taken against these individuals.

It is time for Congress, the DOE, and the American public to call

a halt to the lab’s activities and make a long overdue change.

A written statement is attached to my opening statement, clarifying the details of the obstruction and the mismanagement, and

I will gladly respond to any questions that you may have in this

matter, and I thank you for inviting me here today to this assembly.

[The prepared statement of Glenn A. Walp follows:]

PREPARED STATEMENT OF GLENN A. WALP, CONSULTANT, OFFICE OF THE PRESIDENT,

UNIVERSITY OF CALIFORNIA

In mid-2001 I applied for a nationally advertised position as Office Leader of the

Office of Security Inquiries (OSI) at the Los Alamos National Laboratory (LANL).

Publicized responsibilities included conducting investigations into thefts, protecting

property, and being responsible for the strategic and tactical planning of all OSI operations.

I was selected for the position with a $10,000.00 bonus if I could arrive by midJanuary, 2002; I was hired on January 22, 2002. I learned that one of the reasons

I was hired, and with specificity prior to the end of January, was because my employment fulfilled a standard within the Department of Energy (DOE) Appendix O

mandate, ensuring the Lab would receive supplemental funding (multi-million dollars) from DOE.

I was advised by my Division Leader, Stanley Busboom and my Deputy Division

Leader, John (Gene) Tucker that the reason I was hired was because of my extensive law enforcement experience and expertise, especially in criminal investigations.

I was told by Busboom and Tucker to professionalize all OSI functions as I deemed

appropriate, and they would support me in my efforts.

I fulfilled all job requirements and supervisory directions in totality, receiving a

100%-plus rating for my performance of duty on October 2, 2002. Statements within

that rating included: ‘‘Mr. Walp has not faltered’’;... ‘‘applied... hands-on leadership

and management’’. ‘‘A pro-active and caring leader . . . a strong and professional manager . . . very effective performer’’.

Shortly after my arrival I was contacted by the Office Leader of the Office of Internal Security, Ken Schiffer, who proposed there was significant theft occurring at

the Lab. Tucker agreed with Schiffer’s postulation, stating theft has been so rampant at the Lab ‘‘it has been making the valley green for years’’. Subsequently I was

ordered by Busboom to conduct research and submit a written report on the theft

issue.

Preliminary data disclosed that OSI inquiry reports were severely lacking in investigatory analysis; property was inappropriately handled as lost, salvaged or dismantled when in fact it was stolen; major theft occurred at unsecured drop points;

and most importantly, there was a severe problem with lost property. That is, although it was the spring of 2002, the Business Division did not have accountability

of over 700 pieces of property that was identified as lost in 1999 through 2001,

amounting to approximately $2.7 million. Lost items included: nearly 260 comVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 86048.TXT HCOM1 PsN: HCOM1
15

puters; 124 printers; 48 radios; 37 cameras; a $25,000.00 thermal analyzer;

$25,000.00 control milling machine; $35,000.00 2-ton magnet; $32,000.00 magnet

lifting unit; $33,000.00 wire brush; $23,000 water tank; $27,000 remote terminal;

$11,000 copier; $20,000 spectometer; $20,000.00 module oscillator; 2 work stations

worth $47,000.00; $11,000.00 cryogenic refrigerator; 2 trailer vans worth $19,000.00;

and a $6,000.00 forklift. It was investigatory speculation that many of the items reported as lost were actually stolen.

The requested theft report was submitted to Busboom on March 26.

After submitting the March theft report I learned that theft was occurring within

the purchase card and purchase order programs, but the most egregious area was

most likely in the Local Vendor Agreement (LVA) and Just In Time (JIT) systems.

The LVA and JIT systems allows a Lab employee to use their personal identification

badge as a credit card, with little to no audit controls. Lab personnel proposed that

the LVA and JIT systems were so flagrant that any employee, for example, could

have a computer installed in their residence and no one would ever know. These

same personnel advised me that they had been telling their supervisors and administrators about this theft for years, but these Lab officials would not take any action

to resolve the problems.

Memorandums had been prepared by Business Division personnel in the fall of

2001, warning of the problems associated with the purchase card system, yet their

supervisors failed to take any action. Other BUS Division memorandums were prepared after the release of the March theft report, confirming the severity of the

theft, and the egregious mismanagement of Lab auditing and property control systems.

I asked Tucker to allow me to work with the FBI to address this blatant theft.

Tucker rejected my request, stating that because of the Wen Ho Lee and hard drive

cases the Lab did not like the FBI coming into their domain. Tucker also proposed

that if I continued in my efforts I am liable to determine that high level Lab management are involved in these thefts and that would not be good for the Lab’s

image.

CRIMINAL INCIDENTS UNCOVERED

Between June and September, 2002, five major criminal incidents were disclosed.

NIS Incident

Unbeknownst to me, during 2001, major theft was occurring in the Nonproliferation International Security (NIS) area. Information on this criminal activity had

been given to Lab authorities Bill Sprouse, Tucker, Katherine Brittian, and Scott

Gibbs, by certain Lab employees, but these authorities failed to take any substantive action. The employees became disenchanted with the cavalier approach of

these Lab officials, consequently making a complaint with the FBI on June 24, 2002.

On July 1, 2002, the FBI assumed the NIS investigation in conjunction with OSI.

The major method of theft used by the NIS suspects was the purchase order system. A review of purchase order transactions by the suspects in the last 18 months

revealed over $400,000.00 in questionable purchases. Purchases included:

Ninety-two hunting knives; 72 hunting-type jackets and shirts; 26 GPS systems;

32 pairs of fishing/hunting-type boots; 22 cameras; 6 Rototillers; and 56 different

types of lock pick and glass cutting devices. Other items included a go-cart; motorcycle helmets (2 children); model airplanes; sleeping bags; plumbing fixtures; truck

beds; and shock absorbers.

The FBI apprehended two suspects in this case on October 31, 2002.

Mustang Incident

Lab employee Lillian Anaya was suspected of attempting to purchase a Ford Mustang with parts, amounting to nearly $30,000.00, using a government credit card.

Stanley Hettich, a Business Division administrator willfully failed to report this

crime to OSI, indicating he had not reported any similar type situations to OSI in

the last three years. Hettich suggested that the ESA Division had gone native, and

the whole system of property purchase was out of control. Hettich blamed Mr. Richard Marquez and Mr. Joseph Salgado for this failing, because they ordered him to

give Lab employees anything they wanted; customer satisfaction was the key.

Casino Credit Card Incident

Lab employee Mary Wood used a government credit card to purchase personal

items, and secure cash at local casinos. Salgado directed that Wood should not be

interviewed and she should just be fired. Tucker recommended that she not be interviewed because she would not confess and it would be a waste of time. Security Specialist Steven Doran, OSI, interviewed the subject at which time she confessed. ImVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 86048.TXT HCOM1 PsN: HCOM1
16

mediately after the confession Dickson ordered that all the reports be submitted to

him and he would determine what would happen to the case.

Tool Incident

Lab employee Orlando Smith was suspected of improperly purchasing tools amounting to approximately $1.2 million in 12 months, from an unauthorized vendor, while misusing a government vehicle.

Forged Voucher Incident

Lab employee Clarissa Rodriguez forged a government voucher for $1,800.00.

The aforesaid investigations were initiated in accordance with professional investigatory processes, but were quickly tainted by persistent interference and obstruction by multiple Lab officials. This interference and obstruction included:

OVERALL INTERFERENCE AND OBSTRUCTION

Contrary to an original agreement between the FBI and the Lab, all documentary

reports needed by OSI or the FBI had to be reviewed and approved by Frank

Dickson, the Lab Chief Counsel prior to distribution. This system severely hampered

investigative processes, and in one case the FBI waited for approximately six weeks

to receive a much-needed report because Dickson failed to act on the request.

Dickson verbally oppressed Doran and me to reveal all confidential FBI investigative information to individuals who had no need to know and should not have

known. Dickson had been previously warned by the FBI not to tell anyone about

this information especially anyone in the Audits and Assessments Division because

there was suspect in that division. Notwithstanding, Dickson forcefully ensured confidential information was given to a member of the Audits and Assessments Division, placing multiple OSI/FBI investigations in jeopardy.

Ms. Chris Chandler, an employee of Dickson, attempted to forcefully secure confidential FBI investigative notes from me, through verbal intimidation; she was refused access to the notes. During the discourse she stated that she did not care

about anyone’s constitutional rights or the successful prosecution of an FBI investigation. If Chandler would have obtained these notes it could have jeopardized multiple OSI/FBI investigations.

Dickson attempted to force the FBI to take premature investigative action against

multiple suspects, threatening he would place the suspects on investigative leave

unless the FBI acquiesced to his demands. The threatening action of Dickson, if

brought to fruition, would have placed the NIS and Mustang cases in jeopardy.

NIS INCIDENT

Dickson attempted to gain entry into an area that contained suspected NIS stolen

property placing an FBI investigation in jeopardy. After being refused by the FBI,

Dickson became irate at Doran and Walp because they failed to cajole the FBI into

allowing him access.

Salgado and Dickson directed, through Busboom and Tucker, to remove Doran

and Walp from the NIS investigation two days before culmination of that investigation. Despite the pleas of the FBI to allow Walp and Doran to remain on the case

because they were integral to the success of that investigation, Busboom adamantly

refused. The only reason given by Busboom for this action was that it was

‘‘Dickson’s payback against Walp’’ for Walp challenging Dickson’s improprieties in

the forged voucher incident.

MUSTANG

Dickson directed that potential FBI criminal evidence held in official OSI investigatory control, be taken from OSI, thereby breaking the chain of evidence and

jeopardizing an FBI investigation.

Chandler conducted a dual inquiry on this case that had the potential of obstructing the FBI investigation.

FORGED VOUCHER

Dickson, Tucker and Phillip Kruger of the Laboratory Human Resources Division,

conspired to cover up this federal felony by failing to immediately notify an appropriate criminal justice authority, and handled the case administratively. Although

Tucker originally agreed this was a federal felony that must be investigated by a

federal law enforcement agency, he then recanted, explicating to me, since the property did not belong to the United States taxpayers, but rather the University of

California (UC), there was no crime. Hence, that is why Dickson has the authority

to do anything he wants with any crime that occurs on Lab property. Tucker also

17

said that all property and monies in control of the Los Alamos National Lab does

not belong to United States taxpayers because it is UC property and monies.

WALP AND DORAN WARNED TO COMPLY WITH LANL’S CORPORATE PHILOSOPHY/CULTURE

Doran and I were consistently warned that our major job was not inquiry into

crime, but rather, protection of the Lab, its image, and ultimately the UC contract.

Concerning this issue paraphrased comments included:

Dickson stated to Walp—

Salgado is concerned about the NIS case bringing negative PR to the Lab, which

may negatively affect the UC contract, therefore I (Dickson) will keep a pulse

on all FBI activity.

While preparing a news release on the Anaya and Wood cases, Dickson wanted

to keep information out of the release concerning the total amount of thefts committed by Wood, stating ‘‘what we’re looking at is protecting the Lab here’’.

Dickson stated to Walp and Doran—

We need to remember who we work for, who is our boss and that is the Lab,

not the FBI. That is the way it is, we must look out for the Lab and its image

first, not the FBI investigation.

Salgado stated to Walp—

I am concerned that the Mustang and tool cases may generate bad PR for the

Lab, which may negatively affect the Lab’s contract.

The critical aspect of the Mustang case is the bad PR for the Lab, not the illegal

attempt to purchase the vehicle.

Chandler stated to Walp—

I am not concerned about violating anyone’s constitutional rights or interfering

with an FBI prosecution; my job and your job is to protect our employer, the

Lab.

Busboom stated to Walp and Doran—

Of critical importance is protecting the UC contract, and it should be the primary concern of you as you perform your OSI functions; your major job is not

law enforcement or helping the FBI, but to protect the Lab and its contract.

Tucker stated to Walp—

If you continue your efforts in ferreting out Lab theft you may find that high

management personnel are implicated and that would not be good for the Lab’s

image.

Dickson doesn’t want UC to be embarrassed concerning the Mustang case, so they

are going to take action that forces the FBI to move on the case, because Lab officials must look out for the Lab first, its image, and not the FBI investigation.

Your main job and that of OSI is to protect the Lab, Lab people, the Lab contract

and the Lab image above anything else; Tucker identified this concept as ‘‘corporate

philosophy’’ and/or ‘‘corporate rules’’. The corporate rules must be followed by you

and other OSI members if they are to be successful as Lab employees.

Tucker states to Walp and Doran—

You need to know that your major responsibility is to your employer, the people

who pay your checks, therefore you must ensure that you protect them, their image,

and the UC contract.

REASON FOR TERMINATIONS

Lab officials have progressively espoused multiple reasons for the terminations of

Doran and Walp, to include: (a) They didn’t fit (contained in their termination papers); yet Busboom refused to elaborate on what that meant; (b) Doran and Walp

didn’t get along with certain groups and/or individuals at the Lab. The groups and/

or individuals identified in a Lab press release as the groups and/or individuals they

did not get along with, were groups or individuals who were either suspects in

crimes, or were interfering or obstructing OSI/FBI investigations; (c) Salgado proposed that the reason was that a chronology of the Mustang case contained incorrect

telephone data obtained from OSI. This insignificant issue was an inadvertent error

of an OSI employee, not Walp or Doran. The issue was quickly corrected, and had

no significance to the relevant factors associated with the case; (d) Salgado said it

had to do with FBI investigatory issues concerning the wearing of a body wire, and

the number of suspects involved in the NIS case. All data on these matters were

accurately and completely forwarded to Salgado in a timely manner, with the clarification that these issues were under the control of the FBI, not OSI; and (e)

Dickson proposed the reason was because Doran and Walp had a poor relationship

with the FBI. Recent investigation into this allegation by a federal investigator

found this accusation to be totally erroneous.

18

In January of 2003, it was disclosed by a UC official that the actual reason for

our terminations was, as originally proposed by Doran and Walp, a willful attempt

by Lab officials to prevent Doran and Walp from talking to DOE Inspector General

Investigators. The reason, according to the official, was because they were fearful

of what we would reveal to these investigators concerning the crime, mismanagement and corruption at the Los Alamos National Lab.

THREATS

During the course of our employment Doran and I were consistently threatened

that our efforts to approach our responsibilities from a point of integrity, without

regard for the Lab contract, would cause us problems. For example:

1. Tucker stated to Doran and me, that we must be careful in challenging the ethics

of Lab officials because the Lab is famous for sacrificing its children for the sake

of its image.

2. Busboom told Doran and me, Dickson would level me with both barrels and would

fire Doran if we interfered with Dickson’s relationship with the FBI, the DOE

IG, or the U.S. Attorney.

3. Busboom, Tucker and John Tapia told Doran and me they believed Dickson was

attempting to make us scapegoats; that Dickson was trying to blame Walp and

OSI for his own shortcomings; and Dickson was conspiring to get people to

falsely accuse Walp of being uncooperative.

ISSUES THAT STILL NEED TO BE ADDRESSED

Although much has been accomplished in addressing the theft, mismanagement

and corruption of the Lab, there is still much to do. For example:

1. All lost reports for the last decade need to be reviewed item-by-item, to ascertain,

with specificity, their locations. The Lab uses a classification system that identifies property as salvaged, dismantled and retired. It is hypothesized that these

classifications have been used to cover up for lost and stolen items. It is speculated that if these classification reports were reviewed, the microscope would reveal significant fresh ink.

2. Since Johnson Control of Northern New Mexico never reported any item of theft

under $5,000, the details of this unknown needs to be analyzed.

3. A November 7 Price-Waterhouse-Coopers (PWC) perfunctory report, illustrated

$153 million dollars of questionable ‘‘purchase card’’ transactions, while a review of questionable ‘‘purchase order’’ transactions by NIS personnel amounted

to approximately $400,000.

Thus, all Lab ‘‘purchase card’’ and ‘‘purchase order’’ transactions need to be

analyzed item-by-item, purchaser-by-purchaser, for at least the last decade. It

is theorized that the attempted Mustang purchase and the illegal purchase orders within NIS were not the first situations of this type effectuated by these

illegal processes.

4. All voucher transactions for the last decade should be reviewed for illegalities.

5. It is proposed that the most egregious area of theft is contained within the LVA

and JIT systems. A comprehensive analyses of these purchases for the last decade needs to be completed.

Doran and I had multiple cases we had no opportunity to investigate, but need

to be addressed. They include:

1. Significant theft of gasoline.

2. Two cases of potential fraud that may involve kickbacks to present and former

employees of the Lab.

3. Steve and I were recently contacted by multiple individuals, proposing that they

were aware of major fraud and theft that had occurred at the Lab in previous

years, amounting to multiple millions of dollars in theft and fraud.

4. There are outstanding issues concerning criminal matters. Such as: (a) theft of

FBI evidence from an OSI office; (b) the possibility of federal/state crimes being

committed by Lab officials; and (c) that crimes although known by Lab officials,

were never reported to an appropriate authority. As of this date, Security Specialists James Mullins and Doran, and I, have never been contacted by any law

enforcement agency for official interviews, notwithstanding we are critical witnesses to these matters.

I attempted to effectuate a Federal Bureau of Investigation (FBI) investigative

task force to address these blatant failings, but the plan was soundly rejected by

my immediate supervisor.

Between June 24th and September 20th five major criminal investigations were

unraveled.

19

Although these investigations commenced in accordance with professional investigatory processes, by August these systems began to be tainted by interference and

obstruction by certain Lab officials. Namely:

1. Contrary to an original agreement between the FBI and the Lab, Frank Dickson,

the Lab Chief Counsel, ordered that all documentary evidence had to be personally approved by him prior to distribution; he attempted to force the FBI to take

premature investigative actions; he verbally oppressed Steven Doran and I to

reveal confidential FBI investigative information to people who should have not

known; he directed that potential FBI criminal evidence held in official OSI investigatory control be forcefully taken from the custody of OSI, thereby breaking the chain of evidence control; and he ineptly attempted to gain access into

an area where suspected stolen property was stored. These acts either hampered or had the potential of obstructing FBI investigations.

2. Chris Chandler, an employee of Dickson, through verbal intimidation, attempted

to secure confidential FBI written notes from me, indicating within that discourse that she was not concerned about a person’s constitutional rights or a

successful FBI prosecution; and, she conducted a dual inquiry that had the potential of obstructing an FBI investigation.

3. Stanley Hettich, a Business Division administrator, willfully failed to report

criminal activity occurring within his area of responsibility, admitting he had

not reported any similar situations in the last three years.

4. John (Gene) Tucker, my immediate supervisor inappropriately forced Doran and

me to remove certain ‘‘spy type’’ information from an official OSI inquiry report;

and, advised Doran and me that we would be sacrificed as children of the Lab

for the sake of the Lab’s image, if we challenged the ethics of Lab officials.

5. Dickson, Tucker, and Phillip Kruger of the Laboratory Human Resources Division, willfully failed to immediately notify an appropriate criminal justice authority, as it pertained to the crime of forgery of a federal voucher.

6. Stan Busboom, my Division Leader, and Tucker, removed Doran and myself from

an official FBI investigation two days before culmination of that investigation,

and to the potential detriment of that investigation.

7. Busboom stated to Doran and me that unless we ensured there was a positive

relationship between Dickson and the U.S. Attorney and the FBI, Dickson

would level me with both barrels and Doran would be fired.

8. Busboom and Tucker opined that Salgado and Dickson were attempting to make

Doran and me scapegoats.

9. Doran and I were warned by a Lab official that Dickson was attempting to fabricate negative information against Doran and me and that Tucker was involved

in this conspiracy.

Doran and I were consistently advised by multiple Lab officials that our major

role was not inquiry into crime, but the protection of the Lab and its image, for the

purpose of protecting the University of California contract.

Although much has been accomplished in addressing the theft, mismanagement

and corruption of the Lab, there is still much to do. For example:

1. All lost reports for the last decade need to be reviewed item-by-item, to ascertain,

with specificity, their locations. The Lab uses a classification system that identifies property as salvaged, dismantled and retired. It is hypothesized that these

classifications have been used to cover up for lost and stolen items. It is speculated that if these classification reports were reviewed, the microscope would reveal significant fresh ink.

2. Since Johnson Control of Northern New Mexico never reported any item of theft

under $5,000, the details of this unknown needs to be analyzed.

3. A November 7 Price-Waterhouse-Coopers (PWC) perfunctory report, illustrated

$153 million dollars of questionable ‘‘purchase card’’ transactions, while a review of questionable ‘‘purchase order’’ transactions by NIS personnel amounted

to approximately $400,000.

Thus, all Lab ‘‘purchase card’’ and ‘‘purchase order’’ transactions need to be

analyzed item-by-item, purchaser-by-purchaser, for at least the last decade. It

is theorized that the attempted Mustang purchase and the illegal purchase orders within NIS were not the first situations of this type effectuated by these

illegal processes.

4. All voucher transactions for the last decade should be reviewed for illegalities.

5. It is proposed that the most egregious area of theft is contained within the LVA

and JIT systems. A comprehensive analyses of these purchases for the last decade needs to be completed.

Doran and I had multiple cases we had no opportunity to investigate, but need

to be addressed. They include:

20

1. Significant theft of gasoline.

2. Two cases of potential fraud that may involve kickbacks to present and former

employees of the Lab.

3. Steve and I were recently contacted by multiple individuals, proposing that they

were aware of major fraud and theft that had occurred at the Lab in previous

years, amounting to multiple millions of dollars in theft and fraud.

4. There are outstanding issues concerning criminal matters. Such as: (a) theft of

FBI evidence from an OSI office; (b) the possibility of federal/state crimes being

committed by Lab officials; and (c) that crimes although known by Lab officials,

were never reported to an appropriate authority. As of this date, Security Specialists James Mullins and Doran, and I, have never been contacted by any law

enforcement agency for official interviews, notwithstanding we are critical witnesses to these matters.

Most recently Steve and I, and our attorney were informed by a top administrator

of the University of California that he has direct evidence that we were wrongfully

terminated because Lab officials did not want us speaking to DOE Inspector General Investigators.

The aforesaid is an overview of the issues I encountered when employed by the

Lab.

I am prepared to answer any questions that you may have concerning these and

associated matters.

Thank you.

Mr. GREENWOOD. Thank you, Mr. Walp.

Mr. Doran.

TESTIMONY OF STEVEN L. DORAN

Mr. DORAN. Good afternoon, Chairman Greenwood, members of

the subcommittee, ladies and gentlemen. Thank you for inviting me

here to testify. My name is Steven Doran.

Los Alamos Laboratory recruited me to work as an investigator

in the Safeguards and Security Division in the spring of 2002. The

recruiter who approached me told me the lab was having serious

problems with national security and theft and needed people like

me to come in and help them clean it up.

The lab recruiter encouraged me to take the job, because working

at the lab would be a service not only to the laboratory but to my

country as well. I went to Los Alamos with the hope that I could

be part of a broad effort to stop the rampant theft at the lab and

protect the security of the country’s most important nuclear secrets.

I started work on July 15, 2002. A few days later I began work

with the FBI on the Bussolini and Alexander case where the two

managers at the lab had misused the government purchase order

system to steal hundreds of thousands of dollars in property.

In the following days and months, I saw the FBI and my successful investigative efforts in this case and all other cases I was working on thwarted by the lab’s upper level management, Joseph

Salgado, Frank Dickson, Gene Tucker and Stan Busboom. Lab

managers from other departments including Richard Marquez,

Stan Hettich, Dick Stickler, Vernon Brown and John Tapia attempted to cover up, change and conceal information from our office.

These lab managers and lab counsel Dickson continue to make

innuendos and threats to Mr. Walp, and my employment could be

in jeopardy if we continued investigating the rampant misuse of

government credit cards and the purchase order system.

Because of the productive working relationship that I developed

with the FBI, Special Agent Jeffrey Campbell, Mr. Busboom told

21

me specifically I had to protect the lab’s relationship with the FBI

and the United States Attorney or I would be fired. He made it

clear that he wanted me to participate in the cover-up of major

crimes at the lab and use my good relationship with the FBI to prevent them from investigating these matters on their own.

Although I always followed orders given to my by my superiors,

I refused to cooperate in their cover-up. My upper level managers

refused to provide me and the FBI with documents we needed for

our investigations, discouraged me from interviewing key witnesses, disseminated information about our investigation to the

targets of those investigations, and administratively settled cases

so that the United States government could not criminally prosecute the wrongdoers.

By October, almost all of my investigations had been stopped or

bottlenecked in Mr. Dickson’s office. Less than 3 months after I

started work at Los Alamos, I spent most of my day defending my

position that we were working to protect the taxpayer funds and

national security rather than the University of California contract.

This meant I had to do my real work at night and on the weekend. Despite the FBI’s repeated requests that the laboratory management reconsider and assign us to help them, the managers refused to let us help the FBI. Dedicated former and current employees at the laboratory supported us and kept on reporting things to

us, even after management began to retaliate against us.

I received a call about a possible espionage matter which I

passed on to the Counterintelligence Division. When the division

did nothing, I called and e-mailed again. As far as I know, the laboratory never followed up on this matter.

After I was terminated I got calls from former employees who

had documented millions of dollars in frauds but were ignored by

lab management. All of these people responsible for management

of the lab, all but one, still have a job at Los Alamos. A number

of the managers who thwarted our investigations remain in positions of authority, and are working actively to conceal the enormity

of the problem of theft and misuse of government monies.

Just before I left New Mexico to come to this hearing, a number

of Los Alamos employees brought me new documentation that they

believe demonstrate that these same managers are giving false information to UC and the Department of Energy about expenses

charged on purchase cards as late as January of 2003.

To me, this demonstrates why UC needs to take these managers

out of their positions of responsibility at the lab. It is unfortunate

that it took the current crisis of competence to put the lab’s problems on the national agenda. By now Congress and DOE are actively exercising oversight and requiring accountability.

It looks as though the University of California is trying to do

something about these problems. Another step in UC’s accountability to the lab has to be to take these managers out of their current jobs and put in fully reliable and honest employees.

I hope that Mr. Walp and my termination has a silver lining. It

brought Los Alamos to its senses about putting some order into its

house so that it can go about doing important work in the way that

best serves the citizens of the United States.

Thank you.

22

[The prepared statement of Steven L. Doran follows:

PREPARED STATEMENT OF STEVEN L. DORAN, CONSULTANT, OFFICE OF THE

PRESIDENT, UNIVERSITY OF CALIFORNIA

Good afternoon. Chairman Greenwood, members of the Subcommittee, ladies and

gentlemen:

Thank you for inviting me here to testify. My name is Steven Doran. Los Alamos

Laboratory recruited me to work as an investigator in the Safeguards and Security

Division in the Spring of 2002. The recruiter who approached me told me that the

Lab was having serious problems with national security and theft, and needed people like me to come in and help them clean it up.

After interviewing with Mr. Walp, Mr. Michael Wismer and Ms. Nina Epperson,

the Lab offered me the job. The Lab recruiter encouraged me to take the job, because working at the Lab would be a service to the Laboratory as well as the country. I went to Los Alamos with the hope that I could be part of a broad effort to

stop the rampant theft at the Lab, and protect the security of the country’s most

important nuclear secrets.

I started work on July 15, 2002. A few days later, I began to work with the FBI

on the Bussolini and Alexander case, where two managers at the Lab had misused

the government purchase order system to steal hundreds of thousands of dollars in

property. In the following days and months, I saw the FBI’s and my successful investigative efforts in this case and all the other cases I was working on thwarted

by the Lab’s upper level management—Joseph Salgado, Frank Dickson, Gene Tucker, and Stan Busboom. Lab Managers from other departments, including Richard

Marquez, Stan Hettich, Dick Stickler, Vernon Brown, and John Tapia attempted to

cover up and change and conceal information from our office.

These managers and Lab counsel Dickson continued to make innuendos and

threats that Mr. Walp’s and my employment could be in jeopardy if we continued

investigating the rampant misuse of government credit cards and the purchase

order system. Because of the productive working relationship that I developed with

FBI special agent Jeff Campbell, Mr. Busboom told me specifically that I had to protect Lab counsel’s relationship with the FBI and the United States Attorney, or I

would be fired. What he meant was that I should participate in the cover-up of

major crimes at the Lab, and use my good relationship with the FBI to prevent

them from investigating these matters on their own.

Although I always followed the orders given me by my superiors, I refused to cooperate in their cover-up. My upper level managers refused to provide me and the

FBI with documents we needed for our investigations, discouraged me from interviewing key witnesses, disseminated information about our investigations to the targets of those investigations, and administratively settled cases so that the United

States government could not criminally prosecute the wrongdoers. By October, almost all of my investigations had been stopped, or bottlenecked in Mr. Dickson’s office. Less than three months after I started work at Los Alamos, I spent most of

my workday defending my position that we were working to protect taxpayer funds

and the national security, rather than the University of California contract. This

meant that I had to do my ‘‘real work’’ at nights and on the weekend. Despite the

FBI’s repeated requests that Lab management reconsider and assign us to help

them, the managers refused to let us help the FBI.

Dedicated former and current employees at the Laboratory supported us, and kept

on reporting things to us, even after management began to retaliate against us. I

received a call about a possible espionage matter, which I passed on the Counterintelligence Division. When the Division did nothing, I called and e-mailed again.

As far as I know, the Laboratory never followed up on this matter. After I was terminated, I got calls from former employees who had documented millions of dollars

in fraud, but were ignored by Lab management.

It is unfortunate that it took the current crisis of confidence in the University of

California to put these problems on the national agenda. But now that Congress and

the DOE are actively exercising oversight and requiring accountability, it looks as

though the University of California is trying to do something about these problems.

I hope that Mr. Walp’s and my termination has a silver lining—it brought Los Alamos to its senses about putting some order in its house so that it can go about doing

its important work in a way that best serves the citizens of the United States.

Mr. GREENWOOD. Thank you, Mr. Doran.

Mr. McDonald.

23

TESTIMONY OF JARET McDONALD

Mr. MCDONALD. Thank you. Mr. Chairman and members of the

committee, my name is Jaret McDonald, and I am an employee of

KSL at Los Alamos National Laboratory. KSL is a joint venture between the following companies: Halliburton, Kellogg, Brown &

Root; Shaw, and Los Alamos Technical Associates.

KSL holds the support service subcontract for the maintenance

and construction operations of LANL facilities. My current job duties include oversight of more than 70 maintenance and construction employees. I have been an employee of KSL since January

2003.

Prior to my employment with KSL, I was an employee of Johnson Controls Northern New Mexico, a subsidiary of Johnson Controls, Incorporated. JCNNM held the support services subcontract

prior to KSL. Prior to my current work assignment as Zone Manager for Zone 13, I worked at TA-35 and Technical Area 33. My duties were very similar to my job responsibilities.

While working at TA-35 and TA-33, I became suspicious of purchases made by University of California employees that did not appear to be related to facility maintenance tasks or general LANL

business, as it related to the operations and maintenance of the facilities under their oversight.

I suspected that these purchases were made using blanket purchase orders, BPOs. The items I saw being purchased struck me as

highly unusual. In approximately January 2002, I brought my suspicions to the attention of my Johnson Controls supervisor, who instructed me to contacted an individual at Safeguard and Securities

Division at the University of California, which I did do.

After a couple of months and several communications with authorities at the University of California, it did not appear that action was being taken to address the situation. Consequently, in

March 2002, I contacted the FBI through the agency’s anonymous

online tip. Subsequently, I was contacted by the FBI and a representative from the University of California’s Security and Safeguards Division.

I was instructed by the University of California and Johnson

Controls to cooperate with the FBI in their ensuing investigation

into the suspicious purchases. The FBI asked me to provide information and documentation accordingly, as that information related

to the suspicious purchases, which I did. Mr. Chairman, members

of the committee, this concludes my statement. I would be happy

to answer any questions.

[The prepared statement of Jaret McDonald follows:]

PREPARED STATEMENT OF JARET MCDONALD

Mr. Chairman and Members of the Committee, my name is Jaret McDonald and

I am an employee of KSL at Los Alamos National Laboratory (LANL). KSL is a joint

venture between the following companies: Halliburton, Kellogg, Brown & Root;

Shaw, and Los Alamos Technical Associates. KSL holds the support services subcontract for the maintenance and construction operations of the LANL facilities. My

current job duties include oversight of more 70 maintenance and construction employees. I have been an employee of KSL since January 2003. Prior to my employment with KSL, I was an employee of Johnson Controls Northern New Mexico

(JCNNM), a subsidiary of Johnson Controls Incorporated (JCI). JCNNM held the

support services subcontract prior to KSL. Prior to my current work assignment as

24

Zone Manager for Zone 13, I worked at Technical Area 35 and Technical Area 33

and my duties were similar to my current job responsibilities.

While working at TA-35 and TA-33, I became suspicious of purchases made by

University of California employees and that did not appear to be related to facility

maintenance tasks or general LANL business as it related to the operations and

maintenance of the facilities under their oversight. I suspected these purchases were

made using blanket purchase orders (BPO). The items I saw being purchased struck

me as highly unusual. In January 2002 (approximate date), I brought my suspicions

to the attention of my JCNNM supervisor who instructed me to contact Safeguard

and Securities Division at the University of California, which I did. After a couple

of months and several communications with authorities at the University of California, it did not appear that action was being taken to address the situation. Consequently, in March 2002 (approximate date), I contacted the Federal Bureau of Investigation (FBI) through the agency’s anonymous on-online tip/hotline. Subsequently, I was contacted by the FBI and a representative from the University of

California’s Security and Safeguards Division. I was instructed by the University of

California and JCNNM officials to cooperate with the FBI in their ensuing investigation into the suspicious purchases. The FBI asked me to provide information

and documentation accordingly, as that information related to the suspicious purchases—which I did. Mr. Chairman, Members of the Committee, this concludes my

statement. I would be happy to answer questions.

Mr. GREENWOOD. Thank you, Mr. McDonald. I appreciate that.

You have provided us with photographs of items purchased by

lab employees using one of the several available procurement tools

at the lab, such as purchase order, Just-in-Time contract, blanket

purchase agreement or government purchase card. I would like to

look at these items now and ask you to explain what each of them

is and why someone might need or not need this item for work purposes at the laboratory, particularly interested in knowing why

they needed fly rods.

Mr. MCDONALD. Mr. Chairman, would you like to ask me questions or would you like to narrate?

Mr. GREENWOOD. Why don’t you just go right ahead and narrate

what you see in the pictures there.

Mr. MCDONALD. Okay. Mr. Chairman, members, basically what

we are looking at here is some of the questionable items concerned.

As an example, if you look, you can see a Ramsey winch on the

back of this John Deere mower and John Deere trailer. To the left,

you see some snowblowers and perhaps another tractor around behind some Craftsman boxes.

As far as what this could be used for at the laboratory, I think

it would be difficult to make a judgment what a person could use

this for at the laboratory in a work related environment.

Mr. GREENWOOD. Let me understand that. Did the gentleman

who purchased these items and who had them placed in this storage facility have responsibilities that would include mowing the

lawn or blowing snow?

Mr. MCDONALD. No, sir.

Mr. GREENWOOD. Okay. Why don’t you proceed?

Mr. MCDONALD. I guess that’s about all I really have to say

about this picture.

Mr. GREENWOOD. Okay.

Mr. MCDONALD. Moving on to picture number 2, one of the items

that struck my eye as I was taking these pictures was a sleeping

bag. I am pretty sure that most laboratory folks do not need a

sleeping bag.

Mr. GREENWOOD. They sleep on the job without a sleeping bag?

Mr. MCDONALD. Yes, sir.

25

Mr. GREENWOOD. Do you have any idea what the cost of that

sleeping bag was?

Mr. MCDONALD. I do not, sir.

Mr. GREENWOOD. What is this facility? If you could also name

the facility, the buildings, if you could explain what they are.

Mr. MCDONALD. Sure. This facility that we took pictures of is

Technical Area 33. This is, I believe, Bunker 23.

Mr. GREENWOOD. What is it used for?

Mr. MCDONALD. This particular bunker is used for a shop for the

University of California employees and storage area.

Some of the other items that I thought were questionable was—

I believe that’s a cooler, an Igloo cooler, and a Coleman heater.

Mr. GREENWOOD. Okay, next slide.

Mr. MCDONALD. Once again, sir, more coolers that I found questionable, automatic plug-in coolers.

Mr. GREENWOOD. Go back. That toolbox on wheels there, is that

an item that you suspected was purchased improperly, or not?

Mr. MCDONALD. I don’t have an opinion, sir.

I guess you can read from the box here, American Angler fishing

type equipment.

Mr. GREENWOOD. Okay.

Mr. MCDONALD. Lawn mowers—you know, KSL or Johnson Controls, we do perform, you know, facility maintenance and such at

the laboratory, and we do use lawn mowers. However, I took this

picture because I didn’t understand why laboratory folks would

need a lawn mower.

Mr. GREENWOOD. Okay.

Mr. MCDONALD. We are looking at some Rancho shocks and

some DeWalt tools. The Rancho shocks——

Mr. GREENWOOD. These are shock absorbers for a motor vehicle?

Mr. MCDONALD. Yes, sir, would be used, you know, obviously, on

a motor vehicle, and since the facility—vehicle maintenance was

done by GSA. It didn’t really make sense that somebody would

have shocks.

Mr. GREENWOOD. Were those the same shock absorbers that were

found on Mr. Alexander’s car? Do you know?

Mr. MCDONALD. I do not know that. This picture—I found it

ironic that laboratory folks would need CDs on how to instruct

lockpicking.

Mr. GREENWOOD. How to instruct lockpicking?

Mr. MCDONALD. This picture was taken. I questioned the volume

of gloves in the drawer, and I couldn’t imagine. We didn’t have

nearly that many people working out there. So I took this picture,

really, with trying to get some sort of understanding why you

would need so many pairs of gloves.

This might be self-explanatory. I felt that this was questionable

as well.

Mr. GREENWOOD. It’s a tool for breaking into an automobile?

Mr. MCDONALD. Yes, sir.

Mr. GREENWOOD. In case you couldn’t pick a lock.

Mr. MCDONALD. automatic gate opener—I don’t know of an area

where we could have used one of these.

Mr. GREENWOOD. All right.

26

Mr. MCDONALD. Some miscellaneous Honda engines. I don’t want

to speculate, but anyway, the Honda engines could be used for any

number of things. Like I said, the majority of the facility and maintenance work my people actually performed, and we didn’t have

any Honda generators. So——

Here is another picture of a Warren winch. I believe these are

all-terrain vehicle or four-wheeler winches that you are seeing

there. There’s two of them stacked on top of each other. Then off

to the left, of course, there is a Big Cot.

Mr. GREENWOOD. Your big sleeping bag?

Mr. MCDONALD. Yes, sir. Inside this bunker, I believe this is

Bunker 22—housed some TVs and VCRs, questionable items. Coleman equipment, Cabela’s equipment, more coolers. Looks like an

air conditioning unit. I took some pictures of the internal, and here

are some Cabela’s armchairs, which struck me as unusual.

Mr. GREENWOOD. Deluxe armchairs?

Mr. MCDONALD. Yes, sir. Motorola two-way radios, not something

that we can typically use at the laboratory.

Mr. GREENWOOD. Why? I’ve been at the laboratory. I can imagine—I’m sure that security personnel, for instance, may have had

need for portable radios. Explain why the responsibilities of the

gentleman in question would not—could not be presumed to include the need for these kinds of radios.

Mr. MCDONALD. I believe that all the Federal communications

there at University of California is regulated, and we are not allowed to just use any type of two-way radio in order to communicate. The facility that I was with, we actually did have, you

know, very expensive radios which to use to communicate with

each other.

Mr. GREENWOOD. Okay. Is that the last slide? Okay. Thank you.

We understand that you wished to appear here voluntarily and

offered to provide this committee with these photographs, the property being observed being purchased with government funds, but

kept for personal use by lab employees. Yet the committee had to

issue you a subpoena both for your personal appearance and also

for the photographs that you brought with you, and that was at the

request of your current employer.

What exactly did your employer advise you regarding your appearance here, and what did he advise you regarding your photographs?

Mr. MCDONALD. Sir, my employer didn’t especially advise me at

all on this particular matter. Part of the reason why I needed a

subpoena to get here, I guess, is I wanted to make sure that I was

friendly to the committee and the members. But I also did not

want to appear to be too familiar or—sorry—too friendly. So——

Mr. GREENWOOD. Okay. In your statement to the committee, you

stated that you approximated your first contact with lab security

personnel regarding the Bussolini and Alexander situation as

around January 2002. Through staff interviews, we have been told

that the Office of Security Inquiries, OSI, was first contacted by

you in September of 2001. Do you believe that to be correct?

Mr. MCDONALD. Yes, sir, that could very well be correct.

Mr. GREENWOOD. What did you tell the OSI inquirer?

27

Mr. MCDONALD. The individual—I met with him, and originally

it was via e-mail, and then we met a number of times after in person. But the first time we met in person, I mentioned to him what

was going on in my particular area as far as what I thought was

waste, fraud and abuse, theft.

He said people have turned these people in before, and I didn’t

believe it.

Mr. GREENWOOD. Okay. All right. During the course of our investigation, staff were told in interview with Robert Garcia, who is the

Mesa Equipment representative for the lab, that Bussolini and Alexander advised him they were setting up a secret and anti-terrorism center out at TA-33 or TA-35. This was the reason for their

excessive purchases and the reason that some of the items’ descriptions on invoices had to be changed.

Do you know anything about this anti-terrorism center, and were

Bussolini and Alexander ever given that kind of direction from

management?

Mr. MCDONALD. I did not know anything about that, sir. As far

as I know, they did not get direction from the laboratory to do anything like that.

Mr. GREENWOOD. Mr. Walp, according to your statement, you

were told that when you were hired at LANL, you were selected

because of your expertise in law enforcement. What did your management team, Mr. Busboom and Mr. Tucker, advise you would be

your daily role?

Mr. WALP. They told me that, as indicated, they hired me because of my background and my expertise, made comments that

one of the reasons I was hired, because they didn’t have that

knowledge in that area, told me to basically go over into OSI, if you

will, and professionalize and bring expertise to it, do whatever you

feel is necessary to bring it under appropriate professionalism, and

that they would support me in that effort. Not really definitive as

to specifics other than saying that the current individuals that

were there doing an investigation didn’t really have the backgrounds or the expertise to do the jobs the way they wanted them

done, and there were problems with reporting systems, and just basically go over there and do the job that was necessary to professionalize it.

Mr. GREENWOOD. What kind of problems did they identify?

Mr. WALP. They identified, again, the weaknesses in the current

investigators. They touched on the reporting system to a degree,

but had also told me—In my posting, it was indicated that part of

my job would be the investigation of theft, the protection of property, but didn’t go anything with specificity as to exactly what I

should do in that arena.

Mr. GREENWOOD. What is your understanding of the reasons you

were asked to resign and you were subsequently terminated? What

did they say to you?

Mr. WALP. Well, through the course of the multiple months they

said a lot to me. I guess I could couch it in the terms that, when

I began to—when I first arrived there, I was approached within a

few days by a gentleman, Mr. Ken Shiffer, who indicated—former

FBI agent—that he felt there was a lot of theft going on. He arranged a meeting between Mr. Tucker and myself, at which time

28

he talked about theft of a whole truckload of lumber and many

other ideas.

Mr. Tucker agreed, and made the statement to me that he

agreed there was rampant theft, that it had been making the valley green for years. Therefore, they were knowledgeable, and then

asked me to go on my way of trying to find out and get a grasp

on what was going on there.

Later on, Mr. Busboom asked me actually to make an official report on that. Then when I found out through my efforts as to the

degree of the theft and the mischaracterization of actually lost

property, missing property, dismantled, salvaged or whatever, was

actually stolen, I attempted to approach it from an FBI investigative perspective.

In fact, Mr. Shiffer and I—Mr. Shiffer felt there may—wanted to

approach it from a RICO perspective, felt that it may tied in with

the drug trade in that area, and asked me to approach Mr. Tucker,

which I did, because I knew at that point, having experience in

white collar crime, that my evidence would be buried in the bowels

of the reports.

It took me a while to find out where those reports were, because

in law enforcement you have the uniformed crime reports which

are easy to go to, to get a profile, but I finally found out after some

consternation that it was buried in BUS 6 and BUS 5, the Business

Division, and that’s where I got my report then when I submitted

a report on March 26.

When that happened and I approached Mr. Tucker, because I

knew I had to have enough personnel, I needed quality personnel

that would do investigative audit, not just audit but investigative

audit, and the FBI certainly has that expertise, I was soundly rejected at that time.

The first inclination that there were some problems there, because I’m beginning to unravel things, and the more I unraveled,

the more disturbance it caused by higher command like Mr.

Dickson and Mr. Salgado, that if this stuff is revealed—constantly,

from the time we were there before Steve got there and then, of

course, while Steve was there, we were constantly reminded that

our job, even though you help the FBI, your main job is to protect

the lab, its image, its PR, and ultimately the protection of the contract. That was our main job.

We were told that on multiple occasions. We were warned on August 14 that, if I—Steve and I were in a meeting—that if we continued to pursue this, that the lab is famous for sacrificing its children for the sake of its image. When I tried to get the FBI task

force, Tucker, the caveat to that was—and he said, Glenn, if you

continue in these efforts of trying to find the theft, you are liable

to find that high management is involved, and that is not good for

the lab’s image.

So we ultimately ended up in, oh, around the month of September where Mr. Tucker explained to me in detail what corporate

philosophy meant there, and again very distinct said it was protecting the lab, its image, its PR and ultimately the contract.

Of course, as we unraveled these things, we had interference

from Dickson, Busboom and Tucker. I’ll just give you a few examples what I felt led up to this termination then.

29

For example, the first problem we encountered was the reporting.

When we first established the system would work with the NIS

case—that is the Bussolini and Alexander case—we had a plan set

up where the FBI could easily get reports, and that worked well

for about 2 weeks, and then Dickson passed an order down that before we could get those reports, he had to personally review them

before they would pass down.

In one case, the FBI was waiting over 6 weeks for a report and

never did get it until they made a complaint to Mr. Salgado, because Mr. Dickson was sitting on it, refused to pass that information down.

Mr. Dickson wanted personally to get in one of these bunkers, to

go down one night and get into the bunkers, and the FBI did not

want him to, in fact refused to allow him, because he said all they

need is to see the lab counsel down there looking at this stolen

property, and it would jeopardize the case.

We collected evidence on the Mustang case. I personally went in

with my people and collected evidence out of Lillian Anaya’s office.

Immediately upon collecting that evidence—and at that time they

didn’t have an evidence control system; they had evidence in lockers and in drawers and under desks and whatever. So I set up a

specific law enforcement type structured system.

Immediately Dickson wanted to get into those evidence boxes,

and I told him that the FBI needs to review them first, because

there may be prosecutorial evidence in those boxes. Ultimately, the

FBI was going to serve a search warrant, and their comment to me

was they had become so frustrated with Dickson interfering with

it that, if we could do it in OSI, look and see what’s in those boxes

and pass it on to them.

The day I appointed two investigators to look into it, Mr. Tucker

called me and said they are coming over and grabbing all those

boxes and taking them from my official investigatory control, which

they did that day. The FBI was not pleased with that, even though

I warned Tucker that they may be ordering an obstruction of justice, because the FBI had just sent Dickson a letter indicating that,

before they would go into the boxes or interview anybody, they

would need to get together with them to make sure they weren’t

interfering with their cases.

We had Chris Chandler, who works for Mr. Dickson. She came

to me 1 day, and the FBI in the beginning said that they would

give me their official notes, because of my law enforcement experience that I may be able to help them tell them where to go in this

direction.

She came into my office 1 day and demanded to have those notes

so she could take them back to her office, and I refused her, I said,

because they can’t—that wasn’t the deal, and I can’t let them out

of my possession. At that time she became argumentative with me

and said that she did not care about anybody’s constitutional rights

or that it would interfere with an FBI prosecution.

She began to do an investigation behind the back of Steven

Doran—this was on the Mustang case—and the FBI, interviewing

people that she shouldn’t have interviewed. She may have interfered, totally obstructed with that case.

30

One of the most egregious things that Mr. Dickson did 1 day,

even though he was previously warned by the FBI, once we got into

these investigations, that he was not to reveal any information to

anybody, especially anybody in Assessments and Audits, because

there was a suspect that was connected to the NIS case in there,

Mr. Dickson arranged a meeting which Steve and I attended, and

he verbally intimidated us, that we tell everybody in that room everything we know about every case we have, including all FBI confidential information.

I challenged him at that time again that they may be bordering

on obstruction of justice, this is an FBI case. His comment was to

me—and I’ll paraphrase, but it is in my batch notes—was—the way

he quoted was this way. He says don’t go there, boys. He says you

need to know who you work for, who pays your check, and that’s

the University of California. Your job is to protect the lab, its contract, and not the FBI investigation. He made it very clear at that

time.

Obviously, we were given threats that, again, we would be leveled or fired. The FBI—Mr. Dickson gave them an ultimatum on

the Mustang case with Lillian Anaya that either they interview her

by August 19 or they were going to put her on investigative leave.

They were going to seal her office and, if you will, blow the case

before they had the opportunity of interviewing her.

On the Bussolini-Alexander case, they gave them another 48

hour ultimatum. Either they bring this case to a conclusion within

that 48 hours or they were going to put them on investigative leave

before they even had the opportunity.

The FBI was extremely upset about that, that they were interfering with their case, because their timetable wasn’t ready at that

point. So all these things culminating together ultimately ended in

the Clarissa Rodriguez case where it was a forged voucher.

On September 20, we——

Mr. GREENWOOD. I’m going to cut you off here, because there are

other members that need to ask questions. Just one question, and

I ask you to answer it just very briefly, because my time has long

expired.

There was mention of early on being told that this lab, this theft

at the lab had been making the valley green for a long time. Do

you have any sense as to how—we talked about specific cases, but

how rampant this problem is?

Mr. WALP. The theft? To me, my observation, sir, was the lab

was riddled with theft. I believe it still is riddled with theft. You

have yet to uncover the real theft, and I believe that is in the LVA

systems and the just-in-time systems. I think that is going to be

hundreds and hundreds of thousands of dollars of theft when you

finally get into it. But most egregious of all was management knew

about it. Tucker—I was only there a few days. It’s been going on

for years. Shiffer says it’s been going on for years.

Tucker never said it wasn’t going on. Mr. Tapia agreed it was

going on for years. They knew about it, but they did nothing about

it. Then when I tried to do something about it, that’s when they

tried to shut us down and stop us.

Mr. GREENWOOD. Okay, thank you. The gentleman from Florida,

Mr. Deutsch.

31

Mr. DEUTSCH. Mr. Walp, really just to continue exactly on that

line of questioning, when you say they knew about, did they know

specifics or just—I mean, it was so flagrant that it was obvious it

was going on?

Mr. WALP. I think the one thing—you need to go back to Mr.

McDonald’s statement. In the fall of 2001, this information was reported to Bill Sprouse who worked in OSI at that time before me

getting there. He said—I have a memo from him—he told Tucker.

They were aware of it.

There also was information given to a Mr. Scott Gibbs who works

in the Associate Director’s office under Mr. Holt who was given an

e-mail on it. He did nothing about it. They gave it to Katherine

Brittian in Assessments and Audits, and they did nothing about it.

So they were very well aware of the NIS case in 2001. Mr.

Sprouse told me that he told the FBI. The FBI says they never told

us anything. So as it deals with NSI, to me they definitely knew

about that.

There is no doubt, because the property manager regarding a report with the lost property, was identified as lost, the 2.7 between

1999 and 2001—the property manager in S Division when I questioned him trying to get a background on this, his comment was,

well, the way they take are of that is there is a form you fill out,

and you can either put dismantled, salvaged, missing. They even

have one called retired.

He says, the way you take care of it is, if you are doing an audit

and you can’t find it, you just fill out a form, and that takes care

of it. It just goes away.

As it dealt with the LVA systems and the JIT systems——

Mr. GREENWOOD. Explain what LVA is.

Mr. WALP. Yes. Local Vendor Agreements, and the JIT is the

just-in-time where, if you need something in a hurry, you can buy

computers or clothing, shoes or whatever.

In my meeting in July with Mr. Tapia and his crew, when I explained to him what we were going to do to try to correct this problem, there was about 12 people in that room from the Business 6

unit, and they almost stood up and cheered. They said, finally, finally someone is interested in this. We’ve been telling our supervisors and administrators for years. They won’t help us, and they

gave me a sample of how bad it is.

They said, Glenn, we can take you down to Santa Fe today. We

can have a whole computer system in your house this afternoon,

and no one will know, and no one will ever know, because of the

system that is set up and the controls that are not there.

Paul Mirey, financial area, attempted to send a memo out after

my report in March to try to get people to comply with the way it

should be done, and that was rescinded. I attempted to get a young

lady by the name of Meredith Brown to put out this information

in a—it’s a LANL pamphlet to tell people to report thefts. I went

to Tucker, and Tucker said, no. He said, that’s not good to distribute that information lab-wide; you shouldn’t have that information.

A Ms. Roybal and a Mr. Martinez in the fall of 2001 identified

severe problems with the purchase card system, made three

memos, sent it to their bosses, and their bosses rejected it: BasiVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
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cally, thank you, but no, thank you, we don’t want to know about

it.

When I interviewed Mr. Stanley Hettich, who is currently working in the same position in Procurement in BUS 5, when Steve and

I went to interview him regarding the Mustang case, because he

had no intentions of telling me—Mr. Tapia had called me, and he

asked me, he said, did Mr. Hettich call you yet about that Mustang

case. I said, no. He said, well, he doesn’t want to; he doesn’t want

to tell you anything, but he said, I told him, because he was a higher authority.

So I went to interview him——

Mr. DEUTSCH. Again, I was focusing—I’m convinced. Okay? I’m

convinced.

Mr. Doran, I understand that you were in a little convenience

store recently where a Los Alamos employee was using his credit

card to buy a bunch of little flashlights. Can you describe that

interaction?

Mr. DORAN. Actually, he was using his ID card to buy flashlights.

They have a system set up at the laboratory where you use your

employee identification number, known as a Z-number, your identification card, and they have what they call cost codes and program

codes to make purchases.

He had a basket full of the little Mini-Mag flashlights and, when

he approached the register, the girl behind the counter said to him,

you better purchase everything that you need or want, because this

program will probably be ending very soon, and they just laughed.

Mr. DEUTSCH. You have settled your case the University and

going to be the Director of Security work out at the President’s office. In that new position, what do you hope to accomplish, and do

you think you can actually fix what is going on?

Mr. DORAN. Well, I hope with this new position that I will be

very instrumental in fixing these problems. As I’ve said from the

beginning, I don’t care who does it, as long as it gets done.

Mr. DEUTSCH. Mr. Salgado, then the lab’s deputy director, and

Mr. Frank Dickson, the legal counsel, said several times that you

and Mr. Walp gave them incorrect information. One of the often repeated allegations is that you said there were three suspects in the

TA-33 case, and there were only two. Who told you that there were

three?

Mr. DORAN. From the beginning, sir, there were three individuals

identified as prime suspects, Mr. Bussolini—sorry.

Mr. DEUTSCH. Oh, okay. Actually, apparently, you are not supposed to identify those people.

Mr. DORAN. Okay.

Mr. DEUTSCH. Not the third person.

Mr. DORAN. Okay. There were three suspects identified initially.

One of those suspects actually is now a witness for the government.

Mr. DEUTSCH. There was some discussion about that witness

wearing a wire. Is that correct?

Mr. DORAN. There was a discussion early on that, if we were able

to turn that suspect into a witness, that we would ask him to wear

a wire as part of an investigative technique. However, that never

occurred.

Mr. DEUTSCH. And it never occurred, because?

33

Mr. DORAN. There was no need to have him do that.

Mr. DEUTSCH. You’ve spent a great deal of time learning about

the control system at the lab. Is that correct?

Mr. DORAN. Yes, sir.

Mr. DEUTSCH. Can you explain to us the bar coded inventory control system?

Mr. DORAN. The bar coded inventory control? Basically, bar codes

are placed on items that are considered either sensitive and/or over

the $5,000 dollar amount.

Mr. DEUTSCH. Okay. And is that in a central location or how

does it actually function?

Mr. DORAN. Once the items are bar coded, they are placed on

what they call an accountability statement, so that they can be

tracked throughout the system, and those items can be anywhere

within the laboratory and even off of laboratory property, depending on what their use is.

Mr. DEUTSCH. Okay. Now Mr. Alexander and another employee

purchased several cameras and pairs of binoculars. Should they

have been bar coded as attractive items for the supplier who delivered them not to the central receiving point but directly to Mr. Alexander, or were they bought by local vendors in an attempt to

avoid the bar coding system?

Mr. DORAN. Okay. You know, that brings us to a whole ’nother

set of problems, because Mr. Bussolini and Alexander were purchasing items through Mesa, Mesa Contracting, which was not an

approved vendor to sell those types of items, like the high speed

digital cameras and what-not. Those items were able—they were

able to sneak those items through without having them bar coded.

Mr. DEUTSCH. The tractors and the asphalt pavers, would they

be bar coded as well?

Mr. DORAN. If they were over $5,000, yes, they should have been.

Mr. DEUTSCH. Okay. And when property is bar coded, is it assigned to a certain person?

Mr. DORAN. Typically, it is. Whenever—they have what they call

accountability statements, and whatever is issued to you for your

own use is assigned to you. If it is something that is used like within an office like a copy machine as an example, it is assigned to

that office.

Mr. DEUTSCH. Now Mr. Alexander—we have actually—our staff

has looked at his assigned property list, and it doesn’t include the

asphalt paver and the cameras. What would make you believe it

is outside of the lab’s inventory system? He did not have that, obviously, through the system. Again, it’s a conscious effort to keep it

out of the system?

Mr. DORAN. Okay. In a lot of cases, you know, like Glenn has

mentioned and Mr. McDonald has mentioned, it just—because the

system is so archaic and in such disarray, just about anything can

slip through the system at any one time, and it doesn’t take a

whole lot of effort to do that.

Mr. DEUTSCH. I guess also, Mr. Alexander had a Rototiller. What

is a Rototiller? I mean, how would you use that?

Mr. DORAN. A gardening tool.

Mr. DEUTSCH. I mean, is there any use that you can envision it

being in the——

34

Mr. DORAN. No, not in his division. Again, as Mr. McDonald

mentioned, JCNNM is the contractor who provides those services,

and they provide their own tools and equipment. So there would be

no need for Mr. Bussolini and/or Alexander to have any of those

items.

Mr. DEUTSCH. Mr. McDonald, would you want to respond to that

as well? I mean, why would Mr. Alexander have a Rototiller?

Mr. MCDONALD. To me, it doesn’t make sense.

Mr. DEUTSCH. Okay. And why is that?

Mr. MCDONALD. Well, just the fact that, as far as Johnson Controls or KSL that I currently work for, if there was going to be

some need for that type of work to be done, we would do it. It

would not be a University issue. So for having Rototillers, it would

be pretty difficult to be able to use.

Mr. DEUTSCH. What about the type of grounds? I mean, is there

an issue about the grounds themselves being toxic or radioactive?

Apparently, my understanding is that an actual environmental

plan would have to be implemented before the use of that type of

equipment?

Mr. MCDONALD. That is correct.

Mr. DEUTSCH. Did you ever see anyone use a Rototiller at the

lab?

Mr. MCDONALD. No, never have.

Mr. DEUTSCH. Last night you showed the staff a picture of several fire extinguishers just lying on the ground. What would be the

environmental issues of that?

Mr. MCDONALD. Certainly not good. I believe that, if the New

Mexico Environmental Department could get hold of that, there

could be some serious issues, since the fire extinguishers were

Halon.

Mr. GREENWOOD. The time of the gentleman has expired. The

gentleman from Oregon, Mr. Walden.

Mr. WALDEN. Thank you very much, Mr. Chairman. Gentlemen,

thank you for being here today.

Mr. McDonald, I want to ask you what you are feeling right now

about being here. Are you concerned that—given what I’ve heard

already about retribution and all and all the threats, intimidation,

are you concerned about being here today and what it may mean

to the company for whom you work?

Mr. MCDONALD. I am, but not to the point, I guess, where I

would lose my job. I am still concerned.

Mr. WALDEN. All right. Mr. Doran, I want to ask you a little bit

about what you do now for the system, but especially as a result

of the meeting with UC officials, you and Mr. Walp were rehired,

I understand, by the University?

Mr. DORAN. Yes, sir.

Mr. WALDEN. As consultants to the Office of the President?

Mr. DORAN. Yes, sir.

Mr. WALDEN. And are you dealing with the current problems at

the lab?

Mr. DORAN. To be perfectly honest with you, sir, I just accepted

the Director of Security for the President’s office yesterday. So I

haven’t been assigned any files at this time. Prior to that, Mr.

Walp and myself have been generating reports based on our preVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
35

vious investigations at the laboratory and meeting with the UC investigatory team and providing them with information to move forward.

Mr. WALDEN. One the reasons that was cited for your firings was

perhaps the way the Mustang was handled.

Mr. DORAN. Yes, sir.

Mr. WALDEN. Or some would say mishandled, and that that hurt

the lab’s relationship with the FBI. Mr. Doran, how would you describe the relationship you had with the FBI?

Mr. DORAN. I have a wonderful relationship with the FBI. It has

been stated by all of the agents that we’ve worked with that the

relationship that they had with Glenn and myself was the best relationship that the FBI has ever had with the laboratory in its history.

Mr. WALDEN. I was reading through your report dated February

14, the Los Alamos National Laboratory investigative summary.

You make some comments at the beginning of it about how it is

mainly written from memory, that you haven’t had access to personnel records. You don’t know what’s been destroyed or not.

Mr. DORAN. Right.

Mr. WALDEN. Will you have access to personnel and records

under your current hiring arrangement?

Mr. DORAN. I can’t answer that question, sir, because it hasn’t

been discussed.

Mr. WALDEN. One of the incidents that you discuss here is the

G&G Industrial Supply.

Mr. DORAN. Yes, sir.

Mr. WALDEN. Now I’ve been in small business 17 years nearly.

If I were the only employee in my company, as apparently Mr.

George is in his——

Mr. DORAN. Yes, sir.

Mr. WALDEN. [continuing] I think I would know that a lab had

spent $800,000 with my company.

Mr. DORAN. I think you would, too, sir.

Mr. WALDEN. Yet you indicate he didn’t seem to know that.

Mr. DORAN. He claimed not to.

Mr. WALDEN. Can you describe—I mean, I understand some of

these tools were allegedly just basically bought from K-Mart or

other local vendors and then he was the middle man, basically.

Mr. DORAN. Yes, sir.

Mr. WALDEN. Because of his, ‘‘tremendous customer service.’’

That is what is reported.

Mr. DORAN. I was hoping he would take me on as a partner, sir,

but——

Mr. WALDEN. Does he have a profit sharing plan? That’s a serious question.

Mr. DORAN. Well, I guess when you are the sole owner, you do.

Mr. WALDEN. Is this something that is going to be investigated

as to—what was the 800,000 in tools for? What was purchased?

Where did they go?

Mr. DORAN. We have no idea sir. None.

Mr. WALDEN. Is that something the FBI is looking into?

Mr. DORAN. I believe, at the point we were terminated, the Inspector General’s Office had that file.

36

Mr. WALDEN. This is so outrageous, it’s hard to know where to

start, frankly, as a taxpayer.

Mr. McDonald, have you in your other work—have you worked

with other labs or other Federal facilities over time?

Mr. MCDONALD. No. Los Alamos National Laboratories are the

first one I’ve worked with.

Mr. WALDEN. And at what point—these photos that we saw here,

at what point in your work there at the lab did you decide to start

taking photos? Had you witnessed other things that raised alarm

bells first?

Mr. MCDONALD. Yes, sir. Initially, the first thing that raised an

alarm for me was having one of these people that you guys referred

to before had taken me out to one of these bunkers for the first

time to see what was sort of out there, and that struck me odd as

some of the materials, tools and equipment that were inside or

housed within this bunker.

One of the things that really caught my eye was some aluminum

tubing, because we just hardly have a use for aluminum tubing,

you know. Electricians use steel conduit and so on and so forth.

I asked somebody what it was used for. A man told me that it

was used to build a go-cart for his nephews.

Mr. WALDEN. A go-cart for his nephews?

Mr. MCDONALD. Yes, sir.

Mr. WALDEN. What about—there’s some reference in the materials about some organization approaching the lab for donations of

used equipment or things that they were going to get rid of, and

it is reported that, well, they already donated it to a nonprofit or

they have a specific nonprofit or Pueblo that they donate to.

Mr. MCDONALD. I believe that was the State of New Mexico had

approached the laboratory for donations.

Mr. WALDEN. Okay. And can you describe more fully what you

have witnessed, either—any of you, in terms of that relationship

and where equipment went? Mr. Walp?

Mr. WALP. Right before our terminations, a gentleman came forward to us. I had spoken at a national property managers meeting

in Albuquerque. After I gave my presentation, he came forward to

Steve and explained it to him. Quite frankly, we never had the opportunity to investigate it. It is still sitting on the table at Los Alamos to be investigated. Never had the opportunity.

Mr. WALDEN. Speaking of Los Alamos, you add in your testimony

that part of what you were encouraged to do when you got there

was to hire new people as inspectors, according to Mr. Doran. Correct? I mean, you brought him in as associate.

Mr. WALP. Yes.

Mr. WALDEN. How many new people did you hire?

Mr. WALP. They originally gave me the authority to hire one. I

had two individuals who were extremely qualified, and I convinced

Mr. Busboom to allow me to hire the two, which I did, Mr. Doran

and a Mr. Mullins. Then we brought in an entry level individual,

Mr. Thanh Nguyen, who was helping me. Then I also brought in

some secretarial help. So probably about four or five in all.

Mr. WALDEN. what is their status today?

Mr. WALP. Mr. Mullins left.

Mr. WALDEN. Why?

37

Mr. WALP. He was not satisfied. He was only there a few short

weeks and got involved in these situations. In fact, he was the investigator in the Clarissa Rodriguez case, the voucher case, and he

got so disgusted, he said I’m out of here.

Mr. WALDEN. When did he leave?

Mr. WALP. He left about a week after we were terminated.

Mr. WALDEN. So last fall or last winter?

Mr. WALP. Yes, and Mr. Thanh Nguyen—I spoke to him, and he

may be leaving.

Mr. WALDEN. Why?

Mr. WALP. Same thing. He felt there was corruption.

Mr. WALDEN. Still?

Mr. WALP. That’s what he told me. Yes.

Mr. WALDEN. Mr. Doran, you are at work for the President now,

but you don’t know what your authority is going to be?

Mr. DORAN. The agreement was just made yesterday, sir, actually late yesterday evening. So in preparing for this session today,

we haven’t had an opportunity to discuss it.

Mr. WALDEN. So you agreed to take the job without really knowing what the responsibilities are?

Mr. DORAN. I have a basic knowledge of what the responsibilities

will be.

Mr. WALDEN. Does the timing of that agreement have anything

to do with the date of this hearing?

Mr. DORAN. No, sir.

Mr. WALDEN. Okay. I guess I have heard so much about how

things have been suppressed over time, allegedly, and I am hearing

today that there are still employees perhaps still working there

today doing these same investigations you two gentlemen were

doing and then subsequently got fired for after you talked to the

Inspector General, and those individuals now are concerned they

are not getting anywhere.

Why should the University of California continue to have this

contract? Maybe you are not the ones to ask that question, especially you, Mr. Doran, since you are working for the big President.

Mr. WALP. I can answer it, if you want me to.

Mr. WALDEN. You bet. Are you working for UC?

Mr. WALP. No, just as a consultant to the President.

Mr. WALDEN. You’re working for UC then.

Mr. WALP. I’m working for UC, but I’ll certainly answer that

question.

Mr. WALDEN. All right. Give me your answer.

Mr. WALP. Okay. I would preface my statement by saying with

specificity, Mr. Darling, I met him and I think he is a very honorable man.

Mr. WALDEN. And he is?

Mr. WALP. And he works for the University of California directly

under the President, and I think he is attempting to correct problems there. I never met Mr. Nanos, but he appears to be attempting to make some changes there, but my personal opinion is I think

it’s time to gut the place. I think it is so infected, it’s a culture that

has been ingrained in that place for decades, and I think it’s a time

for change.

38

Again, I would say as I said before that, if they are truly serious

about changing this, then they need to get rid of the people that

are there. These are the same people who interfered and obstructed.

Mr. WALDEN. I couldn’t agree more. Are any of the people who

have been removed from their positions being personally held accountable for what walked away from facility at taxpayer expense?

Mr. WALP. Not to my knowledge. In fact, I think there’s Federal

crimes that have been committed that need to be investigated.

Mr. WALDEN. Well, Mr. Doran, I hope when you go to meet with

whoever is going to tell you what your authorities are that you will

press the limits and get back into the case you know well.

Mr. DORAN. Yes, sir. Just to answer your question, since the beginning of this entire situation, you know, I have been upright and

honest. I was in the process of losing my home over this entire ordeal. I have said this time and time again. My accepting this position has nothing to do with the situation that has occurred or any

situation that will occur in the future.

Mr. WALDEN. Have they made up your salary from the past, and

have they paid you any kind of lump sum to come back?

Mr. DORAN. Yes, and they did recover my home. But it has—

there was no agreement that I would, you know, not continue

to——

Mr. WALDEN. Right. I’m not questioning your ethics on this at

all. I’m just curious.

Mr. DORAN. Yes, they did.

Mr. GREENWOOD. The Chair thanks the gentleman.

Mr. WALDEN. Thank you, Mr. Chairman.

Mr. GREENWOOD. The gentlelady from Illinois is recognized.

Ms. SCHAKOWSKY. First of all, let me reiterate my great thanks

to you for having the courage to pursue this and to bring this to

the public light. I think that the notion that you work for the

American taxpayers, first and foremost, is so important, and it is

so unacceptable that you would get punished for doing just that.

So let me express my personal thanks, and on behalf of my constituents as well.

Knives, 451 knives costing $19,127, were purchased. In 1 week,

27 boning knives were purchased. Is there any use for boning

knives at the lab?

Mr. DORAN. Not to our knowledge, no.

Ms. SCHAKOWSKY. When you discovered these things and you

brought—what exactly was said to you? What was the response? I

mean, there clearly is no excuse for it. So what was the response?

Mr. WALP. The response was, as we encounter from the very beginning, they took a very cavalier approach. I was in a meeting one

time. It was a supervisory meeting, and they talked about an individual who every year bought a full set of hunting clothes and

boots and knives through the JIT and the LVA systems, and I was

just young there at that time, and I ask him. I said, do you ever

approach this. Actually, there was laughter in the room: Oh, he

does this every year.

There was that type of approach, a very, very cavalier approach.

When we began to check the items these people were purchasing,

the people in the——

39

Ms. SCHAKOWSKY. But let me just ask you this. This is in the

context of some sort of a management meeting. I’m trying to picture a room where people are laughing at these inappropriate expenditures. What was the context and the setting for that kind of

conversation?

Mr. WALP. That specific conversation was in a training room,

probably contained about 40 to 50 people and a presenter who was

actually in charge of the audit system, and it was brought up.

Again, I’m a new kid in the block, and to me, I mean, I was astonished that they were even laughing about this. But it was a comical

approach. It was a cavalier, comic one.

When I brought to Mr. Tucker’s attention how serious the problem in NIS, and understand, the FBI through the U.S. Attorney

had identified $50,000 just to reach that standard. I said, you

know, this is a major crime. His response to me was, Glenn, that’s

not a major crime. He said, it’s only $50,000. I said, well, any law

enforcement environment I worked, $50,000 is a big theft. But it

was the cavalier approach to—and quite frankly, comical, that

that’s the price of doing business here.

Ms. SCHAKOWSKY. To me, it’s reflective of a culture—we dealt

with this at the Department of Defense, too—a culture that would

allow this. You are saying that there are 40 people in the room.

They are all involved in some way or another with auditing?

Mr. WALP. No. No, the subject dealt with auditing, but the other

people represented a multiplicity, scientists, you know, S Division,

whatever. It was a multiplicity within that room, but that was the

attitude that was taken. It was not a serious issue.

To those, as I indicated, that were involved in it—it’s like when

I had another meeting with BUS 6 people and I told them what

my plan was to begin to develop evidence to try to prosecute these

people and bring a halt to it, those people cheered me, if you will,

and indicated finally someone is interested in taking care of these

thefts, because nobody cares about it. We’ve been telling our supervisors for years, and no one cares, because they just didn’t care. It’s

an ingrained culture. It’s ingrained within the philosophy of the

people there. It wasn’t a big issue.

Ms. SCHAKOWSKY. And so explicit that people felt free to talk

about it in any setting, really, that it wasn’t something that just

some managers would get together and whisper about. But you

could say in a public setting, ha, ha, ha, what’s the big deal.

Mr. WALP. Yes. In fact, as I indicated, my property manager

when I began to look into this, his comment was, well, this is how

you take care of it; you just make up a dismantled report or salvage report, and I would get a lot of them, and I would go back

to the people and say, well, show me the salvage report; because

there is supposed to be, by the rule, a salvage report. We don’t

have any.

We had people who are scientists who are retired, and all their

computer equipment went with them. I said, well, you know, that’s

Federal taxpayer money. Said, no, he’s retired, he’s retired. Retired

with him. Goes with him. That’s just the attitude here.

Ms. SCHAKOWSKY. So as a consequence, we are—let’s go back to

these 40 people. How did they react to you then, too? Were you just

kind of this odd man out, and that was not the way we do things

40

around here? Did they scorn you? How were you treated by those

individuals?

Mr. WALP. I wasn’t scorned, but I knew I was a loner. It just

jumped from that when I brought my philosophy to the fore. It was

like, you know, okay, but we’re moving on. It was just the way it

was.

Ms. SCHAKOWSKY. Two hundred twenty-five pairs of gloves cost- ing over $7,000. Were 255 pairs of the most expensive gloves really

needed in any way?

Mr. DORAN. Part of the information that came out of this investigation was the theft, but the waste as well. We found garbage

cans full of those expensive gloves with just minimal amounts of

dirt on the fingertips. They were just almost used like——

Ms. SCHAKOWSKY. They were being tossed?

Mr. DORAN. Yes. Basically, almost being used like disposable

latex gloves. We found garbage cans full of them. We found them

still sealed in their packages, scattered around the different work

sites and things of that nature.

Ms. SCHAKOWSKY. So what were they purchased for originally?

Mr. DORAN. Well, again it was just, because they had this budget

that was almost a bottomless pit, a lot of things that they were

purchasing were just misused and abused. I mean, we found air

conditioning units that were worth thousands of dollars just rotting

in the boxes, and power washers. They just had such a free hand

with purchases and equipment, a lot of it was just wasted.

Ms. SCHAKOWSKY. And did you talk to—in addition to the people

who were—I’m trying to get at this culture question, how deep it

goes, how embedded it is. When you would have conversations

about this, what was just the general tone?

Mr. DORAN. Well, the general tone, at least in my case, not with

Glenn, of course, but with most of the employees that I spoke with,

was you know, Steve, you make good money; you got an easy job,

if you want it to be an easy job. Just keep your mouth shut, and

come into work, spend the day, you know, play on the Internet and

go home and don’t worry about it. It’s the way it’s always been, and

nobody cares.

Ms. SCHAKOWSKY. So this was a tone that was pretty pervasive

throughout?

Mr. DORAN. Pretty much. We were constantly being thwarted,

you know, by saying, well, you know, you are not a policeman anymore, which we understood. You have no law enforcement authority anymore, which we understood. But the main issue was, even

though we didn’t take the crime to the prosecutorial stage, we did

report crime, and what we were seeing was a tremendous amount

of crime, a tremendous amount of waste, and it was our duty to

report it, and we told them we were going to report it.

Ms. SCHAKOWSKY. Mr. McDonald, how did Mr. Alexander and

Bussolini buy so much stuff they didn’t use at the lab? Didn’t they

ever run out of money?

Mr. MCDONALD. It did not appear so. They would use these blanket purchase orders. These people had always been commended in

the past for having such a great budget. So——

Ms. SCHAKOWSKY. So don’t you think we ought to be taking a

closer look at that budget?

41

Mr. MCDONALD. Yes, ma’am.

Ms. SCHAKOWSKY. I wondered if you wanted to comment at all

on this question of a pervasive culture.

Mr. MCDONALD. Other than that I would agree with these gentlemen, that is correct. I would see that throughout the hill, even

at a support service subcontract level.

Ms. SCHAKOWSKY. And does anyone want to comment? What do

we need to do first? Do we need to change the leadership at the

top, just wholesale, in order to improve this situation?

Mr. WALP. Quick answer, yes. That is my opinion. I think it even

goes further than that as it deals with property. I know we are zeroing in on property, but to me, it is also a security incident, and

I will not go into any specifics. That wouldn’t be appropriate for

this forum, but an extreme concern of Steve and I dealt with the

NIS case, Bussolini and Alexander. Here we people who changed

the light bulbs, who had keys to the kingdom of the blackest area.

They had items in their possession such as GPS systems, GPS

locator systems. If you lose something, you can find it. The high

tech night vision binoculars, high tech cameras, RF detectors which

means that you can—you identify if someone is in the room with

you that has a bug on, it would be identified.

I know the lab has come out and attempted to defend that and,

as we hear, gee, this can be—this is hunting stuff. That may be

true for certain items, but my question is when is the last time,

because they bought over 56 different type of lock-pick items and

glass cutting—you know, when is the last time a hunter needs a

lock-pick to get into a national forest, and when is the last time

a hunter needs an RF detector to find out if an elk is wearing a

bug?

So we are concerned from a security perspective. So we asked

ourselves this question: How can the premier lab in the world allow

this to happen for almost 2 years where anything was purchased,

and without reservation, and the people doing the auditing—we

had to show it to them, that they didn’t even know they bought

model airplanes, and they said, you know, what’s the big deal? And

you say, well, what about this, and what about this, and what

about this? They said, well, you know—they never challenged it.

So I have great concern that that lab that was supposed to be

producing—you know, it deals with national defense, and there are

many people there doing an outstanding job, but yet the unit, the

Security and Safeguards Division that are supposed to be the

guardians of the gates to make sure that those types of evidence

does not get out to the enemy, and that high tech accomplishments

that they make, they are the same ones that were involved in the

cover-up, self-preservation and protectionism. They were the ones

that are there.

It is our position, and I think Steve will confirm this, that we

wholeheartedly believe, just as—when the 1978 Inspector General

Act was passed, in Chapter 5 it states words to this effect. It makes

no sense to have the people who are doing the auditing and investigating report to and be supervised by people you are auditing and

investigating. That’s exactly what is happening when you deal with

safeguards and securities under the umbrella of a contractor.

It is time to take—I’m sorry, sir.

42

Mr. WALDEN [presiding]. Yes. We have gone over a couple of minutes. So now we will need to go to Mr. Rogers.

Mr. ROGERS. Thank you, Mr. Chairman. I just want to follow up

on that thought that you are having there. My concern is, if you

are willing to steal, you are willing to sell information as well. How

close are they to the information? Well, let me back up.

You did not have a security clearance when you arrived, but I

understand you have attained one.

Mr. WALP. I did, yes.

Mr. ROGERS. So you would understand which individuals involved in this would have security clearances and those who would

not?

Mr. WALP. Yes.

Mr. ROGERS. To the best of your knowledge, which individuals—

not by name, but give me a number of individuals who had security

clearances that may have in some way been involved in this? Is it

pervasive?

Mr. WALP. I would say this. I’ll take—I will couch it in these

terms. There were seven that I knew of. However, it is down to

these two individuals that Mr. McDonald was speaking about, and

the other ones may be used as state’s evidence, but yet you had

that arena of seven.

Also important to me, in addition to the equipment, was the vulnerability. These people had the highest clearance you can get, and

one of the factors when you do background is to make sure people

are not involved in gambling, prostitution, because they are vulnerable.

Here are individuals who are walking away with the farm and,

if you had someone from the outside walk up to them and say, look,

I know what you are doing and you either give me what I want

or we are going to report you to the police, it placed these individuals in an extremely high vulnerability.

Did anything like that happen? Probably not. Could have? Yes,

it could have happened. How can you let that happen in the premier lab in the world, to let that go on without anybody knowing

about it?

Mr. ROGERS. Well, you say probably didn’t happen, but you don’t

know for sure if it did or did not.

Mr. WALP. I do not know. I do not know.

Mr. ROGERS. How does a clerk in the store know when a program

is coming to an end?

Mr. DORAN. Since our termination, a lot of program changes have

been made, and one of the things that we have noticed around

town—I live in Los Alamos—is that, where before you could pretty

much purchase whatever you wanted using the ID card system—

I’ll put it in those terms—now they have like lists of what you can

buy and what you can’t buy. So they see that the noose is tightening and that, more than likely, that program will come to an end

relatively soon.

Mr. ROGERS. To the best of any of your knowledge, is any of the

security clearances been on hold? Is anyone getting rechecked at

this time, given any information that’s been provided?

Mr. DORAN. Not that I am aware of, sir.

43

Mr. ROGERS. So anybody that was close to this still continues to

hold and enjoy the privileges of a security clearance with sensitive

information?

Mr. DORAN. As far as I know.

Mr. ROGERS. That concerns me greatly, Mr. Chairman. That gets

my blood going. I used to be an FBI agent. So I know what you

do.

Second, if you would, Mr. Doran, you worked on the Mary

Frances Wood case.

Mr. DORAN. Yes, I did.

Mr. ROGERS. This is the individual who used the card at a casino.

Mr. DORAN. Yes.

Mr. ROGERS. You were given some direction on that case from

your management. Is that correct?

Mr. DORAN. Yes, sir, I was.

Mr. ROGERS. Can you tell me what direction that was?

Mr. DORAN. Originally when that information was brought to our

attention that the credit card was being used at casinos for cash

advances, I was basically given a green light to do whatever necessary to bring that case to fruition.

Once I started gathering information that proved she was guilty

of those crimes, I was advised through Mr. Tucker—or Mr. Tucker

advised me that Mr. Salgado had advised him that I was not to go

through with an interview of Mrs. Wood.

Mr. ROGERS. So you conducted that interview anyway, as I understand it.

Mr. DORAN. Well, basically, what happened is I conducted the

interview of Ms. Anaya with the FBI agent, Jeff Campbell, and at

that time she refused to give us any information. I called Mr. Tucker, gave him a brief of what had occurred during that interview,

and he said, well, go ahead and interview Ms. Wood, because, you

know, she probably won’t tell you anything either. When I brought

her in for the interview, she gave us a full confession of what she

had done. So I think it kind of backfired on them.

Mr. ROGERS. Interesting. Is she still employed?

Mr. DORAN. No. She worked for a contractor. She didn’t work for

the University of California, and the day that they asked me to

take her credit card, keys, ID card, and then they just told her or

had me tell her not to report to work the following day. So as far

as I know, she could still be working for that contractor.

Mr. ROGERS. To the best of your knowledge, does she have access

to any confidential, secret or elevated material?

Mr. DORAN. No, sir.

Mr. ROGERS. What is the status—well, before I do that, I know

we’ve got a vote here, and I want to get this on the record. You

were also investigating the fact that some of the vehicles that belonged to the lab were being fueled twice, in some cases three times

every day.

Mr. DORAN. Yes, sir. I just got the peripheral information on

that. We were terminated just as we began that investigation. Supposedly, the P-cards were being used to purchase large quantities

of fuel for like fuel tanker type trucks. You know, they were using

the credit cards to purchase that.

44

Also, we were told that the GSA cards were being misused. Vehicles were being filled two and three times a day. Fuel purchases

exceeded the amount of fuel that the vehicle could hold, and that

type of thing. But I have no—again, we never started that investigation. So I have no hard copy documentation to prove any of

that.

Mr. ROGERS. But on the face of what you were told and on the

basis of that information that you received in the receipts of those,

it indicated to you that there was probably some misuse of those

gas cards, in your estimation?

Mr. DORAN. If the statements that were given to me by the individuals who gave them to me were true, yes. But we never—we

continued to request the hard copy documentation. We wanted receipts. We wanted to know which—we wanted them to identify the

vehicles, identify the vendors, and we never got any of that.

Mr. ROGERS. Mr. McDonald, to your knowledge, what is the status of the equipment that you showed us here in the slides?

Mr. MCDONALD. After—I have actually met with some of the people who are still in kind of control of the equipment, and the equipment that we’ve seen in the pictures, for the most part, are still

there where it is being inventoried and so on and so forth, and determined in some means of property redistribution.

Mr. ROGERS. At this point, do you think it is being handled properly? When you say redistribution is being handled, sent to another

institution that may be able to use that equipment in its proper

use?

Mr. MCDONALD. Correct.

Mr. ROGERS. Someone, I think, mentioned, and forgive me—you

said it is easy to sneak through on the bar code. Maybe it was you,

Mr. Doran.

Mr. DORAN. Yes.

Mr. ROGERS. When you say that, did you identify any process

that they were using that was consistent throughout the lab to

avoid getting on the accountability statement?

Mr. DORAN. Basically, what Bussolini and Alexander used is they

had the equipment delivered to an unauthorized location so that it

didn’t go through the central warehouse and, therefore, it wasn’t

accounted for.

Mr. ROGERS. So, obviously, they had other individuals involved

who were receiving that as well.

Mr. DORAN. The salesman at Mesa was definitely helping them

to purchase items, changing invoices, you know, using part numbers versus what the actual item was, and delivering it to offsite

locations.

Mr. ROGERS. Now was there any investigation? Do you have any

information on where this material went after it left the lab? Was

it in people’s homes? Could you determine if it was resold?

Mr. DORAN. Well, the only thing I can give you is just hearsay.

After Glenn and I were ordered not to deal with the FBI, some of

the individuals who were then assigned to deal with the FBI said

a good deal of those items were found in the homes of Bussolini,

Alexander, Mr. Bussolini’s girlfriend, and other offsite locations.

Mr. ROGERS. Thank you for being here today. Mr. Chairman, I

will yield back the time.

45

Mr. WALDEN. The gentleman yields back his time. For the witnesses, the audience, and the members, we have two votes on the

floor. We have about 10 minutes to go.

So we will recess for approximately 30 minutes to accommodate

those two votes and time to get back to resume. If there are no

other subcommittee members who haven’t already done a round of

questioning, we will go to full committee members, and Ms. Eshoo

will be the first member.

[Brief recess.]

Mr. WALDEN. Ladies and gentlemen, why don’t we resume the

hearing. Before we give Ms. Eshoo an opportunity to ask questions,

I understand Mr. Doran wanted to make a clarifying comment regarding a question that Mr. Rogers raised. So I would like to give

you the opportunity to do that, and then we will go to Ms. Eshoo,

who is a member of the full committee.

I would remind you all that you are still under oath. Mr. Doran,

if you would like to go ahead and clarify for the record.

Mr. DORAN. Okay. So far as the gas purchases were concerned,

it was an issue where my last contact on that issue was with Mr.

Jay—I am drawing a blank on his last name.

Mr. WALDEN. Johnson?

Mr. DORAN. Jay Johnson, thank you. We were told by Mr. Johnson that Mr. Marquez had shut down that investigation for the

time being, that they had pretty much bigger fish to fry and that

they would be gathering the documents at a later date to give to

us to begin our investigation.

Mr. WALDEN. It’s my understanding Mr. Johnson was fired a

week—no, you were fired a week——

Mr. DORAN. I was fired a week—or actually, 2 weeks later.

Mr. WALDEN. Thank you. Ms. Eshoo, for your round of questioning, the full committee, 10 minutes.

Ms. ESHOO. Thank you, Mr. Chairman. Let me begin by thanking

you, the chairman of the full committee and the ranking member

of the full committee as well as the subcommittee chairman and

ranking person of the committee for extending the legislative courtesy to me to join you in the very important investigation in oversight committee hearing today. I appreciate it, and I believe that

my constituents do as well. So my thanks to you.

To the panelists, thank you to you. Since I didn’t get to make an

opening statement, let me just make a couple of observations about

where we are and what has brought us here today.

As a Californian, I think I speak for many, not only in California

but across the country and around the world, that the University

of California is one of the great public universities of the world.

This hearing today is not a source of pride to us.

The mismanagement that has been spoken, the evidence of

abuse, of neglect, of fraud—these are not things that we value.

This is not a source of pride to us. So I commend you for coming

forward. It is important that we have brave citizens, I think, that

are willing to stand up publicly and say we are here to protect the

investment of the American people through their tax dollars, and

that is what this contract represents.

So I salute you for doing it. I think that you have paid a price

for it, but I think that at the end of this, what I hope and, I beVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
46

lieve, will be or is the case is that we will come through this better,

because we can weed this out.

So my questions to you are in that arena. In your testimony you

have done, I think, an excellent job of informing the subcommittee

of the mismanagement, of the abuse, all of the things that have

been part of your testimony. I am not going to repeat it. I think

it just sounds in many ways that the wheels have come off. I mean,

I don’t know all of this equipment and whatever—this just doesn’t

belong anywhere.

In your work at the lab, can you establish any kind of nexus between what you uncovered, what you blew your whistle about, with

great legitimacy, with the issue of anything that impinges on our

national security? Either Mr. Walp or Mr. Doran?

Mr. WALP. Okay. From my position——

Ms. ESHOO. And I have some more questions. So if you could just

be as brief as possible.

Mr. WALP. I’ll be brief, and perhaps I won’t go into it. As I explained, I believe, to Mr. Rogers, our extreme concern as it dealt

with security was the NIS, the spy type of equipment, these people

having the keys to the kingdom, and just very quickly, it happened

about the end of October where Mr. Bussolini was taken on a tour

and was not allowed into a certain area. He immediately goes back

and attempts to get keys to get in there, making the statement I

need to know what’s behind that door.

Putting all that together, this whole situation, how it was let to

happen, has extreme concern to us as it deals with national security, with the caveat that the people in charge, Safeguards and Securities, who are supposed to protect us from our secrets getting

out, allowed this to happen, if you will. They knew about it in 2001

and did nothing about it, and then after we bring it to the fore, accept it.

Ms. ESHOO. I’m going to ask—because I have some follow-up

questions—Mr. Doran, if you would like to add anything to it.

Mr. DORAN. No. I mean, basically, it is just the—it’s a situation

where it is more of a campus environment than a national laboratory environment, and that is, in fact, a major problem.

Ms. ESHOO. Do you find this to be the case in all departments

or in specific areas? I know that you used some acronyms to describe different parts of the organization in your testimony. I am

not so sure if you are referring to the entire lab or the business/

bookkeeping/supervisorial oversight of employees. What is it that

you—I mean, is it all of it? Is it some of it?

Mr. WALP. As it deals with the theft and mismanagement, you

are talking about?

Ms. ESHOO. Well, all the things that you have testified about.

Mr. WALP. Yes. The theft and mismanagement, to me, covers the

whole spectrum of the lab as it deals with all the different systems,

purchase cards, purchase orders.

Ms. ESHOO. But is it throughout the lab or is it in that purchasing area?

Mr. WALP. No, because the people who are doing the illegalities

are beyond the purchasing area or the procurement area. It’s just

that——

47

Ms. ESHOO. Which leads me to my next question. Of the people

that have been relieved or fired to date, I think that your testimony, both of you, said that you still believe that there are some

or many others that still have to go. Do you want to comment on

that? Is it a whole layer of management? Are they rank and file?

I hope that a lot of people from the lab are tuned in today, most

frankly, and I’m glad the cameras are here, because I think everyone at that place needs to know how seriously we are taking this

and that we are committed to cleaning it up.

So is it certain departments or is it pervasive to the entire lab?

Is it purchasing?

Mr. WALP. Okay. To me, it deals with the top layer. I’ll give you

one specific example. Mr. Stanley Hettich, the individual we had

the Mustang case on, told Steve and I very emphatically he had no

intentions of telling us about that Federal crime. In fact, he has not

told us——

Ms. ESHOO. Mr. Walp, what I am looking for is I want to just—

it’s very important to give the specifics, and I appreciate that, but

because of the time constraints, I want your big picture thinking

about—and advice to the Congress. That is, do you, either one of

you, see that all of this has been taken care of in terms of the people that have been fired or put on leave or are there many more

to go?

The point that I am trying to get at is how much do we need to

do to cut the cancer out of the organization?

Mr. WALP. Two quick things from my end: You need to get rid

of the whole top layer in order to——

Ms. ESHOO. And how many does that represent?

Mr. WALP. It might be 15 to 20, and then change the culture.

Ms. ESHOO. Do you agree, Mr. Doran?

Mr. DORAN. Yes. I believe everybody in the upper echelons of the

financial area should be removed. They were there before the problems started. They were there during the problem, and they continue to hold their positions today.

Ms. ESHOO. Do you believe, with your considerable knowledge

and investigation and experience to date at the lab, that if this

were the case, what you just stated to us—do you believe that that

would cleanse the culture that one of the members, or more than

one member, touched on, to cut this out of the organization so that

it can move on under leadership that is committed to not only reforms but also to sustain the reforms?

Mr. WALP. If you’ve got it, and bring in leadership, you need

leadership who will change that culture. If you bring in the same

type of thinking, it is going to go back to exactly where it was before.

Mr. DORAN. And I would concur with Glenn. I mean, basically,

they need strong financial leadership, people who are concerned

about the taxpayer dollar, who know how to manage money on a

grand scale.

Ms. ESHOO. Again, I want to go back to this, because the labs

do the critical, important work. They provide the research. They

are critical to protecting our country. So I want this to be as clear

as possible, and I know that you don’t have knowledge about every

single thing.

48

I understand, and I know that you said for the record that you

have an anxiety and concerns about the national security area

based on what you observed, and I think that that is legitimate.

Is there anything else that you need to add to that, because if you

don’t, I think that is a consideration in this as well.

Mr. DORAN. Well my only comment would be is that the entire

system needs to be looked at from top to bottom. Some very common sense, basic security procedures can be added and changed to

make it tremendously more effective than what it is today.

Ms. ESHOO. See, I think that when you look at an organization

and they have trouble keeping their books, you can’t help but raise

the question, and the American people would legitimately raise the

question, well, why would we have confidence on this other side.

But I do think, given this mismanagement and all of the other

things that are a part of it that are not pretty, that are not good

and that we have to clean out and get rid of, should not impinge

on the whole national security area. So I appreciate that.

I also want to, for the record, state today that there are recent

events that have illuminated the critical work that the lab does.

One of them is that, shortly after September 11 and the attacks on

our country, the Lawrence Livermore national Laboratory was the

one that reported that North Korea was resuming its nuclear

weapons program.

Many of the International Atomic Energy Agency weapons inspectors were trained at Los Alamos and are in Iraq today. So I

think that, as we seek to root this out, we’ve got to appreciate the

larger picture and the larger stage that we set this up.

Again, I want to thank the chairman, and I hope that someone

is going to ask some questions about the whistleblowers and if

what the University of California has put into place is satisfactory,

but that will have to wait. Thank you, Mr. Chairman, and thank

you to the courageous witnesses that are here today.

Mr. GREENWOOD. The Chair thanks the gentlelady and recognizes for 10 minutes the gentleman from Massachusetts, Mr. Markey.

Mr. MARKEY. I thank you, Mr. Chairman, very much, and I

thank you so much for the courtesy in allowing us to ask questions.

They are courageous. I agree with the gentlelady from California.

I think everyone here admires the courage of Mr. Walp and Mr.

Doran and what they have gone through to bring this information

to us. You are like latter day Paul Reveres, bringing the warning.

You are whistleblowers. It is a very difficult position to place yourself and your families in.

With apologies, Mr. Chairman, to Henry Wadsworth Longfellow,

I would like to offer the following brief remarks. Listen, my children, and you shall hear tales of two latter day Paul Reveres, who

were asked by Los Alamos to expose fraud and security weaknesses

and dangerous flaws, and to blow the whistle when danger appeared.

Today Paul Revere is a hero for all, and those here today have

echoed his call. They’ve risen up to warn of dangers that prey on

the nuclear lab near Santa Fe. They warned DOE of problems galore. Yet at first their warnings were largely ignored. They warned

49

of theft, lost computers, and more, and instead of rewarding these

brave two, they were fired. Their careers were through.

Through day and night ride these Paul Reveres, and we must

protect their right to sound the alarm, instead of causing them personal harm. A cry of warning when trouble is near. They are a

voice in the darkness, a warning at the door, and their rights

should be protected forevermore. But borne on the night wind of

the past through all of our history to the last.

In the hour of darkness and peril and need, the people will

waken and listen to hear warnings of waste, wrongdoing and greed

to protect our modern day Paul Reveres. And you can be assured

that from this day forward, this committee will be monitoring anything and everything that does happen to you.

Now let me ask this. In your opinion, has the University of California accepted the reality that national security may have been

compromised, in your opinion? Do you think they now accept that?

Mr. WALP. Of course, I can’t speak for them, sir, but I would say

in the meetings that I had, I believe there is extreme, grave concern on the part of Mr. Darling and his staff as to the functions

that were effectuated at Los Alamos. Quite frankly, I would couch

it in these terms. I believe they would say that, in many senses,

it was a rogue aspect of their whole operation.

Mr. MARKEY. But they do accept it?

Mr. WALP. I believe they do.

Mr. MARKEY. Do you agree with that, Mr. Doran?

Mr. DORAN. I would have to agree. And I would just like to make

one quick comment. Glenn and myself have never insinuated that

the people at the laboratory—that everyone at the laboratory is

corrupt and, you know, that they do not love their country, that

they do not do their jobs. There are a lot of tremendous employees

at that laboratory who have helped us tremendously in doing our

job and in bringing this thing to you.

So I would never want anyone to think that the people—that the

majority of the people at that laboratory do not work to the better

ends of their country.

Mr. MARKEY. Do you believe that any criminal laws have been

broken?

Mr. WALP. There is no doubt, absolutely. From a Federal end,

Title 18, Section 641, as it deals with theft, obviously; Title 18,

Chapter 1.4, misprison of a felony, not reporting a felony, absolutely.

Mr. MARKEY. How about in the national security area?

Mr. WALP. I would say this, that those laws that were violated—

you know, it may not deal with specificity with an issue that deals

with security, but holistically I believe it does, because these are

crimes that occurred at the premier lab in the world. Therefore, I

think, holistically, it certainly has an umbrella effect over all security.

Mr. MARKEY. Do you agree with that, Mr. Doran?

Mr. DORAN. Yes, I would agree.

Mr. MARKEY. My understanding is that seven desktop computers,

three laptop computers, and other equipment was reported stolen.

Other computers were reported lost. Could there have been any

classified information on any of those computers or other devices?

50

Mr. DORAN. There’s always a possibility that that information

was contained on those computers.

Mr. MARKEY. Mr. Walp?

Mr. WALP. And I would agree with Mr. Doran. We don’t have any

specific case saying this case had classified information on it, but

if there are computers out there, which there are, that they have

no idea where they are at, that possibility certainly exists, that it

could occur.

Mr. MARKEY. Mr. Walp, the University of California has announced that they are reorganizing the division which you worked

in, to report elsewhere in the lab. Is that a good idea?

Mr. WALP. No. It is my very adamant position that, if the United

States citizens want true security of their labs as it deals with national security, they must take action to take that division out of

the umbrella of a contractor. Absolutely imperative, because it was

infested with self-preservation and protectionism for the bottom

line of their salaries and their retirements. You must take it out

of that environment. That’s my opinion.

Mr. MARKEY. I want to thank both of you. You are each patriots,

and I very much appreciate the courage it took to do what you have

done. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman. Someday you

will tell me how long you tried to find a word that rhymed with

Los Alamos before you gave up. You know you did.

We thank all three of our witnesses for your time and for your

service to your country. It is appreciated. It will enable—and only

because of your cooperation will we be enabled to do our job and

make sure that this doesn’t happen in the future at Los Alamos,

at any other lab or, in fact, at any other Federal facility or program.

So thank you again, and you are excused.

We will now call the Honorable Gregory H. Friedman, Inspector

General, U.S. Department of Energy. Mr. Friedman, thank you for

joining us. I believe you are aware that the Oversight and Investigations Subcommittee takes testimony from witnesses under

oath. Do you object to giving your testimony under oath?

Mr. FRIEDMAN. I do not.

Mr. GREENWOOD. Pursuant to the rules of the committee, you are

entitled to be represented by counsel. Do you choose to be represented by counsel?

Mr. FRIEDMAN. I do not.

Mr. GREENWOOD. If you would raise your right hand.

[Witness sworn.]

Mr. GREENWOOD. You are under oath, and we look forward to

your opening statement, and you are recognized.

TESTIMONY OF GREGORY H. FRIEDMAN, INSPECTOR

GENERAL, U.S. DEPARTMENT OF ENERGY

Mr. FRIEDMAN. Thank you very much, 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.

In February 2002, my office issued a report entitled ‘‘U.S. Department of Energy’s Purchase Card Programs—Lessons Learned.’’

51

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, of course, our focus has turned to Los Alamos in light of allegations about potential abuses at that facility.

On November 5, 2002, the Acting Administrator of the National

Nuclear Security Administration 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 and Steve Doran, who testified just a few minutes ago. 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 the laboratory’s management of these issues.

Approximately 1 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.

Our recently issued report 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 environment 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 underlying property and procurement weaknesses

and related security concerns.

For example, we found that laboratory management published

materials distributed to laboratory employees in advance of a 2002

Department of Energy cyber security review. These materials contained such phrases as ‘‘resist the temptation to spill your guts;’’

‘‘Handwritten notes can be especially damaging; they are not easily

disavowed;’’ and ‘‘Finger pointing will just make the program look

bad.’’

Our inquiry also 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 an incomprehensible

action on the part of the University of California.

In our view, these events raised doubts about Los Alamos’ commitment to solving noted problems, and fostered a chilling effect on

employees who may have been willing to speak out on matters of

concern.

Our inquiry also disclosed that, even after considering recent

events at Los Alamos, in December 2002 the NNSA rated Los Alamos excellent in both procurement and property management. Although we did not review the particular process by which NNSA

52

arrived at such a rating, we believe the process should be reevaluated in light of events.

Our report of inquiry contained specific recommendations for corrective action. We feel it is especially important that Department

of Energy officials ensure that the University of California and the

laboratory’s management are held accountable for implementing

and executing corrective actions resulting from the situation at the

laboratory.

In addition to this special inquiry, we have a number of ongoing

efforts at the laboratory. Our most recent report issued on February 21, 2003, examined internal controls over firearms at Los Alamos. We found weaknesses in the administration of the firearms

inventory, which included over 1600 guns. We noted, 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

data base. In fact, some firearms never made it into the data base.

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 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 the related

concerns. These efforts include: A review of laboratory controls over

laptop and desktop computers; a review of allowability of costs

claimed by the University of California under its contract to manage the laboratory for the Department of Energy; and a number of

criminal investigations regarding misuse of purchase authority.

The criminal investigations are being closely coordinated with

the United States Attorney’s Office in New Mexico. Due to the sensitive nature of the ongoing investigations, we will be unable to

provide specific information on individual cases.

Mr. Chairman, as I indicated previously, our work at Los Alamos

continues. Our objective is to address the concerns that have been

raised regarding laboratory operations.

This concludes my statement, and I would be pleased to answer

any questions. One apology at the outset, if you will. I am suffering

from a chest cold and a head cold. So if my voice is especially unappealing, I trust you will understand why.

Mr. GREENWOOD. No, it’s just normally unappealing.

Mr. FRIEDMAN. You must have been speaking to my wife, Mr.

Chairman.

[The prepared statement of Gregory H. Friedman follows:]

53

PREPARED STATEMENT OF HON. GREGORY FRIEDMAN, INSPECTOR GENERAL, U.S.

DEPARTMENT OF ENERGY

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:

• Failed to take appropriate or timely action with respect to a number of identified

property control weaknesses. There was:

(1) inadequate or untimely analysis of, and inquiry into, property loss or theft and

security issues;

(2) lack of personal accountability for property;

54

(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:

• Had inadequate policies governing when and under what circumstances activities

must be reported to law enforcement. • Issued, then immediately rescinded without adequate explanation, a memorandum requiring corrective actions to address ‘‘disturbing negative trends regarding Laboratory management of Government property.’’ Another memorandum was later reissued in modified form, but a number of the corrective action mandates were never fully effectuated.

We found, as well, that the Laboratory:

• Published certain materials distributed to Laboratory employees, in advance of a

2002, Department cyber security review, containing such phrases as

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.’’ AcVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6621 86048.TXT HCOM1 PsN: HCOM1
55

cording 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.

To address these concerns, the CFO Office described four new quarterly tracking

and trend reports that this office would be responsible for issuing. The memorandum requested that each Los Alamos division develop a corrective action plan

to raise awareness of property accountability and safeguards. The memorandum

also suggested the initiation of a root cause analysis and planned training, and recommended review of instances of multiple losses or lack of accountability by the

same individual. On December 18, 2002, we asked the CFO Office to provide us copies of each of these reports, including copies of each division’s corrective action plan.

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:

• ‘‘Resist the temptation to ‘spill your guts’.’’

• ‘‘Handwritten notes can be especially damaging...They are not easily disavowed.’’

• ‘‘Finger pointing will just make the program look bad.’’

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,

56

1 ‘‘Personal Digital Assistants.’’

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 two security officials were vocal in their criticisms of the Laboratory’s management of property loss and theft concerns. • Laboratory management acknowledged that prior to the arrival of the Security Inquiries Leader, Laboratory efforts to inquire into these matters were inadequate. • Recent external reviews, including this inquiry, corroborated a number of the fundamental concerns previously expressed by the two terminated security officials

relating to property and management systems. • As late as October 2002, the Security Inquiries Leader had received a favorable

performance evaluation.

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

57

2 The memorandum identified an additional 75 computers requiring follow up and resolution

status.

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.

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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:

• Failure to reconcile and approve monthly statements; • Failure to resolve disputed transactions; • Failure to properly account for controlled property; • Purchase of restricted items in violation of Laboratory policies; • Insufficient documentation of items purchased; • Inadequate or ineffective sanctions for non-compliance;

• Insufficient training, especially for approvers;

• Insufficient program audit and review procedures;

• Failure to properly manage cardholder spending limits; and,

• Failure to safeguard card information.

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

In our report, we made specific recommendations for corrective action. In particular, responsible Department officials must ensure that the University of California and the Laboratory’s management are held accountable for implementing and

executing corrective actions resulting from the situation at the Laboratory.

OTHER OIG REVIEWS

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:

• A review of laboratory controls over laptop and desktop computers;

• A review of the allowability of costs claimed by the University of California under

its contract to manage the Laboratory for the Department of Energy; and

• A number of criminal investigations regarding misuse of purchase authority.

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.

This concludes my statement and I would be pleased to answer any questions.

Mr. GREENWOOD. Thank you, Mr. Friedman.

59

Your special inquiry report points out that you corroborated a

number of Mr. Walp’s and Mr. Doran’s fundamental concerns about

property controls at the laboratory. What was the most significant

concern there that you were able to corroborate?

Mr. FRIEDMAN. Well, over and above the notion that the laboratory did not countenance very well whistleblowers, people who

brought problem information to their attention. There was the general lack of accountability, and I think they had a very good point

on that, and that is the main point that we have corroborated

through our reviews.

Mr. GREENWOOD. Did you sense this culture that Misters Doran

and Walp referred to?

Mr. FRIEDMAN. There was a tone at the laboratory that, I think,

parallels the description that they gave you today.

Mr. GREENWOOD. Okay. In its letter in response to a list of questions from the committee, the University of California asserts, ‘‘No

classified information was contained on the hard drives of the hundreds of computers that have been lost or stolen at Los Alamos

over the past 3 years.’’

Do you believe that Los Alamos has accurately accounted for

these computers and can rightly assert that none of them contained

classified information?

Mr. FRIEDMAN. Well, at this point, given what we have found to

date, Mr. Chairman, I don’t have any confidence that they have the

total number, and I am not sure they ever will get the total number. As has been indicated, there may very well have been computers that were procured but never made it into the inventory

data base. So, therefore, I don’t know how you necessarily would

know they are missing.

With regard—did your question pertain as well to the question

of the classified information?

Mr. GREENWOOD. Yes.

Mr. FRIEDMAN. We found, or they have identified that at least

400 computers in 3 years were lost, missing or stolen or

unlocatable. Given the fact that they don’t have the computers, I

would not necessarily express a great deal of confidence in the final

conclusion that there was no sensitive or classified information

compromised.

I don’t have an instance in which that was the case, but I certainly couldn’t assure you that that was not the case.

Mr. GREENWOOD. According to a February 5, 2003, memo from

you to Acting Administrator Linton Brooks at the National Nuclear

Security Administration, your office encounter, ‘‘significant dysfunction at Los Alamos during your review.’’

Specifically, you note that lab management failed to comply with

your request for information regarding an April 10, 2002, internal

lab memo. Could you describe the significant dysfunction that you

encountered in your review?

Mr. FRIEDMAN. Well, the memo in question, Mr. Chairman, came

to our attention through a third party and, when we talked to the

purported author of the memo, he didn’t have a copy of the memo

nor was he able to provide the five data points that had been requested as a result of the memo. He was not able to provide any

of that information.

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We departed that day with a commitment on his part to get us

the information and to provide it to us. It was very surprising that

this person, who was in a fairly senior position at the lab, could

not provide us the information at that instant.

Subsequently, in fact, we received an e-mail message from this

individual stating that, in fact, the earlier memorandum that had

been referred to had been withdrawn. We still have a data request,

and we do to this day have a data request for all the information

that may have resulted, as had been requested by the original

memorandum.

Basically, we then found after our review had been completed

that, in fact, the memo had been re-issued subsequently. We still

have not received the substance of the information. Of the five data

points, three of the five data points, we don’t believe, have ever

been fully complied with.

So as a result, we don’t have confidence in the system. Even if

there was a significant misunderstanding, a lack of candor with the

Office of Inspector General or a miscommunication within the lab,

that is a dysfunction in and of itself.

Mr. GREENWOOD. The committee’s investigation of problems at

Los Alamos has focused on the University of California, the contractor in charge of operating Los Alamos. In your opinion, is the

Department of Energy and National Nuclear Security Administration also at fault for management breakdowns at Los Alamos?

Mr. FRIEDMAN. There certainly are shared responsibilities. The

Department of Energy and the NNSA specifically is the contract

manager for the University of California contract at Los Alamos.

So absolutely, they have a responsibility.

Mr. GREENWOOD. You have looked at this pretty thoroughly. If

it was your job to make sure that this kind of thing doesn’t happen,

not only at Los Alamos or anywhere else within DOE or, for that

matter, the Federal Government, what kinds of things would you

do? How do we fix this?

Mr. FRIEDMAN. Well, first, there needs to be—and this is going

to require a sustained effort, Mr. Chairman—a change in the culture with regard to encouraging people who have legitimate concerns to raise those concerns, and they should know that it is done

in an environment in which they will not be retaliated against.

Second, it is the responsibility of management to act on those

concerns. Once they are brought to your attention, they need to be

addressed.

Third, it seems to me, we have to make sure that the processes,

or at least the University of California at this point needs to make

sure that the processes that are in place, procurement, financial,

inventory, at the various laboratories under its management are

first class, that they operate as intended, and that they are doing

the job, and that the interest of the taxpayers is ensured as a result of those processes.

Mr. GREENWOOD. Just wondering what would happen if we had

an immunity day and asked everybody to just please bring back all

the stuff they have stolen over the last 20 years, and make a big

pile.

Are you satisfied the University of California has recently announced corrective actions?

61

Mr. FRIEDMAN. Well, this is going to take some time. It is a good

start. The jury is out, and we will go back and take a look at it

at some point in the future to see if, in fact, they are operating as

intended.

Mr. GREENWOOD. I would like unanimous consent to enter these

documents into the record. Without objections.

The Chair recognizes the gentleman from Florida for 10 minutes.

Mr. DEUTSCH. Thank you, Mr. Chairman. Now I think underlying all of our investigations is actually what the laboratory does,

and I think all of us have this concern, that if this level of scrutiny

is done on the criminal activity in terms of devices, how much serious is there out there that we don’t know about?

I think that really is the anxiety I think all of us has, is as awful

as all of this is, whether it is a Rototiller or a sleeping bag, it would

be a lot worse if it were enriched uranium.

Have you independently looked at those issues in terms of the

entire structure and the system that they have in place for protection of not just, as you had acknowledged, with stolen or the unaccounted for computers. We have no idea what was on those computers.

It just raises the stakes more than just criminal activity, but

really espionage and national security, which obviously are, in fact,

as significant as all these other issues are, much more troubling.

Mr. FRIEDMAN. Well, we are attempting to address that, Mr.

Deutsch, and let me give you one example. One of the reviews that

we have ongoing right now, as I indicated, is a comprehensive review of the controls over desktop and laptop computers, and we are

going to follow them to the core, as they were purchased, through

the process, as they are disposed of.

Those that are identified as being stolen, lost or unlocatable, we

will follow those as well and really examine the controls over those

computers. So I hope we will get to the issue, the core issue, that

you are referring to.

Mr. DEUTSCH. Do you feel you as the Inspector General have

enough resources to do that?

Mr. FRIEDMAN. That is a loaded question. The answer, Mr.

Deutsch, is that we don’t have enough resources. We are doing the

best we can with what we have. We are spread over 14 different

Department of Energy locations around the country. Our objective

is to do the maximum with the people that we have.

We recognize the fact that resources are tight throughout government.

Mr. DEUTSCH. But again, let me just kind of—have you seen any

change in the resources available to you post 9-11, either in last

year’s budget or in this year’s budget?

Mr. FRIEDMAN. This year’s budget, I am pleased to say, we had

a fairly substantial increase. But the delay in getting the budget

has worked against us in terms of hiring.

Mr. DEUTSCH. I mean, could you be more specific with what that

increase was?

Mr. FRIEDMAN. I am embarrassed to tell you, I don’t know the

precise number.

Mr. DEUTSCH. Do you have a ballpark, 10 percent, 20 percent?

Mr. FRIEDMAN. It was about a 20 percent increase.

62

Mr. DEUTSCH. And is that more directed toward these types of

issues that we are discussing?

Mr. FRIEDMAN. Unfortunately, we have an obligation under statute to audit the financial statements of the U.S. Department of Energy, and that is the most labor intensive and dollar intensive effort that we undergo. So a disproportionate part of our budget is

directed toward the financial statements of the Department of Energy.

Mr. DEUTSCH. And what percentage of your budget, would you

say, is directed toward that versus these other type of activities?

Mr. FRIEDMAN. Well, it is about 20 percent of our entire budget,

and we think that is quite high.

Mr. DEUTSCH. Now can I—I mean, just to try to get a feel for

this, how many people would you say—how many person time are

you allocating to the Los Alamos situation at this point? How many

full time positions?

Mr. FRIEDMAN. How many full time positions? Probably 20 to 25.

Let me just expand on that for a second. We are also doing sensitive property reviews at the other University of California labs as

well.

Mr. DEUTSCH. And in terms of the other facilities that you have

responsibility for, do you have any sizable people in terms of property evaluation at any of the other locations?

Mr. FRIEDMAN. Well, yes. You know, obviously, we have——

Mr. DEUTSCH. You have jurisdiction, but I mean, is there anything that large in terms of numbers of people?

Mr. FRIEDMAN. No. No, there is nothing that large, not by a long

shot.

Mr. DEUTSCH. Have you uncovered anything similar to what’s

happened in Los Alamos?

Mr. FRIEDMAN. Well, it is too early to tell, but the firearms review was the first step in a series of steps to look at property controls.

Mr. DEUTSCH. At this point, do you think the laboratory has

taken sufficient personnel action to deal with the problems that

you’ve identified?

Mr. FRIEDMAN. Well, as I indicated earlier, certainly, a number

of personnel actions have taken place. There are a number of reorganizations that have taken place. But it is too early for us to judge

whether those are really effective in addressing the problem.

Mr. DEUTSCH. When would you want to come back for us where

you feel you can actually judge those?

Mr. FRIEDMAN. Well, let’s look at 6 months, and maybe we will

have a chance to look at it in that timeframe. It may be a little

longer than that. Did you ask for a timeframe? Did I answer you

correctly?

Mr. DEUTSCH. Yes, you did. In your longer statement you said

that the firing of Mr. Walp and Mr. Doran while they were ongoing

reviews of property and procurement controls undermined management’s action to address the core issue, identifying and correcting

weaknesses in controls over national security.

Would you explain how exactly this undermined the core issue?

Mr. FRIEDMAN. Well, basically, we felt that these people were on

the front line of identifying these problems, and taking them out

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of the loop undermined this very process that was designed to get

to the bottom of these issues and to investigate and prosecute those

cases where there was wrongdoing.

Mr. DEUTSCH. And the core issue being?

Mr. FRIEDMAN. The core issue being people on the inside with

the investigative information to provide to us or to the FBI as to

wrongdoing at the laboratory.

Mr. DEUTSCH. Right. But I guess the thing that raised just my

concern again is that weakness in controls over national security,

not over theft but over national security. What were you alluding

to there?

Mr. FRIEDMAN. Oh, what we were alluding to is—and as I indicated, we have not found a computer that contained classified information that was lost or stolen. What I am alluding to is that the

national security mission of Los Alamos is inextricably tied to the

day to day business of the laboratory.

So to the extent that you have people who are involved in misdeeds, who are even responsible for common inventory, it sends a

very, very important message to the rest of the laboratory.

Mr. DEUTSCH. How helpful would Mr. Palmieri’s April 10 memo

have been in implementing the necessary correction actions?

Mr. FRIEDMAN. He laid out five different steps. I thought they

were good steps, the most important of which was corrective action

plans for all of the divisions at the laboratory in terms of their

dealing with property. I thought that was the most impressive. To

date, we have not received any of those corrective action plans.

Mr. DEUTSCH. And controlling the property on the inventory list

really doesn’t address the abuse in the procurement system. Most

of the property isn’t even on that list. Is that not correct?

Mr. FRIEDMAN. I don’t think it is most of the property. I think

there is a fair amount of the property that is not on that list. I

don’t know the precise percentage.

Mr. DEUTSCH. And finally, under the new reorganization plan,

Mr. Walp’s former office is going to be merged into the Audits and

Assessments Section. Audits does not have a good reputation for

prosecuting fraud, waste and abuse, particularly criminal cases.

Does this appear to just be another attempt to put the investigators into an office much more acceptable to upper management?

Mr. FRIEDMAN. Frankly, until I heard it today, I did not know

that is the way it was going to be reorganized, and I’d like to take

a look at that, and I would be more than happy to give you my

opinion after I have done that. I don’t have an opinion on it right

now. Unless the Audits and Assessments unit is girded up and

given authority, I’m not sure that it is a good idea.

Mr. DEUTSCH. Thank you.

Mr. GREENWOOD. Before we go to Ms. Eshoo, just one quick question.

I want to understand something. University of California manages about $2 billion worth of Federal money in this program, and

they get a performance fee that totals around $8-$9 million. If

property is stolen from the lab, does that come out of the funds

that would otherwise enure to the benefit of the University of California or, in fact, does it just get moved—pushed along to the

Treasury?

64

Mr. FRIEDMAN. This is a question, Mr. Chairman, that really

ought to be addressed to the Department itself. But in general, unless the most senior members of the contractor staaff are aware of

the fraud, the taxpayers carry the burden of those losses.

Mr. GREENWOOD. Thank you. The gentlelady from California.

Ms. ESHOO. Thank you again, Mr. Chairman. for the legislative

courtesy that you have extended to me. Thank you, Mr. Friedman,

for your excellent testimony and your very important work.

I have two questions. Are you aware of the reforms that the University has undertaken relative to this scandal and, if so, do you

believe they are the soundest policies to cure the ills that you have

investigated and reported?

Mr. FRIEDMAN. Well, as I indicated, there have been a number

of personnel changes. There have been a number of reorganizations. For example, the University’s auditor is now directly involved at Los Alamos. So it’s impressive, Congresswoman, but I

want to withhold judgment on the final analysis until we have a

chance to look at it after it has been executed for a period of time

to see if it is doing the job.

Ms. ESHOO. In the analysis that you did, can you tell us what

the dollar figure is that—as you just mentioned in the answer to

the last question that was posed to you, who picks up the tab. The

American taxpayer. How much have they been ripped off?

Mr. FRIEDMAN. Well, I don’t have an independent number, but

relying upon the number that has been referred to in the April 10

memorandum, at least $1.3 million.

Ms. ESHOO. And the contract is for how much?

Mr. FRIEDMAN. The contract is in the nature of about $1.3 billion

a year. I am not precisely sure of the exact amount.

Ms. ESHOO. And it is a 5-year contract?

Mr. FRIEDMAN. I’m sorry?

Ms. ESHOO. Is it a 5-year contract?

Mr. FRIEDMAN. It is a 5-year contract, as I understand it.

Ms. ESHOO. I would still like to have that amount in my checking

account, but I think that context is also important here.

do you believe that, with the most stringent reforms and the

commitment to sustain them, that what has been uncovered can be

permanently eradicated?

Mr. FRIEDMAN. I’m sorry. I’m not sure I understand your question. Could you repeat it?

Ms. ESHOO. Reforms placed on the books that University of California has to accept this, and it’s up to them to do, to put the reforms into place, to develop the confidence of the Congress that

they can indeed sustain the reforms. I mean, some reforms sound

terrific, but they are not worth the paper that they are written on.

Mr. FRIEDMAN. Right.

Ms. ESHOO. So not only to recognize that reforms need to be

made, that they can indeed and will be sustained. Do you believe

that those reforms can actually cure the ills that we know about?

So much talk, excuse me, about the culture, and that’s a lot of

times a lot more difficult to get at. Do you believe it can be weeded

out?

Mr. FRIEDMAN. I think, if there is a sustained effort, it is going

to take a fair amount of time. It is not going to be a quick fix, and

65

I suspect that the changes proposed by the University of California

are evolving, and there will be more of them, is my expectation.

Mr. Darling, I think, is going to succeed me on the panel, and I

think he can answer that more directly, but I think there is a

chance they can address the underlying issues, sure.

Ms. ESHOO. Well, that’s positive. In the examination of security

and audit divisions or departments, whatever the right word is, I

don’t have the sense that moving one person from one to the other

is really what is going to fix this. Do you think that an outside—

a private security company would be better and that you wouldn’t

have the situation that sounds to me like the fox in charge of the

chicken coop.

It is very difficult to, I think, given the situation, and I think

under a whole set of normal circumstances, that that is an easy

thing to carry out. Do you think the University would be better off

going outside to do this?

Mr. FRIEDMAN. Well, respectfully, there are at least two outside

investigative organizations with appropriate authority. One is my

office. The other is the Federal Bureau of Investigation. One of the

findings which is most unfortunate is that there was a reluctance

to share information with our office, a delay in sharing with our

office and the FBI.

Ms. ESHOO. How do you think that is best addressed, though?

Mr. FRIEDMAN. Well, I think in part that is a cultural issue——

Ms. ESHOO. They have probably learned by now.

Mr. FRIEDMAN. And I suspect, with Congressional pressure, and

more emphasis on the part of the NNSA, I think those issues can

be addressed.

Ms. ESHOO. I think that investigation and oversight—and I always say this to my constituents in town hall meetings—is really

one of the most important roles that the Congress can play, and I

think that what I have learned from you and from the other witnesses, but especially from you, is that the accountability in the review that comes with investigation and oversight can indeed happen.

I am pleased to hear you say that you—to give you 6 months or

a little more to take a look and to come back. But I think the seriousness with which this situation is taken and then turn that into

something is really very important.

Let me just ask you one more question, and it is one that I have

continued to pursue with whomever is testifying, and I plan to ask

this of the University people as well. I think it is very, very important to know about this nexus of national security and the work,

the contract that the University has.

While there is a question about the computer that contained classified information, and I think that is still part of the work that

you are doing, to pursue that, to chase that down, is there anything

else that you can point to that raises serious questions about what

I am asking you?

Mr. FRIEDMAN. There is nothing that comes to mind. Let me clarify one thing so I’m not misleading you. We are not investigating

the loss of a particular computer that we think may have had classified information at this time.

66

Ms. ESHOO. Thank you. Thank you, Mr. Chairman. Thank you

for your good work.

Mr. GREENWOOD. Thank you. One final question, Mr. Friedman.

The University of California has operated Los Alamos for 60 years.

It is my understanding that each time the contract comes up for

renewal, it has been extended noncompetitively to the University

of California. Do you think that it is time for the Department of

Energy to put the Los Alamos contract up for competition?

Mr. FRIEDMAN. Well, I don’t have a position on this particular

contract, Mr. Chairman, but my general position is and the position

of my office has been, based on the work that we’ve done, is that

maximizing competition is in the best interest of the taxpayers.

So, certainly, you never know who is out there or who might

have some good ideas. So I wouldn’t rule it in or rule it out, but

I think generally, maximum competition is in the best interest of

the taxpayers.

Mr. GREENWOOD. Okay. Well, thank you, sir. We appreciate your

testimony.

I call our final witness, Mr. Bruce Darling, Senior Vice President,

University Affairs, and the Interim Vice President for Laboratory

Management at the University of California. Welcome, Mr. Darling.

Thank you for being with us.

Mr. DARLING. Thank you, sir.

Mr. GREENWOOD. You may have heard me say to the other witnesses that it is the custom of this committee to take testimony

under oath. Do you object to giving your testimony under oath?

Mr. DARLING. No, I do not.

Mr. GREENWOOD. Also pursuant to the rules of the House and

this committee, you are entitled to be represented by counsel. Do

you wish to be represented by counsel?

Mr. DARLING. I do not. I should note, however, that the University has retained Covington & Burling in the person of Lanny

Breuer. He has been assisting the University and the committee in

its investigation, but I do not wish counsel.

Mr. GREENWOOD. Okay, thank you. In that case, if you would

rise and raise your right hand.

[Witness sworn.]

Mr. GREENWOOD. You are under oath, Mr. Darling, and you may

give your statement.

TESTIMONY OF BRUCE B. DARLING, SENIOR VICE PRESIDENT,

UNIVERSITY AFFAIRS AND INTERIM VICE PRESIDENT, LABORATORY MANAGEMENT, UNIVERSITY OF CALIFORNIA

Mr. DARLING. Good afternoon, Mr. Chairman, Mr. Deutsch, and

members of the committee. I’d like to thank you for this opportunity to address the business, property management, and procurement problems at Los Alamos National Laboratory. With your permission, I’d like to give you a brief summary of the written testimony that I have submitted for the record.

First, let me say that I am not here to offer any excuses whatsoever. To the contrary, the University of California accepts full responsibility, and we are aggressively making the changes to restore

public confidence in Los Alamos and in the University of California.

67

Our efforts have benefited greatly from the information made

available to us by Glenn Walp and Steven Doran, other laboratory

employees, the Department of Energy Inspector General, and this

committee. All of you have helped us identify problems, expose

abuses, and to begin to resolve them in an effective and decisive

manner.

If I may say, along with Mr. Tauzin, I, too, would like to recognize Jaret Mcdonald for identifying the thefts at the facility known

as TA-33 and for fully pursuing the matter, including when he had

to go to the FBI outside of the laboratory.

In particular, Mr. Chairman, I would like to acknowledge your

leadership, and I would like to say that the information—new information that has come out of today’s hearing is something that

we will pursue vigorously and immediately.

In my remarks, I will briefly describe what actions we have

taken to date to resolve the problems at Los Alamos. In doing so,

I would like to touch on personnel changes, increasing financial integrity at the lab, property controls, as well as the University’s governance of these three national assets.

The University’s actions began last August with the appointment

of an external review team to examine the lab’s purchase card program. Then late last year President Atkinson dispatched a team of

senior University officials, first to review the laboratory business

practices, and subsequently the dismissals of Mr. Walp and Mr.

Doran.

As a result of our findings, the University has made sweeping

management changes, beginning in late December with the appointment of Vice Admiral George P. Nanos as Interim Director of

Los Alamos.

Admiral Nanos brings to Los Alamos a strong management background as commander of the Naval nuclear weapons program as

well as the Naval Sea Systems Command which had more than

40,000 employees and over a $20 billion annual budget—so a factor

of 10 greater than Los Alamos in terms of budget.

To date, 15 lab managers and employees have either been terminated, removed from management positions and/or reassigned to

new positions. These include the laboratory Director, the Principal

Deputy Director of the laboratory, the Chief Financial Officer of the

laboratory, the Security Director and Deputy Director of the laboratory, and the Audit Director of the laboratory. In addition, the University rehired Mr. Walp and Mr. Doran, as you heard previously.

Among the other steps we have taken, Senior University officials

are directly managing Los Alamos’ business functions, both the

business activities and the audit activities. We have strengthened

the independence of the audit office. We have rescinded the audit

office’s so called loyalty oath that you may have read about in Inspector General Friedman’s report, and we have activated an independent whistleblower hotline.

In addition, we initiated a comprehensive property inventory

that is now underway, and we have reviewed every property delivery site, known as drop points, an issue that was brought to our

attention by Mr. Walp and Mr. Doran; and we have improved the

lab’s business organization, procedure and financial systems and

controls.

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In addition, we have brought in external resources to bear on

these problems. First, we created an external review team, which

you know began in August, looking at the purchase card program.

It was made up of two former Federal Inspectors General, along

with a dozen forensic auditors from PricewaterhouseCoopers, and

we have recently expanded that effort to include all procurement

at the laboratory, not just the purchase card system. So the justin-time contracts, regular procurement, blanket purchase orders, as

well as the local vendor agreements that you heard about earlier

from Mr. Walp and Doran.

I should also add that another external resource we have brought

to bear is Ernst & Young that currently have 30 consultants on the

ground at Los Alamos today, looking at business processes, financial controls and organization structure to do a comprehensive review of the entire business operations of the lab, for many of the

reasons you have heard from the previous witnesses.

To sustain these changes, and I do mean sustain them, President

Atkinson has established an interim oversight board for Los Alamos. We are revamping the University’s laboratory governance

structure. What we want to do is create a clear set of expectations

for everyone involved and a very clear culture of accountability for

all of us in this process.

Let me underscore that the lab financial controls did indeed have

serious weaknesses. The purchase card program differed from those

at the University’s 10 campuses and the 2 other laboratories that

we manage for the Federal Government. It lacked strong controls

and, unfortunately, the controls that did exist were not enforced

adequately.

It is also clear that Los Alamos did not impose the kind of sanctions that would have encouraged employees to better account for

laboratory property in the way that all of us should be doing. And

the dismissals of Mr. Walp and Mr. Doran were both unwarranted

and, to use the Inspector General’s words, incomprehensible.

While we address these problems, I want to assure you that we

are also focused on fulfilling the mission of the laboratory to the

Nation, especially at this critical time in world events. The lab’s

science and weapons programs must meet their objectives, and the

security operations must meet the Nation’s expectations.

Managing Los Alamos is a privilege for the University of California. It allows us to contribute to the Nation’s defense in innumerable ways, from weapons development to the stewardship of the

Nation’s nuclear stockpile, and to homeland security. Our challenge

is now to raise the business practices to the quality of our science

and our weapons programs. We owe this to the American people

who, after all, are paying for it, and whose security is also dependent upon the work of the laboratory.

Finally, let me just say that Interim Director Nanos, joined by

many honest and hard working lab employees, are working diligently to bring about a change in the culture of the laboratory. The

challenge now is to solidify his efforts and to sustain them over the

long term.

In conclusion, I would like to apologize to you on behalf of President Atkinson, myself, and the University’s Board of Regents for

these business practice failures. They detract from the very real

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and valuable contributions that thousands of Los Alamos scientists,

technicians and support personnel are making to our Nation. We

are a stronger and safer Nation because of their efforts, and we regret what has taken place.

Mr. Chairman, I would be pleased to answer any questions that

you or members of the committee may have.

[The prepared statement of Bruce B. Darling follows:]

PREPARED STATEMENT OF BRUCE B. DARLING, SENIOR VICE PRESIDENT OF

UNIVERSITY AFFAIRS, UNIVERSITY OF CALIFORNIA

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:

• He has strengthened the independence of the audit function by having the auditors of all three laboratories report directly to him.

• He rescinded the so-called ‘‘loyalty oath’’ prior to its mention in the DOE Inspector General’s Special Inquiry on Los Alamos operations.

• He has commenced peer reviews of the critical audit and assessments functions

and redefined the internal audit reporting structures.

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• He has developed a plan to bring current the substantial backlog of audit and investigation work utilizing existing staff, UC audit managers, and outside experts. • He added an independent whistleblower hotline (1-800-403-4744) that improves

confidentiality in order to encourage employees to report improper activities

without fear of retaliation. This is intended to give employees confidence that

their concerns will be investigated fully and in a timely manner. He is also implementing at Los Alamos recent University policies for reporting and investigating irregularities and protecting whistleblowers from retaliation.

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:

• She organized a ‘‘red team’’ consisting of property, procurement and technology

specialists from Lawrence Livermore National Laboratory to conduct a high

level review of the organizational structure, business procedures and financial

systems of the procurement and property functions. • She is conducting an internal risk assessment of key financial and business processes, including a ‘‘cradle-to-grave’’ assessment of property acquisition. • She adopted a more effective transitional organizational structure in the Business

Division that includes enhancements to financial controls and business processes. • She will integrate the financial control and business process improvements with

the Enterprise Resource Project of the Laboratory. • She named a senior procurement officer from the University as interim head of

the Procurement Office and installed a new administrator to lead the purchase

card program.

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-towall 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.

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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

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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 con- cludes 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:

• $4.9 million in purchase card transactions either had not been electronically reconciled in a timely manner or were otherwise under question; • There was no systematic process to ensure that controlled property items purchased via alternative procurement methods (e.g., purchase cards, Just-in-Time

contracts), were entered into the property inventory; • There was an urgent need to evaluate the Laboratory’s business systems, financial controls and accountability; • There were ineffective processes to ensure that senior Laboratory officials were

notified of inappropriate business activity at the Laboratory. In addition, there

was an inadequate process to ensure that inappropriate activity, such as waste,

fraud, abuse or theft, was reported to Laboratory management, the DOE Inspector General, and UC officials. • There were unacceptable audit practices, both in terms of the timeliness of addressing audit findings and a serious backlog of unresolved repetitive audit

findings.

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:

• First, we placed a call to their attorney to arrange a meeting to hear their allegations and to understand their views of the Laboratory and its management;

• Second, we hired a former U.S. Attorney to contact the U.S. Attorney and the FBI

in New Mexico to seek a better understanding of the Laboratory’s on-going relationships with the FBI and the U.S. Attorney, and to discuss steps necessary

to solidify a good working relationship for the future.

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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:

• Los Alamos’ scientific and weapons programs continue to meet their objectives;

• Security operations of the Laboratory meet the nation’s expectations;

• The Lawrence Livermore and Lawrence Berkeley Laboratories, which the University also manages, meet the same high standards the University is setting for

Los Alamos;

• The University continues to strengthen its governance and oversight of the three

national laboratories it manages for the Department of Energy.

• And, lastly, that there are open and timely communications with the Department

of Energy, the National Nuclear Security Administration, this Committee and

Congress, as well as the media, to promptly apprise all interested parties of our

findings and actions.

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

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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.

Mr. GREENWOOD. Thank you. Thank you, Mr. Darling. Appreciate that.

Let me ask you a general question before I get a little bit more

specific. You have been here since 1 o’clock, and you have listened

to the other witnesses, and particularly the first panel talked about

a longstanding culture, an endemic system here where it was widely understood that, for years, the lab had been, ‘‘greening the valley.’’

The question is: How could this have been so widely understood

at the site and the University of California oblivious to it? I’m assuming that the University of California was oblivious to it, but

you tell me.

Mr. DARLING. Yes. I believe we were. I first heard the term

‘‘greening the valley’’ from Mr. Shiffer, the Director of Counterintelligence at Los Alamos on November 25 when we interviewed him.

That was a very troubling assertion, because the point was that the

lab is one of the largest economic forces in that part of northern

New Mexico, and therefore, he said it made a very attractive target

for thieves, drug trade or others who might want to prey on the

laboratory.

So that was a very troubling assertion. This was the first time

that I had ever heard about it. When I asked others in the University of California, President’s Office, it was the first time that they

had.

I will just say very bluntly that I don’t think the lab was forthcoming to the University about the extent of the problems that

have been revealed to date, and indeed on occasions rebuffed the

University when it sought to inquire and obtain further information.

Mr. GREENWOOD. Do you mean by that last statement with regard to these most recent allegations or do you mean that with regard to allegations in previous years?

Mr. DARLING. No, I mean with regard to the allegations that

have come forward today. I do know that at times the University’s

auditor sought to obtain information from the lab auditor. I know

that that was not forthcoming. I know——

Mr. GREENWOOD. With regard to these issues or in previous

years?

Mr. DARLING. These issues. Then I will just give you an example

of that. I think it was December 24 when suddenly a large number

of so called G-29 reports that are required to be filed by the audit

office suddenly landed on the University auditor’s desk for the first

time with no prior warning or no prior information. That was only

because we were moving, and we had already—although we did not

announce it until January 6, we had already made a number of the

management changes that I have outlined here on December 21.

Mr. GREENWOOD. At the conclusion of your written statement,

you noted Admiral Nanos’ efforts to change the culture at LANL.

Testimony we heard earlier today indicates that the culture probVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00082 Fmt 6633 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
75

lems so widely examined during the Wen Ho Lee and missing hard

drive investigation are alive and well.

What are your views on the culture that Admiral Nanos is attempting to change, and what is the University of California to effect that profound change?

Mr. DARLING. As you know, sir, my involvement with the laboratories is very recent. It dates only to January 8. So I cannot give

you a historical perspective, but what we have observed is that

there is a lack of accountability, personal and institutional; and I

think that is a cultural issue that needs to change. I think that——

Mr. GREENWOOD. To what would you attribute that? How does

that happen? What is your sense of how that came to be?

Mr. DARLING. I can only speculate, but I think the only thing

that I can say is to have a culture of accountability requires rigor,

discipline, and relentlessness, day in and day out, year after year

after year. And, sir, I do not think that was there. I do not think

the senior managers of the laboratory created those expectations,

enforced those expectations, and demanded those expectations.

Mr. GREENWOOD. Do you think it has anything to do with who,

if anyone, had anything at risk? In other words, in most enterprises, particularly in the private sector, shoplifting, theft by employees has a real and serious impact on the bottom line, and management works assiduously to rout it out, because it has to.

As you heard me ask Mr. Friedman and based on his response,

quite frankly, the University of California had, as I understand it,

nothing at risk economically, nor, obviously, did the management

at the laboratory. Everything that walked away from the laboratory just was picked up by the taxpayers, and there was no limiting

factor whatsoever.

Mr. DARLING. Well, I think the best way for me to answer your

question is to draw a comparison with our other two laboratories

and our 10 campuses of the University of California. The University is a $16 billion enterprise, one of the largest organizations in

the Fortune 500, were it a company. We do not permit that at our

campuses. We do not permit that at our other two laboratories, nor

do we see the extent of the problems at those other campuses or

laboratories that we have seen here at Los Alamos.

So I don’t think it is the matter of having financial resources at

risk. We are able to invest that without having financial resources

at risk at those other elements of the University.

Mr. GREENWOOD. And how do you know that it is not happening

at other labs that you supervise?

Mr. DARLING. The day that we—well, let me back up. The day

that the President asked me to take a team to Los Alamos, I included a representative of Livermore National Laboratory, the Executive Officer of the lab, for exactly that purpose. We wanted

someone who knew the labs.

From that day forward, we have informed both labs about exactly

what we found. We have asked them to look into the issues there.

We have asked the University auditor to pursue each of the issues

that were brought up at Los Alamos that you have heard about

today, and thus far—we are not completed, but thus far, we do not

see the extent of the problems that we’ve seen at Los Alamos.

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Mr. GREENWOOD. Following the allegations raised by Mr. Walp

and Mr. Doran, Dr. Browne sent an e-mail to LANL employees that

states in part, ‘‘Allegations currently being made about the laboratory by two individuals who do not know the laboratory’s operations or its people are simply wrong. I am confident that current

investigations as well as future reviews will find that allegations

of widespread theft, cover-up or interference with law enforcement

at the laboratory simply are not true.’’

The allegations, of course, were accurate. Do you agree that Dr.

Browne’s e-mail is part of the problem?

Mr. DARLING. I don’t know if it is part of the problem or if it is

reflective of the problem, but it is certainly true that it seemed to

have excused behavior and issues that should not have been excused. It seemed to have failed to look into issues in adequate

depth, because I believe that, had that happened, I think that this

information would have come out before Mr. Walp and Mr. Doran

were dismissed, and the laboratory could have done something

about it.

Mr. GREENWOOD. Over the past 3 months, the University of California has dismissed or reassigned a number of LANL employees.

Indeed LANL’s former Director, Dr. Browne, just referred to,

stepped down from his position as a direct result of the investigation of the matters before the committee.

Can you tell me why the following individuals moved from their

positions at LANL, their current status and, if you can, the salaries

of those who remain there: Dr. Browne, the former Director, what

is he doing now?

Mr. DARLING. He has returned to being a scientist. He is a very

eminent scientist in nuclear weapons and other scientific areas. His

salary was reduced. That was effective January 6. His salary was

reduced from $335,700 to $272,500.

Mr. GREENWOOD. Joe Salgado, the former Deputy Lab Director?

Mr. DARLING. Joseph Salgado was terminated from the laboratory on January 31 of this year.

Mr. GREENWOOD. Why was he treated differently than Dr.

Browne?

Mr. DARLING. Because he was responsible for the—in a very—he

was responsible for the business and operational aspects of the laboratory.

Mr. GREENWOOD. Wasn’t Dr. Browne responsible as well?

Mr. DARLING. Yes, he was, but he was responsible for, you know,

both the scientific and the business, and we felt the responsibilities

fell more squarely on the shoulders of Mr. Salgado.

Mr. GREENWOOD. Okay. Katherine Brittian, the former head of

Audits and Assessments?

Mr. DARLING. Yes. She was removed from her position as Director of Audits and Assessments on January 13 of this year. We are

reassigning her to another position. If that occurs, her salary will

decline from $175,000 per year to $140,000 per year. The

adjustment——

Mr. GREENWOOD. Say that again.

Mr. DARLING. From 175 to 140. I’m not sure what I said, but that

is what I meant to say.

Mr. GREENWOOD. I thought you said from 174 to 240.

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Mr. DARLING. I may have, and I apologize, if I did.

Mr. GREENWOOD. Stanley Busboom, former head of security.

Mr. DARLING. Yes. A position has been identified for Mr.

Busboom outside of the security area, but we are in negotiations

with Mr. Busboom’s attorney. So I can’t speak to what the status

is beyond that, but if that position—if he stays, salary will go from

$190,000 per year to $140,000 per year.

Mr. GREENWOOD. Now did he make the decision to fire Misters

Walp and Doran?

Mr. DARLING. I think that is a very good question, Mr. Chairman. I think he—he certainly signed the letter, and whether he

made the decision or whether Mr. Salgado made the decision, I

think there is some difference of interpretation about. I think both

might claim responsibility.

Mr. GREENWOOD. Well, why wouldn’t he be out on his ear?

Mr. DARLING. Well, I am told that he has a long track record of—

I’m too distant from this to speak from personal experience, but of

high service to the laboratory, and I should say that that is one of

the reasons—the policies provide that people who have had distinguished service and who are no longer effective managers but can

serve the lab in another role, not in a management role, have that

opportunity. But I would also just say that that is why we are in

negotiations.

Mr. GREENWOOD. Gene Tucker, former Deputy head of LANL security.

Mr. DARLING. Yes. He was removed from his position as Deputy

head of security on January 8 of this year. The situation is exactly

the same as for Mr. Busboom.

Mr. GREENWOOD. In negotiation?

Mr. DARLING. In negotiation. Salary would drop from 165 to 130,

$1,000 per year, if he were to stay. But negotiations are underway.

Mr. GREENWOOD. By the way, have you looked at whether these

salaries are comparable to the private sector, to begin with?

Mr. DARLING. Yes, sir. They are considerably below the private

sector.

Mr. GREENWOOD. I’m in the wrong business. Thomas Palmieri,

former Business Operations Division leader and Chief Financial

Officer?

Mr. DARLING. Yes. Mr. Palmieri was removed from the position

of head of—I’ll just call him the CFO for that shorthand title on

January 24 of this year. His salary, effective March 2, will decline

from 180,000 to 140,000, and he would become manager of the

budget but not of all the financial operations. He has a long distinguished history in doing budgeting and is viewed as someone who

is very capable in that area.

Mr. GREENWOOD. As part of UC’s effort to address LANL’s most

recent problems, the University has retained several law firms,

consultants, independent investigators and accountants. Does UC

intend to seek reimbursement from the Department of Energy for

the costs of these firms and, if so, on what grounds does the University intend to base such claims?

Mr. DARLING. We do not intend to seek reimbursement from the

Department of Energy.

Mr. GREENWOOD. Whose idea was that?

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Mr. DARLING. The President’s and mine.

Mr. GREENWOOD. During your own inquiries, did you learn of

any support——

Mr. DARLING. I should also say—excuse me for interrupting—but

the Board of Regents shares that opinion as well.

Mr. GREENWOOD. Okay. During your own inquiries, did you learn

of any support for the claim made by certain LANL officials that

the FBI and U.S. Attorney’s Office is dissatisfied with the assistance provided to them by Misters Walp and Doran?

Mr. DARLING. We have not, and I would say that this is a very

important issue, because one of the reasons given for dismissing

Mr. Walp and Mr. Doran was exactly that matter. So on December

18 when we met with 10 lab—on our second visit to Los Alamos

to meet with 10 lab managers to inquire about the dismissal of Mr.

Walp and Mr. Doran, that was an issue that was very much on our

mind.

So we sought immediately thereafter to open a dialog with the

U.S. Attorney and with the FBI in New Mexico to find out what

their perspectives are. That has not yet occurred. I believe it is occurring in early March. Our Deputy General Counsel and the

former U.S. Attorney that we have hired to assist us in opening

that door will be meeting with them for exactly that reason.

Mr. GREENWOOD. And who was it that said that, in fact, the FBI

and the U.S. Attorney’s Office were dissatisfied with the gentlemen?

Mr. DARLING. I may get this wrong, but there was a—I believe

there was a November 18 meeting between Mr. Salgado and Mr.

Dickson of the laboratory with the Special Agent in Charge of the

FBI and the U.S. Attorney. Upon return from that meeting, there

were two different versions of what the FBI had said.

Mr. Salgado told us that the FBI thought that the laboratory had

blown the so called Mustang case, the Lillian Anaya attempt to

purchase a Mustang using a purchase card, and he attributed the

blame to Mr. Walp and Mr. Doran for not pursuing it aggressively

enough.

Mr. Dickson returned from that meeting and told us in our private interview that he felt the FBI was saying that Mr. Salgado

had blown the case by pushing too hard and preventing the FBI

from doing the necessary investigative work that it needed to do

before having a case that it could refer to long enforcement officials.

Mr. GREENWOOD. Thank you, sir. The gentlelady from California,

Ms. Eshoo.

Ms. ESHOO. Thank you, Mr. Chairman. Thank you, Mr. Darling,

for the work that you have done and for your testimony today.

Given the testimony of both Mr. Walp and Mr. Doran—and I

note that Mr. Doran’s son is here. It is your son with him?

Mr. DARLING. Louis.

Ms. ESHOO. I think that he has a lot to be proud of in his father.

Talk about role models.

Given their testimony relative to what is needed in addition to

some of the action that’s been taken relative to personnel, and I

have found it quite interesting the list that you just went through

with the chairman, do you agree that more need to go?

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Mr. DARLING. What I’d like to do, Congresswoman Eshoo, is reserve judgment until we have had an opportunity for the external

review team that is looking into procurement and the Ernst &

Young consultants that are looking at all of the business practices

to report on their findings and recommendations. But I would say,

as Mr. Friedman said, this is only a beginning.

I would urge you to also reserve judgment about our performance, and I would urge you to be skeptical about our reforms until

you have had a chance to see us implement them over time in a

sustained way.

Ms. ESHOO. The reason I raise the question is because I think

that it was offered as a reform, in the reform column, and it was

relative to culture and how this is going to change and that, if it

is going to change, that that needed to be done. So that’s why I

offer the question to you.

Do you believe that there needs to be any outside security company that is brought in rather than the internals that you have?

Mr. DARLING. I do understand——

Ms. ESHOO. Internal mechanisms.

Mr. DARLING. Yes. I do understand why Mr. Walp and Mr. Doran

have expressed skepticism about transferring their former office,

OSI, into Audits and Assessments, given the past history. So I

share on a historical perspective their concerns.

I will tell you that the University of California auditor who is

heading up that office at the moment has done a number of the

things I indicated to you, rescinding the loyalty oath in the audit

office, establishing hotlines, demanding that the auditors act in the

way that they should. He is an individual who is above reproach.

He has had 22 years of experience at KPMG and auditing financial

and governmental institutions. But again, we have begun, and I

think over time you should ask us to prove to you that we are

going to make the changes that will cause Mr. Walp and Doran

perhaps to change their minds over time.

Ms. ESHOO. Did you find the timeframe that the Inspector General mentioned when I asked him the question about the amount

of time that it would take—does that fit with what—the reforms

that you are putting in, and then a review of them, 6 months to

a year?

Mr. DARLING. I think 6 months to a year would be a very good

time for us to come back and have this further discussion and for

you to ask us not only what we have done but how we have sustained it and how we intend to sustain it for the future.

Ms. ESHOO. Are there golden parachutes that are offered to the

employees that are asked to leave?

Mr. DARLING. Well, there may be negotiated settlements. I indicated that we——

Ms. ESHOO. Well, I mean——

Mr. DARLING. But no golden parachutes that I know of.

Ms. ESHOO. Well, what is a negotiated settlement? Is it something other than what someone’s salary is? I mean, do they get

something more than their salary when they are asked to leave?

Mr. DARLING. The University, in negotiations—the University—

if employees have a long service with the University, the UniverVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00087 Fmt 6633 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
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sity upon settlement will occasionally contribute as much as 1

month of salary per year of service.

Ms. ESHOO. Well, the reason I ask this is obvious. The chairman

asked the question about, you know, why wasn’t someone, whomever it was, just put out of the organization. So it seems to me that,

if in fact this is going to be reformed, that fresh air is brought in.

I mean, you have the job of Pope John XXIII who had to throw

open the windows and say that we are going to have some fresh

air come through this institution, which is a very difficult thing for

institutions to do, first to acknowledge, which I applaud you for

doing.

It seems to me that, if part of the organization looks over their

shoulder and sees people that have not served the organization

well being somehow rewarded, then that doesn’t clean out the culture that we want to reform, you see. That is the intent with which

I ask the question, and while I don’t want to get into specific personnel issues, that is why I offer it. So I——

Mr. DARLING. Well, I appreciate—sorry to interrupt. I appreciate

your raising the issue. There are also a number of other individuals

who have been terminated whose names I was not asked about, including the two individuals involved in the TA-33 case, including

Mary Wood, and there are a number of other names. But I am very

sympathetic with your point. Indeed, I have been making the same

case internally.

Ms. ESHOO. I think it needs to be taken very seriously, because

we don’t want to come back here and revisit these things.

My final question, and the same question I have asked of everyone: Do you have any knowledge of, in terms of these shortcomings,

the abuse, the fraud, that can be connected to a diminishment of

the national security of our country?

Mr. DARLING. Thank you for asking the question. I do not, and

I would like, if I may, just give you a few points of recent reviews.

In August the Department of Energy site office reviewed security

at Los Alamos. In December there was an in depth review by the

DOE office headed by Mr. Glenn Podonsky, I’m told, involved 30

to 45 experts who concluded that there was effective national security performance.

Third, in January we brought in an outside firm that we use to

assist us with security, a firm by the name of ManTech Aegis, to

review Los Alamos and Livermore and to help us improve any reporting of security incidents. They did not identify any issues.

We also brought in security experts from Lawrence Livermore

National Laboratory to Los Alamos, again to look at this issue. We

have had a work group on cyber security probing to make sure

that, in terms of computer and other kind of access, we don’t have

vulnerabilities, and we are issuing this week a strategic plan for

security at both of our national security laboratories. It has been

in development for the last year.

As I indicated, we have removed the Director and the Deputy Director of the Security Division, and we have also examined every

one of the security issues that Mr. Walp and Mr. Doran raised with

us in our last meeting in late January to make sure that we left

no lead uninvestigated in exploring these issues.

Thus far, we have not found an issue, but I can’t go beyond that.

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Ms. ESHOO. Thank you. Has my time expired, Mr. Chairman?

Mr. GREENWOOD. Well, apparently, we didn’t start the clock.

Ms. ESHOO. All right. Can I ask one more quick question?

Mr. GREENWOOD. Certainly.

Ms. ESHOO. Thank you very much. Can you comment on—let me

just back this up with an observation first before I ask the question, very quickly.

That is that, if in fact—going back to the culture of an organization, if whistleblowers are not honored, respected, and paid attention to, that sends a very broad and bad message. Can you enlarge

upon the whistleblower issue and how people in the organization

will have confidence that, when they make an observation and they

act on it, that there won’t be punitive action taken against them.

In fact, I don’t want to say celebrated, but honored—honored. It

takes a lot of guts to step up and say something.

So there has to be confidentiality. In many ways, there is a parallel to be drawn with the whole area of sexual abuse in the workplace, and I’ve had some experience in setting up systems in what

I did before I came to the House.

So can you tell this committee with some confidence what you

have set up and why you have the confidence that it is going to

work, because it has these principles built into it?

Mr. DARLING. Yes.

Ms. ESHOO. Thank you.

Mr. DARLING. Congresswoman, I agree that terminating a whistleblower sends a chilling message. It creates a climate in an organization that is ultimately very destructive to the organization

itself and to the mission that it carries out.

So we have attempted to, both at the University and at the three

labs that we manage for the Federal Government, to set up whistleblower information and reporting and protection systems to accomplish the very goals that you have outlined.

Now the University has had in place for some time a whistleblower policy. It was just updated in October because of a new

State law that was passed in California to strengthen that, and it

does apply to our three labs, including the one in New Mexico, because we as the contractor in California impose those same requirements.

What it provides is that any person may report allegations of improprieties, whether they are known or suspected, that any good

faith disclosure automatically triggers an investigation. It automatically triggers protection of the individual, and it also provides

for a follow-up system so the individual has a way to find out what

action the institution is taking on it.

Similarly, for anonymous whistleblowers—for example, we have

implemented a Pinkerton Company whistleblower hotline. An individual may call up on that hotline, never mention their name, provide the information. Pinkerton will relay it immediately to the

University’s corporate audit office. A case number will be assigned

to it. The individual who called anonymously will be informed of

that case number, and the individual may then call to follow-up to

find out what has been done on that case number and still maintain the individuals anonymity.

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Furthermore, we will provide information to Pinkerton so that,

when that individual does call, they will know on a regular basis

what the status of that is.

Second, we have tried to make reporting very easy. It doesn’t

have to be in writing or to a designated person. We want people

to complain through the chain of command, because as I told your

investigators, if people do not step forward, if people do not express

their concerns, it really does create a chilling environment, and all

of us have the obligation to do that up the line, and we also have

the obligation to create an environment in which people who work

for us may do that, and we must listen to them carefully, because

if not, we have the kind of incidents that occur here.

I will just say that Admiral Nanos has been very open about this.

He has held a number of all-hands meetings at the lab where more

than 700 people at each time come in to an auditorium. He said

he has been receiving regular e-mails from people. So he is reassured that, at least for the time being, people feel comfortable.

They are coming directly to him.

Our auditor is also receiving those. I can’t remember. We have

received in the last few weeks 156 different reports from people.

Now that may send a shock wave through you, but I think that is

a very, very healthy statement.

Ms. ESHOO. Thank you, Mr. Darling. Thank you again, Mr.

Chairman, for your courtesy.

Mr. GREENWOOD. The gentleman from California, Mr. Radanovich.

Mr. RADANOVICH. Thank you very much, Mr. Chairman. Mr. Darling, thanks for being in front of the panel today. Please forgive me

for being gone for a portion of this hearing. We were having a security briefing on the House floor, and some of these questions you

may have answered, but I just want to kind of reiterate some of

them just to make sure, just so I am clear that there were no confirmed security breaches or loss of classified information as a result

of these reported thefts at Los Alamos. Am I correct?

Mr. DARLING. That is correct, Mr. Radanovich. I think you

walked in as I was walking through the list of security steps we

have taken to ensure that. So I won’t repeat it, but the answer is

we know of nothing.

Mr. RADANOVICH. Okay. And in your protocol in the structural

steps that you have taken for stronger oversight on the laboratory,

I would imagine that would be of general—well, say, for example,

there was a Frank Dickson, who is LANL’s long time General

Counsel, who could not give a straight answer about the proper

means to report a potential situation of fraud, waste, and abuse.

I assume that you have taken the time to explain all that.

Mr. DARLING. I have not, and I appreciate your raising that. On

our November 25 visit one of the disturbing issues that we faced

was, when we asked how do people report issues, and how do they

get followed up at the laboratory, we found a disconnect between

the Office of Security Investigations, the Audits and Assessments

office, and the General Counsel’s office, and I believe that is one

of the reasons that Mr. Walp and Doran found the kind of resistance that they did, because they were both people—one office elVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00090 Fmt 6633 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
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bowing the other out of the way, and other cases where they simply

weren’t addressed at all.

So we are—that is why we have put all of this into the Office

of Audits and Assessments under new leadership to try to make

sure that we address that for the long term in a clear, simple, easy

way that every employee will know how to pursue.

Mr. RADANOVICH. Okay, thank you. You may have addressed this

one also. I do need to ask it. Am I correct in understanding that

the University and the laboratory were both investigating through

internal and external review teams the procurement fraud issues

at Los Alamos as early as August 2002, several months prior to the

publicity surrounding Mr. Walp and Mr. Doran, and this committee’s own investigation? Was this a case of your sweeping the

issues under the rug until they appeared in papers?

Mr. DARLING. No. I don’t—again, my involvement is quite recent,

but my understanding, as soon as the lab became aware of purchase card programs in August and the University was notified, we

demanded that an external review team chaired by two former

Federal Inspectors General and PricewaterhouseCoopers get involved to review that.

So I don’t believe that the University of California, Office of the

President, did anything other than act immediately to bring an outside group in to review these issues the moment it heard about

them.

Mr. RADANOVICH. Okay. Thanks. Also, in the case of Lillian

Anaya who tried to buy the Mustang, I hear she never got it, but

what was the status of that investigation as it is right now, briefly?

Mr. DARLING. Yes. My understanding, and I hope I am clear in

my own mind about this—forgive me if I misstate the matter, but

my understanding is, first, the matter was referred to the FBI and

the U.S. Attorney’s Office. I believe—I hope I am right in saying

they decided not to prosecute.

My understanding was then it was referred to the DOE Inspector

General, and just, I believe, either earlier this week or the end of

last week, it was referred back to the lab. We are now pursuing

the issue. We have put together a case review board to investigate

the charges, and we will be taking action, personnel actions, based

on that case review board’s determination.

Mr. RADANOVICH. Thank you very much. Now we all agree that

the missteps and the theft and fraud is intolerable under situations

like that, but I do want to kind of want to put an emphasis on the

research, the critical research that is important to national security

that is conducted in the UC labs right now.

Could you do me a favor and summarize the key areas of research currently underway at Los Alamos and the extent to which

they relate to counterterrorism and homeland security missions,

and also please highlight to me to what extent a change in the

management during wartime would risk disrupting research.

Mr. DARLING. Yes. I will just cite three examples. The Los Alamos laboratory has trained the International Atomic Energy nuclear inspectors who look at how it is that nations use nuclear reactors and what they do with the spent fuel rods. Of course, that is

a concern, because one doesn’t want to have those available to be

transformed into nuclear weapons.

84

Second, both of our laboratories in cooperation have developed a

very small miniaturized biological threat detection devices which

have been installed around this city and around the 2002 Winter

Olympics, for example, to detect any potential biological threats

through airborne means.

Third, we have developed a so called EMP weapon, electromagnetic pulse weapon. You may have read about it in the newspaper recently, that if we do send in troops to Iraq, this weapon

will enable the U.S. forces to knock out any system that uses either

electricity or computer chips and, therefore, disable the ability of

Iraqi or any other opponent forces to communicate and coordinate

their response to a U.S. attack. I am told that it does that without

harming individuals.

So these are just a few examples, but you know, the core mission

is really developing nuclear weapons in the past and then maintaining the current stockpile of nuclear weapons so that, if they are

ever called upon to be used, we are able to do that.

In addition, we monitor nuclear proliferation in countries around

the world to make sure that the U.S. is fully informed about the

status and, as Congresswoman Eshoo said earlier, it was the Lawrence Livermore lab that notified the U.S. Government about the

developments in North Korea.

As to what would happen if the contract were changed, let me

just say that the University employs the vast majority, if not all,

of the Nation’s nuclear weapons physicists. The Nation as a whole,

44 percent of the Nation’s PhDs in science and engineering are

over the age of 50. So we are going to experience a generational

shift.

That is true also of the Nation’s nuclear weapons designers. The

older ones are the only ones who have ever had a chance to test

a nuclear device, because the Nuclear Test Ban Treaty has since

prevented any further testing.

The younger scientists who have come forward to develop weapons have only designed them on computers. They have never seen

them actually work. The younger ones are worried that, if the University’s contract expires or the University is terminated, that the

older ones will do what many of them have indicated they might

do, which is to simply retire, and we would leave the Nation

denuded of one of its most strategic scientific and weapons manpower forces that we have.

Mr. RADANOVICH. Mr. Darling, how long has UC had the contract

to do this research?

Mr. DARLING. It began in 1943 when the U.S. Government

turned to Ernest O. Lawrence, the Nobel Laureate in physics, and

at the Berkeley campus of the University, and asked him first to

organize our radar effort in World War II, and then asked him to

develop an atomic bomb, because the Germans had one of the leading nuclear fission research programs.

They controlled most of the heavy water supply of the world.

They controlled occupied France where the Curie laboratory and

the Curies were, and they had an armaments and munitions capability that was frightening to the rest of the world, and had we not

developed the atomic bomb first, I think all of us only have to

85

pause and imagine what our world and our lives would be like if

the Nazis had done so first. So it has been since 1943.

Mr. RADANOVICH. And as I understand it, the contracts dome due

every 5 years, a 5-year period, and it’s really not under competitive

bid?

Mr. DARLING. That is correct.

Mr. RADANOVICH. I’d bid on it but, you know, I had the opportunity. I chose Congress instead of nuclear physics. But can you

answer for me or give me other examples of different types of contracts like these that are so specialized that they are not put up

for bid?

Mr. DARLING. Yes. I’ll give you one example. Admiral Nanos who

used to head the Navy nuclear weapons program has indicated that

Lockheed Martin has had a contract for the Trident missile program for more than 20 years. The reason is that, for these very

strategic assets of the Nation, it is not like buying shoes where you

can find quality and determine the best price.

You have an asset. You have given a challenge that is one of the

most difficult challenges that human beings know how to achieve,

and turning over the contractors on any kind of a regular basis creates a real threat of disruption to our basic security.

So Lockheed Martin has had this Trident contract, I’m told, for

more than 20 years, and there may be other examples that we

could give you later. That’s the one I know off the top of my head.

Mr. RADANOVICH. One last question, if I may. Is the University

making a profit off these contracts?

Mr. DARLING. The University, from 1943 until today, has done

this on a no gain, no loss. We have not wanted to receive any additional money beyond our costs, and we have not wanted to spend

any University money beyond what it cost to run these programs.

Mr. RADANOVICH. All right. Thank you very much, Mr. Darling.

Appreciate your testimony. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman. Just on that

last point to clarify something: I was told by our staff that the University receives a performance fee in the vicinity of $8-$9 million.

Is that——

Mr. DARLING. That is correct. But can I explain how it’s used, to

show you?

Mr. GREENWOOD. Yes.

Mr. DARLING. The University decided it never wanted to be financially dependent upon managing these laboratories, partly because at the beginning it was viewed as something that would just

be done for a few years, and after the war was over, there would

be no further need for nuclear weapons.

So the University does two things with its fee. One is it pays for

the Office of the President’s Oversight Office for the laboratory administration, and then it takes the majority of that money, and we

give it back to the Directors of the two nuclear weapons laboratories so that they may use it to do science where a scientist has

a very good idea. They are not yet able to obtain funding, and so

initiate new scientific programs that in many cases have turned

out to be the core, the bedrock, of future nuclear weapons work.

So we put it all back into the mission for which the Nation has

hired us, in the first place.

86

Mr. GREENWOOD. Okay. A couple of more questions that I have,

and then we will let you go, Mr. Darling.

What did Mr. Salgado tell you about his concerns about Walp

and Doran obtaining whistleblower status?

Mr. DARLING. He informed us that the timing of their termination related to an impending Washington, DC, DOE Inspector

General visit to the laboratory, and that he was concerned—he felt

that their performance was not adequate, and he was concerned

that, if they were allowed to meet with the DOE inspector on that

occasion, that that would give them in some technical sense whistleblower status, and it would make it harder for the laboratory to

terminate them for the reasons they felt they should be terminated.

Mr. GREENWOOD. Okay. You made reference to the loyalty oath

that you have dispensed with. Could you tell us what that is?

Mr. DARLING. I don’t recall it well, but I think the DOE Inspector

General’s report said that, in addition to the professional standards

and code of conduct of auditors, which all auditors in all organizations follow, there was a statement that one should—that auditors

should be loyal to the laboratory. That’s a despicable comment.

That is unacceptable. It is intolerable, and it is outrageous.

Mr. GREENWOOD. Where did it come from? Was that the University that inserted that?

Mr. DARLING. No. It was a Los Alamos audit employee, and I’m

glad you asked the question. I don’t know, but I will pursue it to

find out who put that in.

Mr. GREENWOOD. And to your knowledge, do any of your other

facilities that you manage have comparable loyalty oath?

Mr. DARLING. I’m not aware of it, and it would be reprehensible

if we did, and we will stop it immediately, if we do.

Mr. GREENWOOD. Yes, I would appreciate if you would check on

that.

My final question is this. With regard to cases of, for instance—

I think her name is Mary Wood who apparently has been accused

of using a purchase card to obtain funds at a casino, and I believe

there were $2500 worth of inappropriate charges they attributed to

her. Is the University making an effort to get recovery of funds in

these cases such as hers?

Mr. DARLING. I need to look into that. I don’t know the answer,

but we certainly should. And now that you have brought up the

question, we will investigate that and see if we can do so.

Mr. GREENWOOD. I’m asking you one more question now, because

I am curious, because Mr. Deutsch is on his way here, and he will

be here in a second.

Gene Tucker, formerly Deputy Director of LANL Security, told

Mr. Walp that the money involved in the situation was UC money

and not taxpayer money. So LANL could handle this matter in any

way it saw fit. Do you agree with that statement?

Mr. DARLING. No, I do not. The University of California is a public trust organized under the constitution of the State of California.

Every dollar, whether it comes from public or private sector

sources, should be treated as though it were a public dollar and

given the utmost respect.

87

Mr. GREENWOOD. Okay. What is the status of the Lillian Anaya

case involving the attempt to purchase a Ford Mustang, which I

believe was valued at about $30,000?

Mr. DARLING. Yes. First of all, that purchase never occurred, because, fortunately, a check and balance did work, and that is that

the Bank of America, I believe it was, did not permit the transaction to go through. So there was never a car delivered, and there

was never any loss of money by the lab or the U.S. Government.

As I think I said to Mr. Radanovich, the case was referred to the

FBI and the U.S. Attorney. I believe they did not choose to prosecute, and—oh, I’m sorry. I was thinking about—I am confusing

this with the Clarissa Rodriguez case. Excuse me. Am I right? I’m

glad they think I’m right, because I’m a little confused at the moment.

So I believe it has been referred to the FBI and the DOE Inspector General, and I’m sorry, I just don’t recall what the status is,

but I believe it is with them.

Mr. GREENWOOD. What about the Rodriguez matter then? What

is the status of that?

Mr. DARLING. As I informed Mr. Radanovich, it has now been

back—it is back in the hands of the laboratory, and we are pursuing a personnel action through our case review board.

Mr. GREENWOOD. Now I’m getting you even more confused. The

first case that I asked you about was the Anaya Mustang case.

Mr. DARLING. Yes, and here I have——

Mr. GREENWOOD. The Rodriguez case is a separate case. Can you

tell us the status of that investigation?

Mr. DARLING. Yes. So the Anaya case is the Inspector General.

As of the 19th of February, we are commencing an investigation to

determine whether discipline is appropriate and what it should be,

and that is for Lillian Anaya.

Clarissa Rodriguez, I am now recollecting, was the woman who

falsified a travel voucher. She was allowed to resign by the laboratory, I believe, inappropriately. There are other people who have

different opinions. And she is prohibited—she was allowed to retire-excuse me—yes, resign in lieu of termination. She is prohibited

from being employed by the laboratory for a period of 7 years, and

I need to see whether we are seeking—no, no, I’m sorry. We did

receive $1800. Her check did clear, and the laboratory has been repaid. Sorry, I’m stumbling a bit here.

Mr. GREENWOOD. That’s okay. Are criminal prosecutions anticipated in either one of these two cases?

Mr. DARLING. Criminal prosecution? We have reported both of

them to the proper law enforcement authorities, and my understanding is that that is a decision that rests with them and that

we really have no jurisdiction to be able to determine that.

Mr. GREENWOOD. Okay.

Mr. DARLING. The Clarissa Rodriguez case, I’m told, as of February 19 does reside with the FBI. That is the $1800 case. We are

getting a little below my level of knowledge here.

Mr. GREENWOOD. Recently, the Inspector General at Department

of Energy issued a report regarding firearms inventory control at

LANL. The IG concluded, ‘‘Significant internal control weaknesses

88

exist in the receiving process and the administration of the firearms inventory.’’

Further, the report noted that, ‘‘The inability of LANL to provide

accurate firearms inventory, the lack of reconciliation of the LANL

inventory with the protective force inventory, and the acknowledged problems in the process for receipt of firearms and their inclusion in the formal LANL inventory raise additional doubt about

the property control system at LANL.’’

Does anyone at LANL have an accurate account of the lab’s firearms?

Mr. DARLING. I’m told, first of all, that all of the firearms were

properly controlled in secure areas and were never out of control.

There was, clearly, a lack of proper systems inventory accountability. I am told, for example, that the name and make of each of

the weapons was listed rather than saying weapon, and then with

a subheading. So when they searched the data base, they were not

able to find them on the data base, but they were under proper

control.

I’m told that, although there was an initial large discrepancy between our records and the DOE’s, I’m told those have been reconciled, and that we now understand that they are not only under

control, but we have the full count.

We will not permit anyone to purchase a firearm in the future

without proper management authority, and they will have to be accounted for in the way that we and you would expect of us.

Mr. GREENWOOD. The gentleman from Florida.

Mr. DEUTSCH. Thank you, Mr. Chairman.

The Deputy Director of the laboratory has been removed, but the

legal counsel, who insisted that Mr. Walp and Mr. Doran be fired,

is still in his position, even though, obviously, his role in this issue.

Could you explain why that decision?

Mr. DARLING. Yes. As I explained a few moments ago, one of the

confusing points about the dismissals of Mr. Walp and Mr. Doran

was a difference of opinion between the general counsel and the

principal deputy director of the laboratory about the FBI’s and U.S.

Attorney’s views of Mr. Walp and Mr. Doran’s performance. That

is something we sought immediately to try to find out the FBI and

U.S. Attorney’s perspective.

That meeting will take place early next month. I think that

meeting will provide us the kind of information about Mr.

Dickson’s role that will allow us to make a decision. But just like

with Mr. Walp and Mr. Doran, we feel the need to collect the information before we make a decision. So we are reserving judgment.

Mr. DEUTSCH. I guess the question really is focus, apparently at

least, based upon what we are aware. This gentleman actually was

working on a daily basis to try to get these two gentlemen fired.

Mr. DARLING. I don’t know that, but I do know that there was

certainly—I think that the general counsel, instead of providing

legal advice, also had an operating role. I think it confused the role

of the general counsel at the laboratory, and that is among the

issues that we will be looking at and discussing as we go forward.

Mr. DEUTSCH. You stated in your testimony that only $3,000 in

fraudulent purchase card purchases had been referred to the auVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00096 Fmt 6633 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
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thorities. Our staff, just by looking at invoices, there are big differences between allowable purchases and legitimate ones.

If your operation didn’t direct me to buy something, I’d buy it

myself. Whether it was allowable or not is irrelevant. So how do

you make that distinction between allowable and legitimate?

Mr. DARLING. I’m sorry, Mr. Deutsch. I don’t remember that in

my testimony.

Mr. DEUTSCH. It’s actually apparently—you know, what I’m told

is in your written statement, it actually is included in that. I mean,

at this point——

Mr. DARLING. I would not make a distinction between allowable

and appropriate.

Mr. DEUTSCH. All right. But apparently, again the audit did. I

mean, at this point—you know what. At this point on that particular issue, you know, if you want to get back to us in writing

on that.

Mr. DARLING. Thank you, sir. I’d be pleased to.

Mr. DEUTSCH. We’ve been told that no other University operation

has a purchase card program where people can go to local vendors

and give their Z-number and buy things. Is that correct?

Mr. DARLING. You mean no other University of California?

Mr. DEUTSCH. No other operation at the University.

Mr. DARLING. I believe that is true. To the best of my knowledge,

yes.

Mr. DEUTSCH. And we have been told that this is a way to support local vendors. I mean, is that the purpose of it?

Mr. DARLING. I believe there are two purposes. One is, I believe,

under the contract we are required to provide business opportunities for business in the immediate area around the laboratory.

Second, because when the lab—the lab was purposely sited there,

because it was a remote area for both security reasons and given

the nature of the work, and over time as the lab has grown, it

needs a business and other kind of infrastructure nearby to meet

its needs.

This was an attempt to do that, but the controls are not adequate, and that is something we are having an external review

team review now as they expand their review beyond the purchase

card program into all areas of procurement.

Mr. DEUTSCH. And again, I mean, obviously, it is self-evident

that the other way is to help the local economy.

Mr. DARLING. Absolutely.

Mr. DEUTSCH. Again, just to save a little bit of time, my understanding is Pricewaterhouse is going to be looking at the whole

process of this local vendor agreement where right now, I guess,

there is no oversight on that. Is that also correct?

Mr. DARLING. When you say no oversight——

Mr. DEUTSCH. Well, we have been told that no one looks at what

is being bought through the local vendor agreements. Is that accurate?

Mr. DARLING. Well, Mr. Walp and Mr. Doran were extremely

helpful to us in understanding the local vendor agreements and

both how they have been used and perhaps how they have been

misused. So that is an area that we immediately responded to, we

are looking into.

90

We have brought in PricewaterhouseCoopers to look at it, and we

will be—we have already begun to tighten up what can be purchased and making sure——

Mr. DEUTSCH. Let me just ask a quick question. Could you purchase Nike sneakers?

Mr. DARLING. Pardon me?

Mr. DEUTSCH. Nike sneakers?

Mr. DARLING. Sir, you’ve gotten beyond my level of detailed

knowledge. I do know that safety boots, safety goggles, and other

things that are needed on a very quick turnaround time, for obvious reasons, are available to be purchased, but I cannot tell you

about whether Nike——

Mr. DEUTSCH. Just yesterday our staff discovered that, until August of this year, lab employees could get a travel advance just by

filling in an electronic form. It did not require any supervisory approval.

One of your former employees just did that—in fact, did that,

and we still have to find the form. That employee falsified a travel

statement and converted $1800 in Federal funds to a personal use

which, obviously, are Federal crimes. The lab Human Resources

Department, reporting this to Mr. Walp’s unit but without checking

with anyone, has decided that it would take a restitution check,

and allowed the employee to resign before any investigation was

done, and no investigation was done. Would you view that as an

appropriate decision?

Mr. DARLING. No. I have told the committee staff, and I will say

it to the committee as well, I do not believe that was an appropriate decision. I believe that she should have been terminated.

Mr. DEUTSCH. Okay. My last question: There is a former whistleblower from the S Division who was fired. An administrative law

judge found that the dismissal was based on untruths of Mr.

Busboom and Mr. Tucker. During this investigation, we heard from

a person involved in the lab’s action that he just went along with

the others.

We want to look at this case, and we would like your cooperation.

The man’s name is James Russell. Are you familiar with that at

all?

Mr. DARLING. I am not, but we would be happy to cooperate with

you.

Mr. DEUTSCH. All right. Thank you very much.

Mr. GREENWOOD. The Chair thanks the gentleman. The chair

would ask unanimous consent that the opening statement of Representative Anna Eshoo be incorporated into the record. Without

objection, it will, and also unanimous consent that the disk, the CD

with the photographs presented by Mr. McDonald be part of the

record. Without objection, it will be.

Without objection, a statement by Mr. Waxman will be incorporated into the record as well.

With that, we thank you again, Mr. Darling, and the other witnesses for their participation.

This hearing is adjourned.

Mr. DARLING. Thank you, Mr. Greenwood, Mr. Deutsch, and

other members of the committee. Thank you very much.

[Whereupon, at 5:19 p.m., the subcommittee was adjourned.]

(91)

INVESTIGATION OF MANAGEMENT PROBLEMS

AT LOS ALAMOS NATIONAL LABORATORY

WEDNESDAY, MARCH 12, 2003

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ENERGY AND COMMERCE,

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2322 Rayburn House Office Building, Hon. James C. Greenwood

(chairman) presiding.

Members present: Representatives Greenwood, Walden, Deutsch,

and Davis.

Also present: Representative Radanovich, Markey, Eshoo, and

Udall.

Staff present: Ann Washington, majority counsel; Michael

Geffroy, majority counsel; Yong Choe, legislative clerk; Edith

Holleman, minority counsel; and Turney Hall, minority staff assistant.

Mr. GREENWOOD. The hearing will come to order. I ask our

guests to find seats, please. Let me alert everyone to the fact that

Mr. Deutsch and I will make opening statements. Then, unfortunately, we are going to have to recess for about a half an hour and

come right back and take testimony. I apologize for that in advance. The Chair recognizes himself for an opening statement.

This morning we embark on the second day of our hearing concerning reports of mismanagement and theft of Government property at Los Alamos National Laboratory. Two weeks ago we heard

very troubling testimony from investigators at the lab who uncovered an amazing level of problems given the sensitive operation at

this facility.

For example, at that hearing we were presented with a pictorial

essay on the alleged theft perpetrated by two LANL employees to

include sleeping bags, cots, coolers, automatic gate openers, compact disks describing how to operate lock-picking equipment, and

Slim Jims, devices used to break into locked cars.

I am still waiting to hear how one could possibly explain the use

of these items for lab related business. Or, to go a step further, to

hear if anyone even asked these employees to explain their questionable purchases.

Although we have evidence of a few peripheral inquiries into

some of their actions, it does not appear that anyone took a serious

look at this until an employee was forced due to lab securities in

action to go to the FBI.

92

To take another example, committee staff recently received a report generated in December 2002 that identifies all the lap top

computers purchased in fiscal years 2001 and 2002 that did not get

the property barcode. The report identified more than $1.5 million

in lap tops all deemed sensitive property that were not correctly

tagged which meant the computers would not be tracked in LANL

inventory.

Of course, we also have the treatment of the two expert investigators who did attempt to bring procurement and theft problems

to management only to be shown the door for doing so. These are

just a few reasons why this committee has serious questions about

procurement and property management oversight at LANL.

Our search for answers leads us, first of all, to the lab’s management. We will turn today to the people who are supposed to make

sure the problems we have been investigating did not happen. We

will hear their response to the evidence and allocations of theft and

abuse of funds and property.

We will also hear from the people with responsibility for the lab’s

overall management which will allow us to review more broadly the

effectiveness of oversight of the lab by both the University of California and the National Nuclear Security Administration.

We have serious questions on this level as well. The NNSA’s fiscal year 2000 appraisal of Los Alamos states in part, ‘‘Notwithstanding the NNSA original assessment of outstanding in the procurement and property management areas, systemic weaknesses

demonstrated in these two areas dictate that these functional areas

should be rated no higher than excellent.’’

I have to ask how could NNSA rate any part of the procurement

and property management areas as excellent given the testimony

we heard 2 weeks ago from Jaret McDonald, the man who frustrated by lab inaction, brought his concerns to the FBI.

Our witnesses today can expect some tough questions. Let me

note that they all come before us voluntarily and I appreciate their

cooperation as we get to the bottom of this mess. Their views of

events and answers to our questions should help fill out the picture

of what was going on at Los Alamos.

Our first panel today consist of individuals who had immediate

oversight of the issues at hand. We will hear from Mr. Stan

Busboom who hired Glenn Walp and Steve Doran, the two lab investigators who were fired after they raised concerns about management’s response to these crimes. Mr. Busboom ultimately signed

their termination letters. He says he was ordered by his supervisor

to do so.

In his previous role as Director of Security he was involved in

the inquires into many of the cases discussed in our first hearing.

He also is responsible for investigating security incidents such as

a recent missing hard drive case, as well as other incidents involving unaccounted for classified media that this committee has uncovered during the course of our investigation.

Mr. Busboom is joined by Mr. Frank Dickson, Laboratory Counsel; Mr. Joe Salgado, former Principal Deputy Director of LANL.

Both of these men took on roles in these procurement and property

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sponsibilities. They were also instrumental in the termination of

Walp and Doran.

Our second panel will have officials responsible for managing

procurement at the lab. We will hear from Mr. John Hernandez

who oversaw the contract administrator responsible for the Mesa

blanket purchase agreement which was the primary procurement

tool two employees used to purchase tens of thousands of dollars

of goods for personal use.

Additionally, we have Mr. Stan Hettich, LANL’s Director of Procurement. Mr. Hettich was also involved to some degree in one of

the procurement abuse cases last year when his own secretary was

caught using her procurement card at local casinos.

We will have Mr. Richard Marquez, LANL’s Associate Director

for Administration, who oversees all procurement and property

management programs at the lab. Mr. Marquez has advised our

staff that he believes the recent steps taken by the lab to improve

its procurement card system will help solve many of the current

problems. I look forward to hearing exactly how he believes these

procedures will succeed where so many past attempts have failed.

Finally, we will take testimony today from higher level management. We will hear on our third panel from Dr. John Browne who

was the lab’s director during the relevant time and has since been

replaced. We also have the former and current University of California Vice President of Laboratory Management, Dr. John

McTague, and a reappearance, Mr. Bruce Darling.

This lab management position was actually created to ensure

that the improved management provisions required in what is

known as Appendix O to the lab DOE contract was carried out.

Joining them is Mr. Ralph Erickson from the NNSA’s LANL site

office. I am looking forward to their testimony that what was going

on at a facility that pursues some of the Nation’s most sensitive research.

We thank the witnesses for attending this important hearing and

recognize the ranking member for his opening statement.

Mr. DEUTSCH. Thank you, Mr. Chairman. In the fall of 2000 the

University of California agreed to amend its contract with the DOE

to add more performance requirements for the management of its

two national nuclear weapons laboratories.

These commitments known as Appendix O were made to save

California’s contracts when it went alee in the lost hard drive security debacles at Los Alamos and the repeated mismanagement

which resulted in huge hidden cost overruns at the facility at Lawrence Livermore National Laboratory.

According to the contract Appendix O was intended to strengthen

the university’s management of and accountability for Los Alamos

and Lawrence Livermore National Laboratory in three areas. Those

were management accountability safeguards, security management,

and facility safety.

It required the use of outside subject matter experts to establish

a Vice President for Laboratory Management, provide leadership

management and integration of the initiatives in Appendix O, and

be accountable for institutionalizing the changes, improvements,

and the benefits gained from infusion of industry expertise.

94

The vice president would also chair a new Laboratory Senior

Management Council which would be an effective forum to review

issues. The president of UC himself would be accountable to DOE

for overall management and operating performance. All the requirements in Appendix O had to be completed for the university

to be eligible for any of its at-risk fee of $4.7 million.

On October 9, 2002, DOE stated that all the requirements of Ap- pendix O had been met and UC received $3.7 million of its performance rating. UC said it had received the highest rating ever

from DOE, even though there were significant procurement and

property fraud of control allegations at Los Alamos.

PricewaterhouseCoopers and two former inspector generals had

already been hired to review the entire purchase card system because of systemic weaknesses. The investigation subsequently

would be expanded to the entire procurement system.

Within 6 weeks of this finding the new staff hired to professionalize the security division were fired because they did not fit

in with the lab’s self-protective culture. Within 3 months most of

the top leadership of the Laboratory would be removed from their

positions because they had refused to confront and fix management

and security problems as they surfaced. The two security professionals were rehired.

Have the goals of Appendix O been met? Not according to Joseph

Salgado, the former Principal Deputy Director of Los Alamos. His

testimony refers repeatedly to the lack of management accountability in the security area, although the key purpose was to instill

public confidence and safeguards in security at both labs. The implementation under Appendix O appears to have been incomplete

at best.

The final strategic plan prepared by Mantac Ajas, the outside expert, were not ready for review until December 2002. By July 2002

the lab had deleted all work requirements on promising best management practices, assessment of training needs and review of

outsourcing possibilities.

Although Mantac Ajas was required to brief the Laboratory

Counsel and its vice president only once a year, the university decided after the first briefing that it did not need another briefing

at the end of the contract. DOE apparently made Los Alamos’ last

quarterly report the final one. Based on this information of our investigation, I would argue that the security operation was, and is,

in shambles.

In addition to the well-publicized shortcomings in the criminal

area, our staffs are finding disturbing issues in the handling of security incidents including the handling of missing hard drives and

flash cards.

In 2001 Stanley Busboom, then head of Safeguards and Security

Division, decided to readdress the situation that resulted from internal failures to implement an earlier reorganization. Mr.

Busboom stated in his 2001 division reengineering memorandum

that we have had several organizational structures that failed over

the last 18 months of crisis.

The computer and technical security section and information on

personal security had not removed from the security and standdowns during 1999 and the hard drive incident of 2000. The SpeVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00102 Fmt 6601 Sfmt 6601 86048.TXT HCOM1 PsN: HCOM1
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cial Projects Office, the predecessor to the Office of Security Inquiries, was described as ineffective with little cooperation of local law

enforcement agencies and property protection investigations that

were neither thorough or timely.

Mr. Busboom proposed true strategic staffing with nationwide

advertising to find a new OSI office leader to organize investigations and inquiries. He wanted someone who could investigate and

develop root cause analysis and solutions. The white hats, consumer service, and the black hats, inquiries, were to be sharply defined and organizationally separated.

The hiring of Mr. Walp and Mr. Doran as black hats was a direct

result of this effort. Quickly they were expected to serve Mr.

Dickson and Mr. Salgado, the main customers inside the Laboratory, rather than to work with law enforcement agencies to root out

and fix the problem. Despite Mr. Busboom name if black hats, they

just did not fit in.

Mr. Chairman, one of the reasons people like Glenn Walp and

Steve Doran did not fit in was because they uncovered problems

and told people about them. They did not put their loyalty to UC

above that of the taxpayer. The university, the Department of Energy, and these laboratories have a long and, frankly, vicious

record of pursuing employees who try to fix problems. Demoting

the Laboratory Director will not stop that, nor will hiring back Mr.

Walp and Mr. Doran.

Mr. Darling, your employees are afraid to speak out. That is why

you have the management by accommodation that Mr. Salgado refers to. If you are really committed to change, I suggest you revisit

each of the whistleblower cases in the past 10 years and report

back to this committee on whether you think they were treated

fairly. Thank you.

Mr. GREENWOOD. Thank you.

Mr. DEUTSCH. Mr. Chairman, Ms. Eshoo, I believe, by combination will be able to sit in the hearing?

Mr. GREENWOOD. Ms. Eshoo can sit in on any of my hearings any

time she wishes.

Mr. DEUTSCH. Thank you very much.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF OREGON

Thank you, Mr. Chairman. I commend you for holding this hearing today. It is

my hope that by the end of today’s hearing we will have gotten to the heart of what

led to the acute problems that the Los Alamos National Laboratory (LANL), the

University of California (UC), the National Nuclear Security Administration (NNSA)

and the Department of Energy (DOE) had in handling issues pertaining to the severe procurement irregularities, gross property mismanagement and theft at the

laboratory.

To say the least, today’s hearing will be interesting. Two weeks ago members of

the subcommittee were able to learn from Messrs. McDonald, Walp and Doran how

senior officials at LANL reacted to serious allegations of theft and loss of government property and how they responded to the misuse of government procurement

mechanisms by personnel at LANL. The subcommittee subsequently learned how

these allegations led to the start of an alleged cover-up by senior officials at LANL,

which, amongst other things, led to the dismissals of Mr. Walp and Mr. Doran.

These terminations by the laboratory were later characterized by the DOE’s Inspector General as being ‘‘incomprehensible,’’ and moreover, he found LANL’s reasons

for these terminations to be unsupported by the available evidence.

96

I will be particularly interested to hear how Mr. Busboom explains the rational

behind these firings. How could these two security officials be terminated from their

positions in light of the fact that about a month and a half prior to their respective

terminations, on November 25, 2002, Mr. Walp was given a performance evaluation

and subsequently received a $5,000 raise? It is also important to note that the FBI

thought very highly of Mr. Walp and Mr. Doran, which is highlighted in Mr.

Busboom’s notes from a conversation he had with an FBI agent in which the latter

states that ‘‘Steve and Glen are the most professional.’’ That compliment coupled

with DOE’s IG characterization of the terminations definitely leaves some questions

to be answered by our witnesses on the rational behind these firings.

Though an explanation of what led to the terminations of Mr. Walp and Mr.

Doran is important, I also hope the subcommittee gets answers from our panelists

about what the laboratory, UC and the NNSA have done to remedy the acute procurement problems that have existed at LANL. I will be particularly interested to

understand how the NNSA fiscal year 2002 appraisal of LANL rated the lab’s procurement and personal property management areas as ‘‘excellent’’ despite the fact

that this same system had such critical flaws that two lab employees were allegedly

able to walk off LANL grounds with over $50,000 in government property. I will

be even more interested in learning how a Los Alamos employee could use their government provided purchase card to not only buy miscellaneous items at local retail

establishments, but also at several area casinos. I imagine Mr. Hettich might be

asked to shed some light on this particular incident.

With that said, Mr. Chairman, I would like to thank our witnesses for being here

today and I look forward to hearing their answers to the issues I have raised in

my statement.

Thank you, Mr. Chairman. I yield back the balance of my time.

PREPARED STATEMENT OF HON. W.J. ‘‘BILLY’’ TAUZIN, CHAIRMAN, COMMITTEE ON

ENERGY AND COMMERCE

Thank you Chairman Greenwood. And let me say, once again, that the thorough,

bipartisan work you are doing here—the evidence and information and explanations

you are gathering—is going to be very helpful in resolving what is a very, very disturbing situation at Los Alamos National Laboratory.

At the first part of this hearing into theft and mismanagement two weeks ago,

I explained why I was so alarmed about what amounts to looting at the lab. Theft

of taxpayer dollars and property is bad enough, but this goes beyond that. This is

not some insignificant facility. Los Alamos is considered to be one of the gems of

our national research infrastructure—and a facility that Americans trust to perform

some of our most valuable national security research.

It doesn’t take a nuclear physicist to understand why this is so important. Just

look at the world situation today. We cannot afford to have slipshod management

at a facility that performs such sensitive national security work.

What I learned from the first part of this hearing did not ease my concerns. We

heard sworn testimony about efforts to obstruct special Lab investigators and the

FBI. We heard what was described as a total failure of Laboratory management to

do anything about, and I quote, ‘‘massive’’ theft at the Lab.

We heard descriptions of a permissive atmosphere that sought to protect the Lab’s

image by ignoring evidence of deep-seated problems—for fear that exposure of the

problems would generate negative publicity that would harm the Lab, its management, and ultimately its billion-dollar contract with DOE.

Mr. Chairman, I can tell you what was harming the Lab, and it was not the efforts of the few to fight fraud and expose waste. Rather, it was what was allowed

to go on outside the public eye, within the walls of this facility, a culture of permissiveness and lack of discipline.

Today we hear from the people who were in charge. I look forward to learning

why they at one point hired special investigators to reform security at the Lab and

then decided, essentially, to fire these investigators after the theft was identified.

I look forward to learning why management and procurement procedures failed,

why employees were able to get away with the purchases they made. We do have

some tough questions. The witnesses before us today are among those who were accountable for what was happening at Los Alamos.

Let me say that I also appreciate the witnesses coming before this Committee,

voluntarily, to account for their actions and to explain what reforms are under way.

It’s not always pleasant to come before this Subcommittee as a witness to answer

tough questions, and it’s not always pleasant to be up here asking the tough quesVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00104 Fmt 6601 Sfmt 6621 86048.TXT HCOM1 PsN: HCOM1
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tions. But this process is a good one, and one that over time will help to ensure

that gaps in security and fraud protection at the Lab are closed.

Today’s hearing, Mr. Chairman, should help us move in this positive direction. I

yield back the remainder of my time and look forward to discussing our concerns

with the panels. Thank you.

Mr. GREENWOOD. As I mentioned at the outset of the hearing,

unfortunately we have to recess now because of an unavoidable obligation that I have. We should readjourn in about 30 minutes.

Please be back here at 10:45 and we will hear from our first panel

then. The hearing is recess.

[Whereupon, at 10:20 a.m. the subcommittee recessed to reconvene at 10:45 am.]

Mr. GREENWOOD. Okay. Now you know why not much gets done

here in Washington but we should have a good solid 13⁄4 hours

without further interruptions. Again, I apologize to all.

Let me welcome our first panel which consists of Mr. Stanley

Busboom, Staff Member and Former Director of the Security Division at Los Alamos. Welcome, sir. Mr. Joseph Salgado, former Principal Deputy Director at Los Alamos. Thank you for being with us

this morning. And Mr. Frank Dickson, Laboratory Counsel at Los

Alamos. I thank all of you for your presence and for your patience.

You should be informed this is an investigative hearing and it is

our practice to take testimony under oath. I would ask if any of you

have any objections to giving your testimony under oath?

WITNESS. No objection.

WITNESS. No.

Mr. GREENWOOD. No objection? Okay. Pursuant to the rules of

this committee and the rules of the House, you are entitled to be

represented by counsel. Do any of you wish to be represented by

counsel this morning?

WITNESS. Not at this time WITNESS. Negative.

Mr. GREENWOOD. Okay. If you would stand and raise your right

hands.

[Witnesses sworn.]

Mr. GREENWOOD. You are under oath and we will start with you,

Mr. Busboom. You are recognized for your opening statement.

TESTIMONY OF STANLEY L. BUSBOOM, STAFF MEMBER AND

FORMER DIRECTOR, SECURITY DIVISION, LOS ALAMOS NATIONAL LABORATORY; JOSEPH F. SALGADO, FORMER PRINCIPAL DEPUTY DIRECTOR AT LOS ALAMOS NATIONAL LABORATORY; AND FRANK P. DICKSON, JR., LABORATORY

COUNSEL, LOS ALAMOS NATIONAL LABORATORY

Mr. BUSBOOM. Good morning, Mr. Chairman, Mr. Deutsch, and

members of the committee. Thank you for this opportunity to address the issues that your committee has been looking into.

Mr. GREENWOOD. Can I ask you to bring the microphone a little

bit closer to you and point it toward your mouth. Thank you very

much.

Mr. BUSBOOM. My name is Stan Busboom and I was the Director

of Security at Los Alamos for 5 years up until January 8 of this

year. Prior to that, I served my country in uniform retiring at the

rank of Colonel from the United States Air Force. My record in the

military service was exemplary, and my service at Los Alamos was

recognized as outstanding for my entire tenure.

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To fulfill its promise of full cooperation with Congress and its investigation, Los Alamos National Laboratory and the University of

california have ordered me to appear here to give testimony under

oath today as a condition of my employment. The terms of this

order are contained in a letter from James L. Holt, Laboratory Associate Director for Operations, which I have attached to my written testimony.

At this time I would like to give you a brief summary of the written testimony that I have submitted for the record. The Office of

Security——

Mr. GREENWOOD. I should remind you that you do have the right

to invoke your 5th Amendment rights if you do not wish to testify

this morning.

Mr. BUSBOOM. I am aware of that, sir, and I understand I am

entitled to counsel as well.

Mr. GREENWOOD. Very well, sir.

Mr. BUSBOOM. The Office of Security Inquiries, commonly called

OSI, came within my purview. This office is where Mr. Walp and

Mr. Doran worked. The members of this office work directly for my

deputy, Mr. Tucker, and they had a broad range of duties at the

Laboratory which did include providing inquiries into property

theft and liaison to law enforcement.

I first became aware of serious problems in OSI in September of

last year. Mr. Tucker reported to me on several occasions during

that period that there were ongoing disputes between his OSI staff

and the lab’s legal counsel.

At one point in mid-September Mr. Tucker had to intercede with

the lab’s Chief Operating Officer on Mr. Walp’s and Mr. Doran’s behalf to prevent them from being taken off ongoing inquiries. That

incident led me to meet with Mr. Tucker, Mr. Walp, and Mr. Doran

to express my concern that the disputes be resolved professionally,

quickly, and permanently.

I also met with the Chief Operating Officer and the Senior Legal

Counsel around this time who expressed concerns about the suitability of Mr. Walp and Mr. Doran for those positions.

Approximately 6 weeks later I was directed by the Chief Operating Officer to remove Mr. Walp and Mr. Doran from their law enforcement liaison duties with the FBI. I did that and then I moved

quickly to provide the FBI with alternative points of contact.

This incident occurred after a meeting between senior lab management, the FBI, and the U.S. Attorney which I did not attend.

I was told at the time that Mr. Walp and Mr. Doran no longer had

the trust of senior management. At that point I began to seriously

consider Mr. Walp and Mr. Doran’s position as probationary employees and to contemplate their future with the lab.

On November 20 the issues surrounding Mr. Walp’s and Mr.

Doran’s performance came to a head when my supervisor handed

me a draft memorandum that provided detailed justification from

senior management for terminating the two under their probationary period.

I consulted in detail on this with my supervisor, his deputy, Senior Laboratory Legal Counsel, and the Deputy Director for Human

Resources. I also met with the Chief Operating Office and expressed my concern about the inevitable media and political

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firestorm. I was given assurances that that had been taken into

consideration and with those assurances I accepted my responsibility as division leader to take the determination actions.

On November 25 with my supervisor in attendance, I asked for

Mr. Walp’s and Mr. Doran’s resignations. When they were not

forthcoming, my supervisor and I signed the terminations approximately 2 weeks later. The media and political fallout that I was

concerned about occurred almost immediately and a number of investigations and inquiries were launched including your committee,

sir.

On January 3 of this year my supervisor told me that I would

be removed from my position. On January 8 that did occur. For my

part in this matter I have acted in good faith every step of the way

and I have taken my actions based on the best information I had

at the time. I have cooperated fully with all investigating agencies

including your committee, sir. I have kept a complete an accurate

record of all the proceedings I was involved in which was provided

to your committee’s staff.

Thank you for your time.

[The prepared statement of Stanley L. Busboom follows:]

PREPARED STATEMENT OF STANLEY L. BUSBOOM, SPECIAL STAFF MEMBER, LOS

ALAMOS NATIONAL LABORATORY

To fulfill its promise of full cooperation with Congress and its investigation, Los

Alamos National Laboratory and University of California have ordered me to appear

here and give testimony under oath as a condition of my employment. The terms

of this order are contained in a letter from James L. Holt, Laboratory Associate Director for Operations, which I have attached to my testimony.

I was the Director of Security at Los Alamos National Laboratory (LANL) for 5

years, up until January 8th of this year. Prior to that, I served my country in uniform for 26 years. My record as a Colonel in the Air Force was exemplary, and my

service at Los Alamos was recognized with outstanding performance ratings for my

entire tenure as a division leader.

The Office of Security Inquiries (OSI) at Los Alamos came within my purview.

OSI members worked directly for my deputy, Gene Tucker. I did not supervise this

function on a day-to-day basis, but I did have supervisory contact with them when

Mr. Tucker was absent from the Laboratory. I was also involved in the terminations

of Mr. Walp and Mr. Doran.

I first became involved in events leading up to the termination of these two persons in mid-September of 2002. On September 17th, Frank Dickson, LANL Chief

Legal Counsel, informed my deputy (Mr. Tucker) that he was dissatisfied with the

work of OSI on the pending property cases and that he wanted Mr. Walp and Mr.

Doran off the cases. Mr. Tucker told me he would handle the situation and he

interceded directly with Joe Salgado, LANL Chief Operating Officer, on Mr. Walp

and Mr. Doran’s behalf. The next day (September 18th) I met with Mr. Dickson at

11:30AM, and he outlined his dissatisfaction with the OSI staff in no uncertain

terms, saying that Mr. Doran was not trusted by the legal office and that the ‘‘jury

was still out’’ on Mr. Walp. He expressed particular concern that Mr. Walp and Mr.

Doran’s contacts in the field should not be inconsistent with his interface with the

FBI and the U.S. Attorney offices in Albuquerque.

I was extremely concerned by this discussion and I arranged to meet with Mr.

Tucker and Mr. Walp later that afternoon at 4:00PM. During that meeting, Mr.

Tucker asked Mr. Walp straight out if he was being asked to anything improper,

illegal, or unethical. Mr. Walp said ‘‘no.’’ Mr. Tucker also confronted Mr. Walp about

an incident that Mr. Tucker considered to be insubordination. Mr. Tucker said that

Mr. Walp had denounced Mr. Dickson in front of his OSI subordinates, and that this

was an inappropriate way to handle a dispute with a colleague. Mr. Tucker also

made the point that he had just gone to bat for Mr. Walp. I told Mr. Walp that

Mr. Dickson regarded him as uncooperative and that OSI could not be successful

in the long run if they did not have a good working relationship with the LANL

Chief Legal Counsel and his staff.

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We then asked Mr. Doran to join the meeting. I repeated Mr. Dickson’s concerns

to Mr. Doran, including the express concern that the relationship with the FBI and

the U.S. Attorney must be maintained. At one point in the conversation, when I did

not think Mr. Doran was listening to me, I did offer my opinion that Mr. Dickson

would ‘‘level you him both barrels’’ if the dispute between OSI and LC continued.

I believe later events have proven my observation to be correct. I did not threaten

to fire Mr. Doran. I did tell him that Mr. Dickson was inquiring about his status

as a probationary employee, and I am certain that Mr. Doran found that to be of

great concern. I also found it to be of great concern, as I wanted Mr. Tucker’s efforts

on his behalf to be successful.

As a manager, I was obligated to let Mr. Walp and Mr. Doran know where they

stood with Mr. Dickson, without sugar coating it. The context of this conversation

was forward-looking, not punitive. My view was that Mr. Tucker had successfully

interceded on their behalf and that if they took the time and made the effort to rebuild their relationship with LC, we could put the disputes behind us. None of this

discussion in any way touched on Mr. Walp and Mr. Doran not being allowed to do

their jobs or not pursuing the cases they were working. It was only about learning

to cooperate with LC.

My next personal encounter with Mr. Walp and Mr. Doran came about six weeks

later. On October 24th, 2002, at 10:20AM, I received a message that Mr. Dickson

needed to speak with me urgently. I got through to him 20 minutes later on his

cell phone number and answered this question from him: ‘‘When did the FBI first

begin investigations into thefts at Los Alamos, and when did management know

about it?’’ The answer I gave him, after consulting with Mr. Walp, was, ‘‘Sometime

around June 24th and July 1st, respectively.’’ I asked him where he was, and he

said that he and Mr. Salgado were meeting with the US Attorney and the FBI in

Albuquerque.

Later that day, at 4:00PM, Mr. Salgado held a meeting in his office with Mr.

Dickson, Mr. Marquez, Associate Director for Administration, Mr. Holt, Associate

Director for Operations, and me. Mr. Salgado said words to the effect of, ‘‘We

screwed up the ‘Mustang’ Case,’’ and therefore, the US Attorney would not prosecute it. He then immediately directed me to take Mr. Walp and Mr. Doran out of

liaison with the FBI and therefore off the remaining FBI case, the so-called ‘‘TA33’’ case. By ordering Mr. Walp and Mr. Doran off FBI liaison just after describing

the screw-up of the ‘‘Mustang’’ case, Mr. Salgado implied that that Mr. Walp and

Mr. Doran’s handling of the case caused their removal from FBI liaison. I suggested

that it was not wise to ‘‘change horses in the middle of the stream’’ but was told

that based on the meeting in Albuquerque, Mr. Walp and Mr. Doran no longer had

the trust of senior management. The rationale was that Mr. Walp and Mr. Doran

had provided incomplete and inaccurate information to Mr. Dickson and Mr.

Salgado.

Accordingly, I told Mr. Walp that evening at about 5:45PM that he was off liaison

with the FBI. Mr. Doran was not available, so he was told the same thing the next

day, October 25th, around noon. I could only tell them that senior management had

lost confidence in them. At 09:30AM, I had an acrimonious meeting with Mr.

Dickson about being ‘‘ambushed’’ the day before. I had not known about the meeting

with the US Attorney or the FBI the day before and that left me completely unprepared for the outcome affecting my employees. In that meeting, he explained that

there would be a meeting the following Tuesday (October 29th), in which the roles

of LC, OSI, the FBI, and the DOE IG would be sorted out.

At 2:35PM that same day, Agent Jeff Campbell, FBI, telephoned me and asked

for assistance on an inquiry about an Australian citizen who had once visited Los

Alamos. He said Mr. Doran, who had informed him that he was no longer in the

position of FBI liaison, had referred him to me. I told Agent Campbell I would assist

him personally. At the close of our conversation, Agent Campbell said: ‘‘Nothing I

said at yesterday’s meeting should have gotten Steve [Doran] in trouble,’’ and ‘‘Steve

and Glenn [Walp] were very professional in my dealings with them.’’ I only told him

their removal from liaison was a decision by senior laboratory management.

I met again with Mr. Dickson later that day, to go over where we stood on each

area of concern. Following the meeting, I emailed Mr. Dickson and my supervisor,

Mr. Holt, that 1) Mr. Doran and Mr. Walp had been removed from FBI liaison as

directed by senior management; 2) we would hold new liaison appointments in abeyance until the Tuesday meeting per Mr. Dickson’s direction; and 3) I passed on my

conversation with Agent Campbell.

The next Monday, October 28th, I telephoned Agent Campbell and gave him everything he needed on the ‘‘Australian’’ case. As we closed the conversation, he proposed to have Mr. Walp and Mr. Doran participate in pending interviews and search

warrants on the ‘‘TA-33’’ case (the sole FBI case at LANL at that time, to the best

101

of my knowledge). I told him I could not agree to that. As I have described, the decision to remove them had been made by senior management, and it was clear to me

that I did not have the authority to change that decision. I did leave it open ended

and told him ‘‘we’ll back to you,’’ reasoning that the next day this could be resolved

in the joint LANL/IG/FBI meeting, where senior management would attend. Agent

Campbell said that without Mr. Walp and Mr. Doran’s participation, he could not

assure me we would have 24 hours notice prior to the warrants being served in the

‘‘TA-33’’ case. I made note of this, as at the time, I did not know any such agreement

was in place. I had only one purpose in my dealings with Agent Campbell as liaison

in the absence of Mr. Tucker, who was away on vacation: to assure that the removal

of Mr. Walp and Mr. Doran did not in any way impede, obstruct, hinder or thwart

any FBI investigation at the Lab.

The following day (October 29th, at 1:45PM) when I attended the joint meeting,

the FBI was not present. Mr. Salgado said that the FBI had ‘‘backed out.’’ The first

input I made at the meeting was to recount my conversation with Agent Campbell

and point out that a firm FBI liaison was needed. Mr. Salgado said he didn’t care

if we had prior notice of the warrants being served, but to go ahead and appoint

new liaisons. I appointed Mr. Tucker and Mr. Mullens to those duties following the

meeting, succeeding my own personal stint of three working days as the liaison.

At 9:00AM on the morning of Thursday, October 31st, the FBI conducted the

interviews and served the warrants without prior notice to LANL. Between Mr.

Tucker and me, we immediately assembled a team from OSI, produced the suspects,

and provided full and successful support to the FBI effort. I noted this on my calendar for the day: ‘‘Where are Glenn and Steve?’’ It turned out that Mr. Doran had

scheduled that day off, and Mr. Walp had called in sick.

I was later questioned by the DOE IG on this entire matter. The inspector asked

me if I had prohibited Mr. Walp and Mr. Doran from speaking to the FBI. My reply

was ‘‘no,’’ and I characterized that proposition as ‘‘ridiculous.’’ If Agent Campbell

needed any assistance from anyone in OSI, he could have contacted Mr. Tucker or

me, and we would have provided whatever information or access he requested. Alternately, he could have treated Mr. Walp and Mr. Doran as material witnesses,

and if they cooperated he would have all the access he wished, without ever needing

my consent or knowledge. In my 32 years of experience in law enforcement, the FBI

will label such persons as supportive witnesses and/or criminal/confidential informants, and do whatever they legally need to do in terms of access and interviews.

What I did not do was to interfere with Agent Campbell’s investigation.

What I did do, and the only thing I did, was instruct Mr. Walp and Mr. Doran

not to interact with the FBI as liaisons on behalf of the Laboratory, as I was instructed to do so by Mr. Salgado and Mr. Dickson. The IG also asked me if I had

been told by anyone that I was not cooperating with the FBI. My answer was ‘‘no,’’

and the facts are that the FBI got everything they needed in terms of support from

my division, when they needed it.

Throughout the period of late October and early November, both Mr. Salgado and

my immediate supervisor, Jim Holt, had discussions with me about the probationary

status of Mr. Walp and Mr. Doran. I was under pressure to make a decision on

them, and it was clear to me that preferred outcome was to let them go. What I

did not know at the time was that plans to terminate Mr. Walp and Mr. Doran had

been made at meetings where I was not present, and did not know about.

The matter came to a head on November 20th, at 8:30AM, when Mr. Holt handed

me a draft memorandum that outlined senior managements’ concerns on Mr. Walp

and Mr. Doran. It was in the form of a memo from me to Mr. Holt, recommending

their termination, and he told me to work on it on a ‘‘close hold’’ basis. That same

morning, I met with Mr. Holt and his deputy, Barb Stine, at 10:00AM, and we edited the memo line-by-line. The next morning, I took the memo to Mr. Dickson at

8:30AM, and he edited it line-by-line with me. I asked for an explanation of each

point in the memo and Mr. Dickson attributed most of the points to himself and

Mr. Salgado.

I finalized the memo and sent it to Mr. Holt on November 21st, recommending

that Mr. Walp and Mr. Doran be terminated. I was prepared to accept my responsibility under the LANL Administrative Manual, which says dismissing probationary

employees is done at the division leader level, but I nevertheless had serious concerns. At 10:00AM, I met with Mr. Salgado, and expressed the following reservations: 1) that this action would start a media and political firestorm; 2) that Mr.

Walp and Mr. Doran would almost certainly become ‘‘whistleblowers,’’ and; 3) that

a senior management must participate in the actual terminations as I was relying

on their input for taking the action. He acknowledged my concerns, but told me that

these matters had been taken into consideration. At 3:25PM that same day, Mr.

Salgado told Mr. Holt and me to proceed with the terminations on Monday and to

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start on restructuring the OSI office; it was specifically agreed at this meeting that

Mr. Holt would be present during the terminations.

The next day, November 22nd, I received instructions from the Deputy Division

Leader of Human Resources (Phil Kruger) on how to conduct the termination session. He advised me, among other procedural matters, not to have Mr. Holt present.

I certainly thought otherwise and on Sunday, November 24th, at 3:05PM, I telephoned Mr. Holt at his home to receive an assurance that he would be participating

in the action. On Monday, November 25th, commencing at 8:45AM, I asked both Mr.

Walp and Mr. Doran for their resignations, with Mr. Holt present as a witness. Two

weeks later, when no resignations were forthcoming, Mr. Holt and I both signed the

personnel action forms that formally terminated them.

Almost immediately following the dismissal of Mr. Walp and Mr. Doran, the

media and political firestorm I had predicted materialized. As I also forecast, they

assumed the status of ‘‘whistleblowers’’ and took their side of the story effectively

and continuously to the media and eventually, to this committee. I was told on January 3rd, 2003, that I would be removed from my position as Director of Security,

and that did take place on January 8th. I believe this action was taken as a direct

result of the media coverage and political ‘‘fallout’’ I had specifically warned senior

management about.

The news media coverage of my removal at one point centered on the alleged loss

of a hard drive in my division in October of 2002. On October 24th, 2002, at 4:30PM,

I met with Mary Margaret Trujillo (OSI) and Steve Croney (S-4 Group Leader), and

they told me that an ongoing inventory of classified removable electronic media

(CREM) in Mr. Croney’s group had not been reconciled. I believe Mr. Croney had

first discovered the problem sometime earlier in the day. Mr. Croney said that a

bar coded CREM was not in the safe it should be, and that a search of that safe

did not result in finding it; the item was listed as a hard drive.

At 4:45PM the same day, I telephoned Frank Ward of the local DOE office, and

informed him that I was formally reporting an incident of security concern (a ‘‘security incident’’), and explained an item in the S-4 CREM inventory was not where

it should be. I told him that we would be reporting it in writing the next morning,

within 24 hours, as procedures called for. I immediately called in Leigh Barnes to

assist. Mr. Barnes’ group was in charge of the CREM inventory lab-wide, and were

on-call, like a SWAT team, to respond to any anomalies during inventories.

At 5:15PM, I met with Mr. Croney, Mr. Barnes, Ms. Trujillo, and Ms. Trujillo’s

supervisor, Mr. Walp. I sent Mr. Barnes and Mr. Croney off to continue the search

in S-4, and we agreed to reconvene in the morning. At about 7:30PM, I reached Ken

Schiffer, head of the Internal Security Office, by telephone. I told him I had a security incident in my own division and that I might need an inquiry official from his

office (An inquiry official investigates a security incident). To avoid the appearance

of a conflict of interest in the inquiry, I wanted an inquiry official from outside S

Division. Mr. Schiffer agreed to assist.

The next morning, October 25th, at 7:00AM, Mr. Croney and Mr. Barnes came

to my office and presented a plan to do a wall-to-wall search of the entire group.

They estimated it would take well into the weekend to check and recheck all of the

inventory and to search all of the physical space. I told them to proceed and sent

Mr. Croney to get started. At this meeting, Mr. Croney could not articulate in any

way what the missing item was used for, or what information it might contain.

At 7:45AM, I met with Mr. Barnes, Mr. Walp, and Ms. Trujillo and told them we

would putting the report in writing, but also that I was going to ask Mr. Holt to

appoint an outside inquiry official to avoid a conflict of interest in ‘‘investigating

ourselves.’’ A draft of the written report was reviewed at this meeting, and it did

not make sense to me on two accounts: 1) It said the hard drive was lost or missing,

when clearly in point of fact, the search was still ongoing; and 2) That someone was

in the hospital, and that is why we could not explain the inventory difference. In

either case, it would require a full inquiry to determine if something was lost or

missing, and if all pertinent witnesses had been contacted. I asked Mr. Walp, Mr.

Barnes, and Ms. Trujillo to come up with more factual wording for the report. I

signed out the written report within two hours, and Mr. Walp faxed it to DOE. It

now correctly stated that we could not locate the item and that we were continuing

to attempt to reconcile the inventory. I approved the classification of Impact Measurement Index 2 (IMI-2), the highest and most serious classification I could assign

without knowing for certain that there was a confirmed compromise of classified information.

Mr. Barnes and I met with Mr. Holt at 10:15 AM, and he agreed to appoint an

inquiry official outside of S Division for the reasons I had put forward: I was both

the responsible line manager and the Director of Security and that constituted at

least the appearance of a conflict of interest. He communicated with a Mr. Roth in

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Mr. Schiffer’s absence, and then appointed Ms. Mary Ann Lujan from the Internal

Security Office as the inquiry official for the incident.

On Sunday, October 27th, I met with Mr. Croney and Mr. Barnes to hear their

report on the wall-to-wall search. They explained their methodology for the search

and detailed their activities over the previous 72 hours. They then told me that they

had found the bar coded item and that it was a carrier without a hard drive in it.

This was an interesting development in terms of reconciling the inventory, but it

did not address the fundamental question of whether or not classified information

was potentially compromised. On October 28th, Mr. Walp, Mr. Barnes, and I met

with Ms. Lujan as she started her inquiry. They told her what they knew up to that

point, and I instructed them to give her all necessary support.

On November the 1st, I was present when Ms. Lujan gave an update to Scott

Gibbs, who was acting on behalf of Mr. Holt. I asked Ms. Lujan if my people were

cooperating, and although she said ‘‘yes,’’ she also said words to the effect that some

people could be more forthcoming. As I recall, her point was that some were not

volunteering information, but only answering direct questions. I immediately took

this back to Mr. Croney and instructed him to reinforce with all of his people that

full cooperation was essential, and I would not tolerate anything less. I followed up

with Mr. Croney from time to time after that to ensure this was done. On November

15th, I performed a second-level managers review of Mr. Croney’s CREM inventory,

checking safes and inventory records along with him and his custodians. I found no

issues. I believe I sat in on one other update, but I do not recall the date or the

specifics discussed.

After being removed from the position of Director of Security, I was questioned

about taking part in, as it was described to me, rescinding this report. This is completely untrue; I did not in any way, orally or in writing, rescind the report. The

‘‘rescission’’ was also attributed to Mr. Tucker, my Deputy. This is also patently

false, as he was out of town on vacation; in fact, the only reason I was involved in

reporting this incident was that in his absence, I was covering his duties as the supervisor of OSI. Further, I cannot understand why anyone would credit this assertion of a ‘‘rescission,’’ as clearly a full inquiry proceeded to its conclusion. What I

did do was immediately launch a massive effort to reconcile the inventory, properly

report the incident, classify it at the highest level of concern I could, appropriately

remove myself from the inquiry chain at the earliest opportunity, keep careful

records of the proceedings, and ensure the cooperation of my division in the inquiry.

This committee’s staff questioned me for the first and only time to date about

these matters on February 7th, 2003. Although I have first hand knowledge of these

events, no one at LANL or UC has interviewed me. To the best of my knowledge,

no one has interviewed Mr. Barnes either, although he clearly has first hand knowledge of what happened during the initial stages of the inquiry. I have never seen

Ms. Lujan’s report; she completed it after I was removed from my position, and in

any case it was prepared on behalf of Mr. Holt. I have not read it, nor have I been

consulted on its content or conclusions. I therefore have no knowledge of actions

pending or taken as a result of the inquiry.

In conclusion, throughout all of these matters, I have not participated in, nor observed, any actions that could remotely be described as a management cover-up. I

never harbored any motive of ‘‘thwarting’’ Mr. Walp and Mr. Doran’s work. On the

contrary, I provided appropriate resources and support for OSI throughout this period, and assisted Mr. Tucker in interceding with legal counsel and senior management when they needed support. I kept an extensive record of the events as they

occurred and I have shared that record fully and cooperatively with all the concurrent investigations.

For my own part, I participated in the terminations with caution and reservation;

Mr. Tucker did not participate in the terminations at all. I took all of my actions

with consistency and in good faith and I used the information provided to me about

Mr. Walp and Mr. Doran in a manner appropriate to the seriousness with which

it was presented to me. I took no independent action in this matter; I recommended

the terminations based on what I was told, but I did not make the decision. I had

no reason at the time to suspect the motives of my chain of command or the veracity

of the information they gave me. When the terminations were effected, I saw to it

that the extraordinary steps were taken of having a senior manager present, and

of having him sign the personnel action forms.

Thank you for the opportunity to assist in you investigation of this matter.

Mr. GREENWOOD. Thank you, Mr. Busboom.

Mr. Salgado.

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TESTIMONY OF JOSEPH F. SALGADO

Mr. SALGADO. Mr. Chairman, members of the committee, My

name is Joe Salgado. I am here voluntarily and at my own expense.

I was the former Principal Deputy Director of Los Alamos National

Laboratory. I had been at the Laboratory approximately 3 years.

For brief moments here I would like to address a little bit of my

background since that is germane probably to the ongoing inquiries

of this committee. I have over 17 and close to 20 years of law enforcement experience starting as a police officer in Oakland, California as Sergeant of Police. Ten years as a prosecutor in Alameda

County as senior trial attorney. As a branch manager and special

prosecutor in Humboldt County in an impeachment trial of a duly

elected law enforcement official.

I had the privilege to come to the Department of Justice after approximately 10 years as a prosecuting attorney and served as the

Associate Director for Enforcement at the Immigration and Naturalization Service. I sat on the board of directors of EPIC, El Paso

Intelligence Center. Then the Associate Attorney General on the

Coordinating Committee on Organized Crime.

I served in the Reagan Administration as the Chief Operating

Officer of the Department of Energy for 4 years. In that capacity

had the ability and the responsibility for the management of the

National Laboratory and ironically also with part of the decisionmaking process for the extension of the contract with the University of California in 1985.

I would like to make five brief points if I might, Mr. Chairman,

pursuant to my testimony. I would ask that my submitted testimony be incorporated and part of the official record.

Mr. GREENWOOD. It will be.

Mr. SALGADO. Thank you, sir. The first point I would like to

make is on a personal basis and professional basis there was absolutely no cover-up or attempted cover-up of theft or criminal activity at Los Alamos Laboratory via myself and, as far as I know, by

anyone else at the Laboratory. I believe that these allegations are

absolutely not true and I categorically reject all such statements.

I have described in my statement Dr. Browne and I promptly

and completely informed all appropriate authorities at the University of California, NNSA, DOE, and appropriate law enforcement

agencies. We kept them informed of our activities and progress

through all the issues that are before this committee today.

The second point that I would like to make is that I firmly believe that the descriptions of the Laboratory, Los Alamos National

Laboratory, as a Den of Thieves, or having a culture of crime and

theft that has been keeping the valley green for years, is inaccurate

and not founded on fact. I believe, sir, that it does a disservice to

the thousands of honest, dedicated science, technical and support

people at the Laboratory.

Obviously the improper and illegal activities and criminal activity of a few individuals out of a work force of over 10,000 are extremely serious and should be well investigated. But they should

not be used to tarnish the entire Laboratory and its work force.

Personally I am disappointed that the University of California has

chosen not to defend the Laboratory and its work force.

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Point No. 3. In late 1999 when I joined the Laboratory I did

bring a well-founded belief that the historical culture of the University of California and the Los Alamos Laboratory had to change to

ensure that it is management performance would be as excellent as

its scientific performance.

It was my personal opinion and voice within the institution, as

well as the University of California, that the Laboratory had lost

its credibility and was losing its credibility with both the executive

and legislative branches of government.

My views were consistent with Dr. Browne’s vision of transforming the Laboratory into a disciplined organization capable of

meeting the public expectation for accountability with fiduciary relationship with the American taxpayer.

As a result of my prior service at the Department of Energy, I

firmly believe that the University of California Lab had to regain

its lost confidence and could only do so by substantially transforming the culture of the Laboratory and its management practices. Management practices have historically been one of management by accommodation to one marked by formality of operation,

openness, and, among other things, that it was variably free from

a culture of theft including theft and mismanagement.

Fourth. I take the responsibility for the dismissals of Mr. Walp

and Mr. Doran. I believe their dismissals were warranted based on

repeated instances of inaccurate and incomplete reporting, their

apparent inability to gain the trust and confidence of executives

and senior managers at the Laboratory, as well as external reviewers with backgrounds both in law enforcement and the Federal

Government. And management failures in properly securing, I believe, sensitive information dealing with ongoing criminal investigations.

I am aware that Mr. Walp and Doran have accused me of significant obstruction and interferences with their work. It would be

worth nothing that over the period of the 6 months to a year that

Mr. Walp and Doran were at the institution I personally met with

Mr. Walp twice for approximately 60 minutes and Mr. Doran attended a meeting I was in.

There were issues concerning the October 24 meeting with the

FBI and the U.S. Attorney that did lead me to the position of requesting and demanding that they be removed from liaison on that

particular case.

Mr. Doran and Mr. Walp see the Laboratory and its issues on

one hand, and I see it on another hand that the conditions at the

Laboratory must and need to be improved. We are diametrically

opposed, I believe, as to our conclusions as to those conditions.

Finally, Mr. Chairman and members, this committee would have

no way of knowing what I refer to as an insidious and prejudicial

phrase of ‘‘keeping of the valley green’’ and similar expressions. I

have discussed this issue at length in my statement.

Let me summarize it here by saying that the phrase is tantamount to racial profiling of the Hispanic workers at the institution

of Los Alamos and the Hispanics residents of the Espanola Valley.

Uses of phrases like ‘‘greening the valley’’ as our surrogate for accusation of thief in connections to the drug trade and absent any

substantiating evidence or wrong.

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As an individual who has lived in the valley and is of Hispanic

decent, I personally, professionally are offended and believe that

the university and the Laboratory ought to cease using these

phrases unless they can demonstrate substantial evidence they are,

in fact, true. I am not aware that such evidence does exist.

I welcome your questions, Mr. Chairman, and I appreciate the

opportunity to be here.

[The prepared statement of Joseph F. Salgado follows:]

PREPARED STATEMENT OF JOSEPH F. SALGADO, FORMER PRINCIPAL DEPUTY

DIRECTOR, LOS ALAMOS NATIONAL LABORATORY

Mr. Chairman, Members of the Committee: I appreciate the opportunity to testify

about performance failures at Los Alamos National Laboratory and related issues.

I am here without subpoena and at my own expense because I believe these hearings are important to the future of the Laboratory.

INTRODUCTION

I came to the Laboratory in August, 1999 as an ‘‘outsider’’ and a manager, with

a successful track record in the private sector and before that in the public sector,

including 17 years in law enforcement as a police officer, prosecuting attorney, and

Associate Commissioner for Enforcement at INS in the Department of Justice.

While at the Department of Energy in the late 1980s as Under Secretary and Deputy Secretary, I was involved in the decision to extend the University of California’s

contract to operate three national laboratories, including Los Alamos.

When I joined the Laboratory, it was with a well-founded belief that it is important for the country that the University of California continue to manage Los Alamos Laboratory. BUT, I also believed that it was imperative that historical cultural

issues at the Laboratory needed to change. These beliefs were consistent with John

Browne’s vision for transformation of the Laboratory. As Director, he realized that

the culture that had existed at the Laboratory for nearly 60 years could not satisfy

public expectations for accountability and management excellence and therefore that

change was imperative. Long-standing cultural issues at Los Alamos included:

• Lack of operational formality;

• Lack of a sense of the fiduciary relationship between the Laboratory and the taxpayers;

• Lack of responsibility and accountability;

• Lack of management discipline;

• Lack of an understanding that competent managers and good science are not incompatible.

During the three years I was employed at the Laboratory, I spoke out frequently

about the need to transform the Laboratory from what one DOE official correctly

observed was ‘‘13 labs with one name’’ and a system of management by accommodation to an organization that would speak with one voice and be governed by disciplined management. There is nothing I am testifying to today regarding the need

for change that I have not repeatedly said to Laboratory employees, the University

of California’s Office of the President, and, as well, to the NNSA and DOE.

ALLEGATIONS OF COVER-UP AND OBSTRUCTION

Before proceeding with the details of my statement, I want to address allegations

of cover-up, attempted cover-up, obstruction, and interference with fact-finding and

investigative processes. These allegations are absolutely not true, and I categorically reject all such statements as they relate to my actions. To the best of my

knowledge, no one else at the Laboratory engaged in any cover-up or interference

with investigative processes. As will be clear throughout my testimony, Director

Browne and I promptly and consistently took the initiative to fully inform the University of California, the NNSA, and, as appropriate, the DOE Inspector General’s

office of all of the information available to us about proven or alleged misdeeds at

the Laboratory. We were determined and proactive in addressing each issue as it

came to our attention.

As soon as these allegations appeared in the November 5 edition of The Energy

Daily, I discussed the matter with DOE Inspector General Greg Friedman and then

recommended to Director Browne that we ask NNSA to request a review by the Inspector General. Director Browne, who was in Washington, D.C. at the time, made

the request to Linton Brooks, Acting NNSA Administrator, that day. These calls

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were completed within a period of 4 to 6 hours on November 5. Mr. Brooks asked

for an IG review on the same day, and the Laboratory received written notice from

the IG on the following day that an investigation would be done. Mr. Friedman

called me a day later to acknowledge that the Laboratory had acted very quickly.

As I will discuss later, I believe that in the specific instances of misconduct—

TA33, purchase card activity and property management—the Laboratory moved aggressively and proactively to address these issues. In the discussion that follows,

‘‘executives’’ refers to the Director, Deputy Directors, Associate Directors, and Laboratory Counsel. ‘‘Senior managers’’ refers to Division Leaders; ‘‘managers’’ refers to

all other managers.

LABORATORY IS NOT A ‘‘DEN OF THIEVES’’

I have been deeply disappointed that so few efforts have been made over the past

several months to acknowledge what is right with Los Alamos National Laboratory.

Notions that the Laboratory is a ‘‘den of thieves’’ which has been ‘‘keeping the Valley green’’ for years, or that its culture is one of ‘‘theft and criminality,’’ I believe

are wrong, and should be explicitly and firmly rejected. The fraudulent activities of

a few individuals out of a workforce of over 10,000 in a half dozen specific cases

are extremely serious. But they are not reason for condemning the entire Laboratory

or its culture.

The workforce at the Laboratory is among the most rigorously screened

workforces in the country. It consists of literally thousands of dedicated, hard-working, honest individuals. Among them are some of the brightest minds and most accomplished scientific and technical talents in the country—probably in the world.

But the scientists and engineers are not the only honest, committed workers at the

Laboratory. There also are thousands of non-scientists and non-engineers who are

every bit as committed and patriotic as their scientific and engineering colleagues

and who work extremely hard to support the fundamental science, technology and

national security missions of the Laboratory. I believe they have been unfairly tarnished by the events of the recent past, by the near exclusive focus of personnel actions on administrative and support personnel, and by the failure of the University

to defend their work and their contributions.

HOW THE PERFORMANCE FAILURES HAPPENED

Given its exceptionally strong workforce, why did Los Alamos Laboratory have the

kinds of performance failures that it did? The cultural issues I described above led

to several root cause problems:

• Management excellence and good managers have not been highly valued, either

by the University or at the Laboratory itself. Skills that are not valued will not

thrive in any organization. In my judgment, Los Alamos National Laboratory

does not have the depth and breadth of managerial skills that one of the Nation’s premier national security installations with an annual budget in excess

of $1.5 billion must have.

• The culture over many years at Los Alamos has been one of ‘‘management by accommodation’’. Administrative and operational policies were often converted to

‘‘guidance’’ rather than ‘‘requirements’’. Procedures were modified to accommodate the preferences or conveniences of program managers and division leaders.

And, administrative and support staff were led to believe that aggressive enforcement of policies and rules would be criticized, not supported, by successive

levels of management.

• Insufficient management skills and a long-standing culture of accommodation affected—undermined, in fact—a broad range of controls and checks and balances

that were on the books, but in many cases were not rigorously observed. Too

often, dollars were used almost like ‘‘monopoly money’’ instead of as a fiduciary

trust.

These conditions are not new. They have been typical to a greater or lesser extent

of Laboratory operations for most of its history. In part, they have their origins in

past federal management systems that involved less demanding public expectations

and therefore less rigorous accountability. And, I want to be very clear on one point:

Throughout my tenure at the Laboratory, I saw no evidence that these conditions

resulted in a ‘‘culture of theft’’ or widespread personal aggrandizement. I say this

not just as a former Laboratory manager but as a former law enforcement official

with extensive investigative experience.

Each of the performance failures that have lately been the subject of intense attention by the Congress, the press, and more recently the University of California

illustrate clearly the cultural issues at the Laboratory. Each case also demonstrates

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our prompt, proactive determination to address wrongdoing and to assure immediate and continuous reporting of problems and what we were doing about them.

TA-33, USE OF PURCHASE ORDERS TO ACQUIRE ITEMS FOR PERSONAL USE

The Director and I first learned of this case in July 2002 when Laboratory Counsel Frank Dickson informed me that the FBI had opened an investigation at TA33.

Throughout the course of this investigation, we were faced with the need to balance cooperation with the FBI’s criminal investigation and our obligation to protect

national security interests at this highly classified site. I had three separate meetings with the FBI, one of which included the U.S. Attorney’s office, between July

and October in order to insure maximum cooperation and to raise issues and concerns in an expeditious manner.

As soon as we became aware of the investigation, we immediately informed Laboratory executives and senior managers and took steps to assure that national security interests would be protected while the investigation proceeded. At the same

time, Dr. Browne and I notified the University of California and the NNSA of what

we knew.

No system of internal controls will guarantee against conspiracies to circumvent

it. Alexander and Bussolini were apparently able to do what they did because they

conspired to violate procurement regulations. Management vigilance and the honesty of fellow workers are the best hope for thwarting conspiracies. In this case,

management was not vigilant.

Had it not been for Jaret McDonald’s determination to do what he could to end

wrongdoing by Alexander and Bussolini, it is possible that their fraudulent activities

would have continued for years, inadvertently abetted by a culture of accommodation. The result would have been far greater losses than will finally be determined

in this case. I believe that McDonald deserves to be commended for his report and

for his persistence in pursuing it.

My understanding is that Mr. McDonald made his first report to the Office of Security Inquiries in S Division in September 2001. The mishandling of that report

is an example of the lack of discipline and formality of operations that has typified

Laboratory operations. The fact that the Director’s office did not learn of McDonald’s

report until October 24, 2002, and that we learned of it, not from Laboratory managers, but from the U.S. Attorney’s office, is indicative of the vulnerabilities that the

absence of formality and discipline creates. When I asked about the history of this

case after my meeting on October 24 with the FBI and the Deputy U.S. Attorney,

I was told that McDonald’s report had been discussed with the FBI in September

2001 and that the FBI had decided against opening an investigation at that time.

When I asked for documentation of these discussions, I was told there was none.

None of the line managers responsible for program activities at TA-33 or for the

procurement function were informed of Mr. McDonald’s report until I did so after

learning of the FBI investigation in July 2002. As far as I know, there had been

no report to the Associate Director whose responsibilities include security, in spite

of the fact that TA-33 is arguably among the most highly classified sites at the Lab.

There had been no report to the Office of Audits and Assessments, the Laboratory’s

official point of contact with the DOE Inspector General. There had been no report

directly to the DOE Inspector General. There had been no report to local law enforcement. To the best of my knowledge, even after Mr. Walp joined the Laboratory

in January 2002 and reportedly learned of this major theft case within a couple of

weeks of starting on the job, there were no reports to the Associate Director responsible for security, or to other executives, the Inspector General, or local law enforcement. The Laboratory had a breakdown of process that should never have happened.

Alexander and Bussolini were able to conduct their fraudulent activities partly because of procurement actions intended to accommodate the Division to which they

were assigned. A blanket contract award for specified types of equipment was issued

with a ceiling of $100,000 in November 2000 to support requirements at TA-33. This

was to have been a temporary contract for no more than 6 months.

As an accommodation to facility managers and program offices, the contract term

was repeatedly extended by the procurement staff to a final term of 24 months. In

addition, it was modified 4 times to increase the ceiling from $100,000 to $2.7 million. None of these modifications, to term, scope and ceiling, as far as I know, received any review by the group leader or higher level management.

More intense management vigilance by those responsible for facilities, program

management, and procurement at TA-33 might have uncovered the activities of Alexander and Bussolini before Mr. McDonald felt compelled to report them. CerVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00116 Fmt 6601 Sfmt 6621 86048.TXT HCOM1 PsN: HCOM1
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tainly, formality of operations in terms of reporting and documenting allegations of

wrongdoing would have assured prompt response to Mr. McDonald’s first report in

the fall of 2001. If the information available to me is correct, I cannot explain why

the Office of Security Inquiries, under either of its 2 previous directors ( Sprouse

and Walp), did not feel compelled to assure that Laboratory executives were aware

of McDonald’s report.

ATTEMPTED PURCHASE OF A MUSTANG AUTOMOBILE

As in the TA-33 case, as soon as we became aware of the attempted purchase of

the Mustang, we took prompt, assertive action:

• We immediately established an internal review team to determine whether there

were systemic problems with the purchase card program. As a result of this review, we implemented a series of reforms and controls, including limits on authorization levels for all cardholders to $2,500 per transaction and $25,000 per

month.

• I also personally discussed with Inspector General Friedman at the Department

of Energy our intent to establish the External Review Team and to have it

chaired by a former Inspector General.

• John Layton, former Inspector General at the Department of Energy agreed to

chair the External Review Team and recommended that another former IG,

Charles Masten, be added to the team. We agreed with Mr. Layton’s recommendation.

• A letter for UC Vice President McTague’s signature confirming these discussions

and authorizing us to proceed was drafted in my office; faxed to Dr. McTague;

signed by him; and returned to the Laboratory Director.

• I notified the FBI and discussed the case with them in the 2nd of the three meetings I had with them between July and October.

Dr. McTague followed our progress closely and expected frequent reports on the

status of the investigations and the related reviews of procedures and practices. But,

it was Dr. Browne who took the initiative to propose the External Review Team and

to have it chaired by a former Inspector General.

We learned about the attempted purchase of the Mustang automobile about a

month after the TA-33 case had come to our attention. The bank that administered

the purchase card program on behalf of the Laboratory initially reported the matter

to the Laboratory Procurement Group.

The Mustang case provides a near textbook-quality illustration of the culture of

accommodation at Los Alamos National Laboratory. The policies governing purchase

card use, all of which are easily accessible on the Laboratory’s web page, could not

have been more clear: the standard authorization limit was $2,500/transaction and

$25,000/month. These limits could be raised to $5,000/transaction and $50,000/

month if the Group Leader provided justification and the cardholder completed special training and there were no findings in an audit of their account. The policies

on the web page also explicitly prohibited the purchase of tools with purchase cards.

In the Mustang case, Division managers requested and procurement managers

agreed to raise the authorization limits for the card-holding individual to $50,000/

transaction and $900,000/month, based on the high volume of purchases made in

the Division. This decision did not come to the attention of the Laboratory’s executives until after we learned of the Mustang issue. It is worth noting that these authorization levels were granted not to a manager, but to an individual classified as

an OS/7—approximately the equivalent of a GS-7 to GS-9 administrative secretary

in the federal service. There was no formality requiring review of purchase card authorization limits or of the performance of those to whom higher-than-standard limits had been granted.

Division managers also requested and procurement managers agreed to provide

an exception to the prohibition against acquiring tools with purchase cards. The exception was accompanied by certain conditions to which Division management

agreed. However, I know of no indication once the exception was in place that either

Division or procurement management paid any attention to whether the conditions

on which the exception was based were being observed and, if they were, whether

they were effective.

When we reviewed the cardholder’s account, we found that an exceptionally large

number of tools had been purchased with the same card used for the Mustang. The

volume of the purchases, the fact that all were made from a single vendor who was

located in Albuquerque, and the fact that a Laboratory employee apparently always

drove to Albuquerque to pick up the tools raised a number of questions. I discussed

these issues with the FBI in the 2nd of the three meetings I had with them and

sought their assistance, given that they had opened a case on the Mustang and the

110

fact that the tools had been purchased by the same cardholder. Mr. Dickson and

Mr. Tucker subsequently met with the Bureau’s white collar crime unit regarding

the tools, but the Bureau decided not to pursue the matter. At the time I left the

Laboratory, these issues were still under review by the DOE Inspector General.

Taken together, the TA-33 and Mustang cases are examples of a historic pattern

of operations at Los Alamos Laboratory: Exceptions to established policies and controls were made to accommodate group and division managers. The exceptions were

not reviewed or approved by executives—in part because the culture had long since

made such exceptions part of routine activity.

MISSING PROPERTY

Los Alamos National Laboratory covers an area of about 43 square miles (roughly

the size of the District of Columbia) traversed by about 200 miles of roads and occupied by roughly 2,000 buildings. These conditions make property management at

Los Alamos far more complicated than at more compact sites, such as Lawrence

Livermore and Sandia National Laboratories. This does not mean that the standards for property management ought to be less stringent at Los Alamos; it does

mean that management rigor, discipline and formality of operations are critically

important.

The first time the Director and I became aware of or saw the property reports

attached to Mr. Walp’s March 26, 2002 memorandum was on November 8, 2002

when a copy was faxed to the Laboratory by Adam Rankin of the Albuquerque Journal. As the Committee knows, Mr. Walp’s memo alleged widespread theft based on

the subject reports, all of which, I was told, had been previously filed with and reviewed by DOE/NNSA. To the best of my knowledge, Mr. Walp’s memo had never

been brought to the attention of anyone above Division management at the Laboratory or to anyone in NNSA or to the DOE Inspector General despite the seriousness

of his allegations.

As soon as we became aware of the property reports attached to Walp’s March

26 memorandum, we established an internal task force to review property management procedures and reporting. As a result of this review, Director Browne directed

that a wall-to-wall inventory be conducted. This is a time-consuming and expensive

procedure and therefore requires approval by NNSA. NNSA approved the proposed

inventory, and I understand it is now in process.

In addition, I ordered a review of classified computers to determine whether any

of the computers listed as lost, stolen or otherwise unlocated contained classified information and to validate that all classified computers in the current inventory

could be located. That report had not been completed prior to my leaving the Laboratory. A preliminary report in mid-December 2002 indicated that one computer

used for classified work—a Sun Microsystems workstation that did not contain a

hard drive—had been tagged for destruction but could not be verified as having

been destroyed. The mid-December report indicated that all other computers used

for classified work had been located and that none had been reported as missing

or stolen. I was informed that because the Sun machine contained no hard drive,

it was not possible that it contained any classified information. It should be noted

that computers used for classified work are controlled separately from all other computers at the Laboratory.

Earlier in the year, in an effort to verify controls on classified information, Director Browne had implemented an inventory of so-called CREM (Classified Removable

Electronic Media) as recommended by a Strategic Security Working Group he had

chartered. I asked for signed statements certifying the results of the CREM inventory from the leaders of all Divisions to which CREM were assigned.

Questions have been raised about my decision to rescind a memorandum on property management issued by the BUS Division Leader to Laboratory’s ‘‘leaders’’ in

April. By issuing the memorandum directly to ‘‘leaders’’—rather than through line

management—the Division Leader circumvented the management chain and undermined the accountability structure that I had emphasized for the past three years.

Therefore, I instructed him to withdraw his original memorandum and then to reissue it through the Associate Director for Administration to the cognizant Associate

Directors. The memorandum was re-issued within a few days with an explicit statement that Associate Directors would be accountable for property management performance in the Divisions within their line management responsibilities. The Inspector General’s January 2003 report cites the rescission of this memorandum as

indicative of management’s failure to create a climate that encouraged prompt and

open reporting by Laboratory employees. Unfortunately, the IG’s report does not

note that the memorandum was re-issued a few days later and that there were subsequent quarterly property management reports to all Associate Directors.

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TERMINATION OF MESSRS. WALP AND DORAN

I take responsibility for the dismissal of Mr. Walp and Mr. Doran before the end

of their New Employee Evaluation Periods. I view the issue of their dismissals as

strictly a management issue. I believe the decision to dismiss them was the right

one, based on:

• Repeated instances of inaccurate and incomplete reporting; • Their apparent inability to gain the trust and confidence of executives and senior

managers at the Laboratory as well as external reviewers with backgrounds in

law enforcement; and • Management failure in the custody of investigative information.

I had no knowledge that they had claimed whistleblower status and no reason to

believe that they had any legitimate grounds for doing so.It is important to recall

the circumstances as they existed at the end of November 2002, without benefit of

today’s hindsight. We were faced with two on-going criminal investigations involving

Divisions in which classified work on sensitive matters was the norm. In the recent

past, the Laboratory, and Director Browne specifically, had been severely criticized

for what was viewed as a failure to act promptly and effectively in two other cases:

Wen Ho Lee and the missing hard drives.

I was determined that the Laboratory not do or fail to do anything that would,

once again, result in criticism of our management of national security or of investigative processes that might involve national security. Members of this Committee,

as well as others, have expressed similar concerns or raised questions about the reliability of security management in light of the apparent failure of controls in connection with functions less complicated than the protection of classified information,

materials, and equipment. It was in this context that the Laboratory was confronted

with what action to take in connection with Walp’s and Doran’s New Employee

Evaluation Periods.

My judgment that the decision to dismiss Messrs. Walp and Doran was the right

and best course of action was based on several factors:

• Repeated instances of inaccurate or incomplete information. These mistakes, individually and together, are not consistent with good investigative performance.

• Laboratory Counsel Frank Dickson reported on several occasions that information provided to him by Messrs. Walp and Doran about the progress and

status of the TA-33 and Mustang investigations turned out to be wrong or incomplete. • In the Mustang case, Walp and Doran inaccurately reported the number of

phone calls made by the card holder to the vendor; and mistakenly identified

the address to which the Mustang either was delivered or was scheduled to

be delivered, having confused the cardholder with another lab employee with

the same name but different middle initial. • Ten days to 2 weeks after we learned of the attempt to purchase a Mustang,

we still had not acted, in my judgment, to preserve whatever evidence was

at or available to the Laboratory. I was increasingly concerned that evidence

at or available to the Laboratory might be lost due to delay and inaction. • Walp and Doran incorrectly accused a Laboratory manager of having obstructed justice and committed a federal felony for having accepted a resignation and personal check from an individual who had filed a fraudulent travel

claim. • Walp incorrectly identified as ‘‘larceny’’ all property on a list of missing property that included items unlocated at the time the list was prepared and/or

items known to be lost.

• On October 24, I met with the FBI and the US Attorney’s Office to discuss

the TA-33 and Mustang investigations. Information provided at that meeting

reinforced my judgment that Mr. Walp and Mr. Doran had continued to report inaccurate information to Mr. Dickson and to me concerning issues such

as the number of suspects, the investigative approach being used at the Laboratory, timing and related matters.

• Inability to earn and maintain the trust and confidence of executives and senior

managers at the Laboratory or on the part of external reviewers.

• From about mid-September until late November, Lab executives and senior

managers I knew to be individuals who consistently worked well with others

expressed a lack of trust and confidence in Mr. Walp and Mr. Doran. These

problems were reported to me, either directly or indirectly, by S Division

managers, the Laboratory Counsel, other attorneys within the Lab Counsel’s

office, and the Deputy Director of Human Resources.

• Two former Inspectors General, both of whom are ex-FBI agents, and who

were at Los Alamos as members of the External Review Team, expressed

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similar judgments about lacking trust and confidence in Messrs. Walp and

Doran. • Walp and Doran first refused to cooperate with the External Review Team’s

examination of purchase card procedures and then made access to purchasing

documents by the Team’s forensic auditors subject to unnecessary and burdensome conditions. • My understanding is that S Division managers counseled Mr. Walp and Mr.

Doran about their performance and their working relationships sometime in

the September timeframe. Lack of trust and confidence in their work did not

improve, however. In fact, if anything, it continued to deteriorate. • Custody of investigative information.

• On November 8, 2002 we learned that a 30-lb. box of documents apparently

related to on-going investigations and property management at the Laboratory had been anonymously delivered to Adam Rankin, a reporter for the Albuquerque Journal. To the best of my knowledge, no one at the Laboratory

has ever seen the contents of the box. We do not know if it contains any classified information. We know that it contains evidence about on-going criminal

investigations. What we know about the contents is information that has been

shared with us by Mr. Rankin. • I do not know who sent the box to Mr. Rankin, nor do I know who copied

the documents in the first place. I am certainly NOT accusing either Mr.

Walp or Mr. Doran of having done so. In fact, my first instinct was that as

former law enforcement officers, they were least likely among those who had

access to the information to have sent it to a reporter—a judgment that reflects my past experience in law enforcement. I know something about the

culture of law enforcement, and I know that leaking information to reporters

runs contrary to that culture. • Regardless of who sent the box to Mr. Rankin, I was very concerned about

two things: First, the information had been sent to a reporter and not to the

Inspector General, law enforcement authorities or even Congressional investigators. • Second, the only place in the Laboratory where all of this information was

collected and maintained was the Office of Security Inquiries in S Division,

headed by Mr. Walp. The fact that adequate controls of sensitive and potentially classified information related to on-going criminal investigations were

not maintained is a serious management failure.

I was not aware at any time that Walp and Doran had claimed whistleblower status. I also had no reason to think they might legitimately be whistleblowers because

from my perspective all of the information about wrongdoing that they claim to have

uncovered had been identified and reported to appropriate authorities by others before it was noted by Walp and Doran. I am well aware that this view runs counter

to news accounts and, I am told, to public comments and testimony. My view is

based on the following:

• The TA-33 case was reported to OSI by Mr. McDonald in September 2001, before

either Walp or Doran had been hired. As I understand, McDonald repeated his

report directly to the FBI in March 2002. I reported the TA-33 case to the University’s Office of the President and Dr. Browne reported it to NNSA as soon

as we learned of it. • The Procurement Group reported the Mustang case to the Director and me in August 2002 after the bank had alerted them. I reported the Mustang case to the

University’s Office of the President, the NNSA, the DOE Inspector General and

the FBI as soon as we learned of it. • I was told that all of the property reports attached to Mr. Walp’s March 26, 2002

had previously been filed with and reviewed by NNSA and/or the Department

of Energy. For each of the fiscal years involved, I was shown memoranda from

NNSA/DOE acknowledging receipt and approval of property reports. I notified

the University’s Office of the President about Walp’s memorandum as soon as

I was aware of it. • I know of no other cases that were identified, opened or pursued by Messrs. Walp

or Doran.

All of the information available to me about Messrs. Walp and Doran led me to

conclude that the chances for a successful employment relationship were virtually

nil. Accordingly, I approved their dismissals. Once the decision was made, Mr.

Dickson, Laboratory Counsel, and I, in separate conversations with different individuals, notified the University’s Office of the President of the decision.

I believe that reasonable people can and do disagree, and I respect the opinions

of those who believe the decision to dismiss Walp and Doran was wrong. Messrs.

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tices at the Laboratory that need to be changed. Our judgments about what those

conditions represent, however, are diametrically opposed. I believe that the notion

of ‘‘greening the Valley’’ accounts in some measure for our different perspectives and

may even have influenced Walp and Doran to have less than full trust in me and

the senior managers who reported to and were accountable to me.

‘‘KEEPING THE VALLEY GREEN’’

Members of this Committee would have no way of knowing the particular significance of statements like ‘‘keeping the Valley green’’ or that these statements, as

made in the previous hearing, may unfortunately prejudice some of the judgments

and conclusions about theft at the Laboratory.

At Los Alamos National Laboratory, ‘‘the Valley’’ is a very specific and clearly understood term that refers to the Espanola Valley of Northern New Mexico. It is an

area that is overwhelmingly Hispanic. By far the largest portion of the Laboratory’s

Hispanic employees, most of whom are not scientists and engineers, come from

Espanola and surrounding areas, collectively referred to as ‘‘the Valley’’. Many of

its inhabitants’ ancestors settled the area 300 or 400 years ago. They are extremely

and justifiably proud of their heritage and the contributions they have made to the

State, the Laboratory, the Nation and national security over the years.

Overall, ‘‘the Valley’’ is a place of significant rural poverty. It has none of the natural resources that are more common to southern New Mexico; it does not have a

robust industrial base; and it does not share in the benefits of the tourism industry

enjoyed by Santa Fe and Albuquerque to the south. Unfortunately, parts of ‘‘the Valley’’ are plagued by the types of drug problems that accompany poverty in too many

areas of the country.

The Laboratory, and the State Government located in Santa Fe, are the principal

employers for ‘‘the Valley’s’’ residents. And, I am sorry to say, there are those at

the Laboratory who assume that the drug problem in ‘‘the Valley’’ and the fact that

many employees come from ‘‘the Valley’’ means there is an inevitable problem of

theft at the Laboratory and a connection to the drug problem. These assumptions

are expressed by phrases such as ‘‘greening the Valley.’’

Might the Laboratory be a target for thieves involved in drug use? Common sense

would say that it might. But, allegations that it is actually happening, without substantiating evidence or clear indications of such, are irresponsible and risk a kind

of ‘‘racial profiling’’ that all of us ought to reject out of hand.

Such allegations ignore the rigorous screening of the Laboratory’s workforce, including random drug testing. If the alleged problems were as common as some suggest, there should be security clearance, drug test, and performance statistics that

would, at least, give credence to such suspicions. To the best of my knowledge, no

such statistics exist. If they do, they were never brought to my attention. As a result, I find statements like ‘‘keeping the Valley green’’ personally and professionally

offensive.

Throughout my tenure I worked to improve the University’s record of providing

opportunities for Hispanic and other ethnic and minority employees who work at

Los Alamos and who are under-represented in management positions relative to

their proportion of the total workforce. I am confident that there are others who will

continue to advocate for more opportunities for all of the Laboratory’s minority and

ethnic populations. And, I hope that the University and the Laboratory will cease

using terms like ‘‘greening the Valley’’ that result in stereotyping and profiling Hispanic employees and the Espanola Valley.

CONCLUSION

I am extremely proud and honored to have worked with the exceptionally fine

people at Los Alamos National Laboratory. I regret that time and circumstances

prevented Director Browne and me from completing the efforts we began to transform the culture and management practices of the Laboratory.

I categorically reject and deny that there was any cover-up, attempt to cover-up,

obstruction or interference by me or, to the best of my knowledge, by others at the

Laboratory. Such statements are absolutely wrong as evidenced by the consistently proactive approach to reporting and review taken by me and by Director

Browne.

I left the Laboratory with the same beliefs I brought when I started working there

in 1999:

• that it is in the national interest and important for national security that the University of California continue to be involved in the science and technology mission of the Laboratory;

• that longstanding Laboratory cultural issues must be addressed, including:

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• operational formality and management discipline;

• fiduciary responsibility;

• accountability; and

• a commitment to train and develop competent managers.

I take responsibility for the dismissal of Messrs. Walp and Doran. From my perspective, their dismissal was strictly a management issue. I believe the decision to

dismiss them was the right one based, as it was, on repeated instances of inaccurate

and incomplete reporting; apparent inability to gain the trust and confidence of executives and senior managers at the Laboratory as well as external reviewers with

backgrounds in law enforcement; and management failure in the custody of investigative information. I had no knowledge that they had claimed whistleblower status

and no reason to believe that they had any legitimate grounds for doing so.

The term ‘‘keeping the Valley green’’ as a surrogate for allegations of theft and

a presumed connection to the drug problem in the Valley should either be immediately substantiated with evidence or publicly rejected by the University and the

Laboratory.

Much more is right than is wrong at Los Alamos National Laboratory. And, I

firmly believe that we should all be grateful to the thousands of dedicated, honest,

patriotic workers at Los Alamos, present and past, who are committed to making

the world a better and more secure place.

Mr. GREENWOOD. Thank you, Mr. Salgado.

Mr. Dickson.

TESTIMONY OF FRANK P. DICKSON, JR.

Mr. DICKSON. Good morning, Mr. Chairman.

Mr. GREENWOOD. Good morning.

Mr. DICKSON. Distinguished members of the committee. My

name is Frank Dickson and I am a lawyer. After 24 years in private practice I joined the legal staff of the Los Alamos National

Laboratory in 1990 and was named its Laboratory Counsel in 1997.

I am proud to serve in this position and I view it as a significant

opportunity for public service.

I am very conscious of the important responsibility that we at

the Laboratory have to the Federal Government and I believe that

the great majority of my colleagues at the Laboratory share those

beliefs.

It is staggering to me that I am accused by men who worked

with me for a very few weeks of dishonesty and conduct bartering

on obstruction of justice. These allegations are false. Because of the

attorney/client privilege I have not previously spoken out publicly

on these matters. I sincerely appreciate the opportunity to appear

before you today, testify under oath as to my impressions, and to

answer your questions.

I first became aware of the various investigations at the Laboratory in late June 2002 when the FBI began investigating theft at

TA-33. Later Lab management put our office, the Office of Laboratory Counsel, in charge of coordinating with the FBI our mutual efforts in these cases. This coordination role is an important responsibility and one that I take very seriously.

Any review of my interactions with the FBI will, I believe, show

that our office carefully coordinated the Laboratory’s efforts with

those of the FBI in all respects. I do acknowledge that I was anxious for the TA-33 and Mustang investigations to proceed. These

cases involve long-term Laboratory employees in sensitive positions

and we could not allow them to remain indefinitely.

I knew from past experience that the University could not count

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rity concerns for the Laboratory’s administrative needs, and I knew

the Laboratory would need its own independent investigation.

The Laboratory Office of Security Inquires was charged with

being the lab’s day-to-day liaison with the FBI when Walp was the

OSI’s office leader and Steve Doran worked with him. I welcomed

their investigative skills. Our office was also directed to facilitate

the external review team, the team that was looking into the purchase card issues to expedite their efforts in support of that review.

OSI was assigned to assist my office in doing this job. In August

Messrs. Walp and Doran and I met to discuss the status of the TA33 and Mustang investigations. I outlined for them the need for an

independent investigatory file for the Laboratory and for the need

for full cooperation with the purchase card review team.

As time passed I found the information they provided both insufficiently thorough and unreliable. More importantly, on the external review team assignment, OSI made it unreasonably difficult for

the team to have access to information it needed to perform its important work despite the fact that Mr. Salgado and I had made

specific arrangement with the FBI’s Special Agent-in-Charge in Albuquerque for the review team’s access to the records pertaining to

the investigation.

Mr. Walp did not accept this in spite of the arrangements that

had been made. In my conversations I am sure I did say that our

employer was the University of California and the university had

independent interest in obtaining the facts. I see nothing wrong

with those statements even today.

I never told Mr. Walp nor Mr. Doran that our job was to protect

the Laboratory’s image and the university’s contract. That is not

the way I look at my job. In mid-September Stan Busboom, Mr.

Walp’s division leader, met with me and asked for my opinion on

the performance of Messrs. Walp and Doran.

I told Mr. Busboom that I was concerned that I no longer felt I

could work with them. After discussing the matter further with

their immediate supervisor, Mr. Gene Tucker, I relented and

agreed to try again to work with them, which I did.

About a month later Deputy Director Salgado and I attended a

meeting at the U.S. Attorney’s Office in Albuquerque with both

representatives of the FBI and the U.S. Attorney. Our purpose was

to learn the status of anticipated prosecutions in the TA-33 and

Mustang cases.

At that meeting we were told that a third TA-33 employee was

neither a suspect nor cooperating witness in the investigation. This

was directly contrary to information provided to me by Messrs.

Walp and Doran and was especially troubling to me because it

raised the possibility that this third employee would have to be

dealt with by the Laboratory after the FBI investigation with little

help from the thin investigative record compiled by Messrs. Walp

and Doran.

I concurred that day with Mr. Salgado’s judgment that they

should be removed from their FBI liaison roles. I did not make the

decision to terminate Messrs. Walp and Doran. However, it is very

clear that my stated observations about their work were important

factors in the decision relating to their termination.

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Putting aside the concerns that I have expressed regarding

Messrs. Walp and Doran, I do recognize that the circumstances

that these men confronted when they came to the Laboratory were

less than ideal. Upon reflection I realized that we could and should

have done more to provide them with a better understanding of the

Laboratory and their roles.

In retrospect I believe the Laboratory should have attempted to

work through the difficulties with Messrs. Walp and Doran.

In closing, I want to emphasize that my sole intention in connection with all the matters being discussed today was to ensure that

thorough investigations were conducted that appropriate remedial

actions were taken at the Laboratory with respect to the problems

that were identified. Thank you.

[The prepared statement of Frank P. Dickson follows:]

PREPARED STATEMENT OF FRANK P. DICKSON, LABORATORY COUNSEL, LOS ALAMOS

NATIONAL LABORATORY

Mr. Chairman, Mr. Deutsch, and distinguished members of the Committee. Thank

you for the opportunity to address the Committee today.

My name is Frank P. Dickson. I am a native of Corsicana, Texas, and I graduated

from Baylor University Law School in 1965. From 1966 until 1990, I practiced law

in Santa Fe and Albuquerque, New Mexico; and in 1990, I came to the Los Alamos

National Laboratory where I became Laboratory Counsel in 1997.

Throughout 2002, I had a ‘‘dual report’’ to the General Counsel of the University

of California, and to the Director of the Laboratory (including his Principal Deputy

Laboratory Director).

Messrs. Walp and Doran have testified to this committee that I obstructed justice,

interfered with FBI investigations, impeded their investigations, and attempted to

cover up fraud, theft, and wrongdoing at the Laboratory. These allegations are incorrect and misstate the complex role relating to these investigations assigned to me

and the Office of Laboratory Counsel.

In all of my actions as Laboratory Counsel on these matters, I had three goals:

(1) to make sure the Laboratory had accurate and sufficient information to make

appropriate decisions regarding national security concerns; (2) to make sure I provided accurate and timely information to the various entities (the FBI, the DOE,

and the United States Attorney’s Office) so they could take appropriate actions; and

(3) to make sure the Laboratory had accurate information upon which to make appropriate employment decisions regarding its workforce.

Shortly after discovery of the ‘‘Mustang case’’ which involved the apparent use of

a Laboratory purchase card to acquire a Mustang automobile, Laboratory management recommended that the University undertake a comprehensive, independent review of its entire purchase card program to identify vulnerabilities and develop recommendations designed to prevent future abuses and to identify cases of fraud,

waste and abuse. Based upon this recommendation, the University directed the

charter of a review team consisting of two former and highly regarded inspectors

general from federal agencies and a forensic unit from the University’s outside auditor, PricewaterhouseCoopers, to conduct the review.

Because this review team would be working in areas that would overlap with

known or expected federal investigations, I was asked to coordinate with these external agencies and within the Laboratory to assure that the Purchase Card Review

Team had the information it needed to perform its important work and to assure

appropriate coordination with affected law enforcement and other agencies.

As Laboratory Counsel, I represented the Laboratory’s legal interests throughout

the Wen Ho Lee investigation in 1999-2000, and during the ‘‘missing hard drive’’

incident in the spring and summer of 2000. Both of these cases involved extremely

complicated interactions with people throughout the government, the University and

the Laboratory. Through this experience, I developed a thorough understanding of

the multiple important issues that arise in these situations and an understanding

of the requirements and limits on what we should and should not do.

Although cooperation with law enforcement, including the FBI, is of prime importance, there are other issues of extreme importance to the Laboratory and the government in these situations, including: (1) the Laboratory’s responsibility for national security, which includes ensuring that only reliable persons have access to

classified information and sensitive facilities; (2) the Laboratory’s responsibility to

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keep DOE and other program sponsors fully informed of unusual events that might

impact the safety and security of their programs; (3) the Laboratory’s need to have

accurate information to make appropriate employment decisions and protect the

safety and security of its workforce; and (4) the Laboratory’s responsibility to protect

government property. There are often no easy answers to many of the situations

that arise, because of the multiple, parallel and somewhat competing interest of the

various individuals and entities that may become involved; and the role of Laboratory Counsel is to help chart a path that deals with all of these issues as effectively

as possible.

I believe that a careful study of all of the facts will demonstrate that I and the

members of Laboratory Counsel staff carefully coordinated our efforts with the DOE

Office of the Inspector General and the FBI. I believe that the facts will demonstrate that our efforts were directed to advancing the work of the purchase card

review team and following up on efforts to deal with problems disclosed by its work.

Another major effort was to assure that Laboratory management had access to all

information necessary to perform its role.

It was clear to me that Messrs. Walp and Doran were primarily focused on possible criminal prosecutions and did not agree with, appreciate or understand the importance of the other elements of my responsibilities. The resistance I encountered

from Messrs. Walp and Doran, and the inadequate information I received from

them, impeded my ability to do my job.

I have never prevented anybody from uncovering fraud, theft or other wrongdoing

at the Laboratory. In fact, the Purchase Card Review Team was publicly announced

and its work was, from the beginning, intended to be fully disclosed to all interested

government entities as well as the public. I believe the aggressive response to the

Mustang issue designed by the University and Laboratory management was a

strong, open and creative response to the obvious concerns raised by the Mustang

issue; and my goal has been to do what I could to assure that the review team had

everything it needed to do its work completely and in a timely fashion. My goal was,

is, and will be to provide complete and accurate information to the FBI, the United

States Attorney, the DOE, and the University, to assist them in their roles.

Principal Deputy Laboratory Director Joseph Salgado directed that information

and documents be sent to my office for transmittal to the interested agencies. This

was done not to censor or withhold information, but to keep track of what information was being provided, and to ensure that information was provided.

The following narrative describes my involvement in the specific matters that

have been the subject of this committee’s investigation.

THE ‘‘TA-33 INCIDENT’’

I first became aware of the ‘‘TA-33 incident’’ around July 1, 2002, from S Division

Leader Stanley Busboom, shortly after the FBI decided to open a criminal investigation into the matter.

The allegations were that several (three to eight) Laboratory employees were

stealing government property and storing the material at TA-33. TA-33 is a highly

sensitive area at the Laboratory. The Laboratory’s Office of Security Inquiries (OSI)

was responsible to act as liaison with FBI Special Agent Jeff Campbell. Mr. Walp,

as office leader at OSI, was directed by Laboratory management to work closely

with the Office of Laboratory Counsel and to keep me advised of the progress of the

investigation. The continuing presence in the workplace of Laboratory employees

who were suspected of theft and who worked in a highly sensitive and secure location was of great concern to me. It raised national security concerns and employment concerns. I remember that Congress criticized the FBI and the Laboratory for

permitting Wen Ho Lee to remain in a position where he had access to classified

information.

In order to understand the issues involved and to determine the appropriate action to take, it was necessary for the Laboratory to investigate and have access to

information regarding these allegations. Therefore, at my request, a senior staff attorney, Christine Chandler, initiated discussions with Mr. Walp and Mr. Campbell,

and it was agreed that Mr. Walp or Mr. Doran would be permitted to participate

in FBI interviews on this matter, and would develop and make available to my office written summaries of those interviews. The FBI recognized the need for the

Laboratory to have access to this information, and to conduct a parallel investigation with the FBI. However, Messrs. Walp and Doran apparently viewed my efforts

to obtain this information as unwarranted interference with their role in assisting

the FBI, and they were reluctant to share the information they gathered with me.

On August 7, 2002, Mr. Salgado and I met with the FBI’s Special Agent-in-Charge

for New Mexico at his office in Albuquerque to coordinate the TA-33 matter, the

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Mustang case, and other related issues. The principal results of that meeting were

an agreement that representatives of OSI would assist the FBI in its investigations,

conduct a parallel investigation to keep management informed of the circumstances

and assure the Laboratory of an investigatory record if administrative action were

required. An agreement was reached that OSI staff would keep a parallel set of

notes. During that meeting, the FBI was informed of the very sensitive nature of

the activities at TA-33 and the Laboratory’s concerns about leaving employees suspected of criminal conspiracy in that location.

On August 12, 2002, I met with FBI Special Agent Mike Lowe, Special Agent Jeff

Campbell, John E. ‘‘Gene’’ Tucker, Deputy Director of the Laboratory’s Security Division, and Kenneth Schiffer, the Laboratory’s Internal Security Officer, to talk further about security and counterintelligence concerns that might exist at TA-33 and

how that might effect the on-going investigation. The FBI was informed that the

Laboratory had certain reporting requirements regarding highly sensitive work and

that at some point, the sponsors of the work in TA-33 would need to be informed

of the situation there.

Because of security concerns, the Laboratory wanted to remove the suspects from

the workplace as soon as possible. I had several discussions with the FBI about

their plans to serve search warrants on the suspects and search their residences.

We were told that until the warrants were served, it was important that the suspects remain unaware that they were under investigation.

Because of the continuing presence of suspects at TA-33, Mr. Salgado and I met

with the FBI Special Agent in Charge in Albuquerque and representatives of the

Office of the U.S. Attorney on October 24, 2002. The FBI indicated that it was not

yet prepared to serve the warrants, and requested that the Laboratory not take any

action against the suspect employees for another forty-five days. In response to our

questions concerning the status of the investigation, Mr. Salgado and I were informed (1) that the investigation focused on two Laboratory employees only, (2) that

sufficient evidence existed for the indictment and conviction of those two employees,

(3) that the FBI was not inquiring into other potential suspects which might delay

the investigation and (4) that the purpose of the requested delay was to see if the

suspects would take more property which might enhance the possibility of a conviction or the severity of the sentence.

Mr. Salgado asked the FBI and the U.S. Attorney whether we were being told to

defer action to remove the suspects from the sensitive areas. After some discussion,

we were told that the decision rested with the Laboratory and we were not being

directed to do anything. Mr. Salgado informed the FBI and the U.S. Attorney that

we needed to discuss the issue with other Laboratory managers and would reply

after having met with those managers in Los Alamos.

Upon returning to the Laboratory, Mr. Salgado convened a series of meetings with

involved Laboratory managers to assess the magnitude of the security issues. Those

managers conferred with program sponsors who were concerned about the presence

of the suspects in the sensitive areas and wanted them removed. I was instructed

by Mr. Salgado to inform the FBI that the Laboratory would read the two suspects

out of the program, thereby denying them access to TA-33, and assign them to other

work, on October 31, 2002. This was not an effort to ‘‘force the FBI to take premature investigative action,’’ as Mr. Walp alleges. It was an effort to remove criminal suspects from access to ultra-sensitive classified information while the FBI continued its investigation.

Mr. Walp has told this committee that I ‘‘attempted to gain entry’’ into TA-33,

thereby placing the FBI investigation in jeopardy. John Tapia, a Laboratory employee who was working with Messrs. Walp and Doran, told me that Messrs. Walp,

Doran and Campbell thought it was important that I personally visit TA-33. I

agreed to the request; however, on the evening scheduled for the visit, I received

a call from Special Agent Campbell asking me not to make such a visit, because

of the risk of being observed. The FBI was concerned that the suspects not be alerted that they were under suspicion. I readily agreed with Mr. Campbell, and never

visited the site. Mr. Walp’s statement that I ‘‘became irate at Doran and Walp because they failed to cajole the FBI into allowing [me] access’’ is not correct. I have

never discussed this issue with either Mr. Walp or Mr. Doran.

The Laboratory’s Audits and Assessments Office was also conducting investigations into activity at TA-33. I informed Katherine Brittin, the director of Audits and

Assessments, that an employee on her shift was a potential suspect. I informed her

of this after consultations with the FBI and senior Laboratory managers, because

I did not want Ms. Brittin inadvertently to make any statements to this potential

suspect that might alert him to the ongoing criminal investigation, and thereby compromise it. My action was an effort to protect, not to jeopardize, the FBI’s investigation.

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THE ‘‘MUSTANG CASE’’

I became aware of the ‘‘Mustang case’’ on or about July 29, 2002, when I returned

from vacation. I was told that a Laboratory employee was suspected of having attempted to purchase a Ford Mustang automobile, and various auto parts, on a Laboratory credit card from a company in Arizona named ‘‘All Mustang.’’ Mr. Salgado

took an active interest in the investigation of this case. He directed Mr. Walp or

Mr. Doran to travel to Phoenix to interview the company that had recorded the

charge, and directed OSI to provide its investigative reports directly to me.

The FBI took over investigation of this case on or about August 2. I informed the

DOE OIG of the case in late August. On August 7, 2002, Mr. Salgado and I met

with FBI Special Agent in Charge Andreas Stephens and Mr. Campbell at FBI

headquarters in Albuquerque. There were several topics of discussion at the meeting: (1) Mr. Salgado informed the FBI of the importance of the Mustang case to the

Laboratory and the need for the FBI to move forward with the investigation as

quickly as possible. (2) Mr. Salgado informed the FBI that he was concerned about

the national security implications of having suspected felons continuing to work in

TA-33, a sensitive area, and that there was a need to move the TA-33 investigation

forward quickly, as well. (3) Mr. Salgado informed the FBI that the Laboratory had

security responsibilities that may impose limitations on FBI access to people and

facilities, and that may require the Laboratory to make reports of the situation

through their own chain of command. It would be important for the Laboratory and

the FBI to coordinate. (4) Mr. Salgado and I informed the FBI that the Laboratory

was conducting internal investigations into the purchase card program and the

Mustang case, and that we would need to review our own records and meet with

our own employees to gather information. Mr. Stephens agreed that the Laboratory

should have access to its own records, but that it should coordinate with the FBI

before interviewing witnesses. (5) The Laboratory was interested in getting reports

of information discovered in the FBI investigations and would either need access to

FBI reports, or be allowed to prepare its own reports. We agreed that Mr. Doran

would accompany Mr. Campbell on witness interviews and prepare his own investigation reports for Laboratory internal use. Finally, we agreed to meet again on August 12, 2002.

On August 12, I met with Mr. Walp, Mr. Doran and Mr. Tucker to discuss the

status of the Mustang investigation and other ongoing investigations. The two purposes of the meeting were (1) to obtain the latest, most reliable information about

whether the suspected employee had committed fraud; and (2) to explain to Messrs.

Walp and Doran specifically what the Laboratory needed from them in terms of providing reports on the status of the investigations so that the Laboratory could fulfill

its national security obligations to the DOE and take whatever personnel actions

were necessary.

During the August 12 meeting, I asked Mr. Walp for records that had been collected as part of the investigation. Mr. Walp specifically said he would not discuss

what had been learned about the Mustang case and that he would not produce the

records to me unless and until the FBI approved it. I explained that at a meeting

on August 7, the FBI had already given the Laboratory permission to get information about the Mustang and the TA-33 incidents. It was apparent to me that Mr.

Walp did not appreciate that as liaison for the Laboratory his duties included sharing information with senior Laboratory managers, not withholding information. I reemphasized to Messrs. Walp and Doran the importance of their keeping their own

investigation notes and providing that information to me as it was generated.

I believed that at this August 12 meeting, I had sufficiently explained OSI’s liaison role to Mr. Walp and that there would be no further problems with getting current information from him and Mr. Doran. Although Mr. Walp agreed to provide me

with the records and reports, he argued against having to do so. Nevertheless, there

continued to be substantial delays in my receipt of written reports prepared by

Messrs. Walp and Doran, and in some important cases I received no report of their

investigative activities. Current information was necessary for Laboratory managers

and me to do our jobs.

CASINO CREDIT CARD INCIDENT

In early August 2002, in the course of an internal inquiry into purchase card use

arising from the Mustang investigation, a Laboratory Purchase Card Administrator

discovered that a Laboratory sub-contract worker had used her purchase card to buy

gas and groceries and obtain cash advances at local casinos. The total suspected loss

has been determined to be approximately $2,000.

On August 12, 2002, the Purchase Card Administrator notified OSI of her discovery and Doran immediately opened an inquiry. The FBI was notified and FBI

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Special Agent Campbell attended the interview of the worker. On August 19, 2002,

the worker admitted that she had used her purchase card to obtain cash advances

at a casino, and that she had used the cash to gamble. Because she was a contract

worker, and not a Laboratory employee, the Laboratory could not fire the worker.

However, the worker’s contract employer was immediately directed to remove the

worker from the Laboratory, which it did. She is not eligible to work at the Laboratory either as an employee or as a contract worker.

I notified the DOE OIG of this case verbally on August 27, and in writing on September 12, 2002. Contrary to Mr. Walp’s and Mr. Doran’s assertions, there was no

effort to cover up this matter. The matter was investigated, the appropriate agencies

were notified, and the worker was removed from the work site. Efforts are under

way to recover the misappropriated amounts from the contract employer.

THE FORGED VOUCHER INCIDENT

In September 2002, a Laboratory employee reported to the Laboratory’s Human

Resources Division that an employee had wrongfully authorized, drawn and cashed

a Laboratory check to herself for $1,800.

It is my understanding that HR immediately referred the matter to S Division,

so OSI could investigate. On September 23, the employee appeared at work, admitted to the misappropriation, tendered a check to reimburse the Laboratory for the

entire amount of the misappropriation, and resigned. The Laboratory told the employee she might be criminally prosecuted, and made no agreements whatsoever

about whether any other action would be taken against her. The record of the employment separation states that this was a ‘‘resignation in lieu of discharge.’’ The

employee is not eligible for re-employment at the Laboratory for a period of seven

years. This matter was handled by the HR and S Divisions. I did not become aware

of the case until after the employee had resigned, and did not have knowledge of

the circumstances before the check was accepted.

Upon learning that the employee had resigned and tendered back the misappropriated funds, Mr. Walp told HR Deputy Division Leader Philip I. Kruger that he

may have committed the federal criminal offense of obstruction of justice. Mr.

Kruger consulted with me and asked my legal opinion about whether he had acted

inappropriately or had committed the federal offense of obstruction of justice by allowing the resignation and repayment. I responded that in my opinion there was

nothing illegal or inappropriate about how Human Resources had handled the matter, and that Mr. Walp was wrong in his assertions. By resigning, the employee had

relinquished any right to file an internal grievance, as she could if she had been

terminated. The Laboratory had recovered the misappropriated money. Nothing prevented law enforcement from going forward with criminal charges. The employee

had admitted her guilt. The Laboratory treated the resignation as an involuntary

termination for cause, and the employee is ineligible for rehire. The DOE OIG was

informed of the matter, and the matter was referred to the DOE OIG for investigation.

This event contributed to the erosion of my confidence in Mr. Walp’s judgment

and his ability to interact and communicate effectively with personnel at all levels

at the Laboratory.

Media reports have suggested that because these employment terminations were

not made public, there must have been some attempt to cover up their crimes. This

allegation is incorrect. The Laboratory, as part of the University of California, substantially complies with the California Information Practices Act and does not disclose personal information, including performance assessments and corrective or disciplinary actions, to the general public, except under limited and specific circumstances. The Laboratory does not disclose to the general public the details of the

basis for a termination or information about the circumstances leading to a resignation, unless that individual authorizes such a disclosure. By not disseminating the

circumstances of individual personnel actions, the Laboratory is simply observing

best employment practices and acting consistently with California law.

PURCHASE CARD AND PROCUREMENT INVESTIGATIONS

When the Mustang case surfaced, Mr. Salgado instructed me to lead a team to

conduct an internal review of the Laboratory’s purchase card program. The team

and I collected and reviewed relevant records, including purchase card procedures

and memoranda from other agencies such as the U.S. Navy regarding their own experiences with purchase cards.

As a result of this internal review, the Laboratory instituted an immediate corrective action plan to mitigate misuse and abuse. On August 23, 2002, Associate Director of Administration Richard Marquez ordered specific revisions to the purchase

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card. The revised procedures included new requirements for purchasing authority,

review and approval of monthly statements and training for cardholders and business team leaders. Mr. Salgado and I also recommended to Laboratory Director

John Browne that an external review team be appointed to conduct a more comprehensive review of the purchase card program.

Director Browne requested University approval for an independent review. The

University agreed and on August 16, 2002, UC Vice President John McTague instructed Director Browne to proceed with the proposal to establish an external review team to examine irregularities in the Laboratory’s purchase card program. The

team included auditors from the firm of PricewaterhouseCoopers (‘‘PwC’’). Former

DOE Inspector General John Layton chaired the team, assisted by former Department of Labor Inspector General Charles C. Masten.

The team was charged with conducting a comprehensive review of the purchase

card program. By charter, the external review team was to have access to all LANL

documents and records. All Laboratory leaders were informed to cooperate fully with

the team, provide the team documents and be interviewed as requested.

So as not to interfere with the FBI’s ongoing investigations, the external review

team’s activities were carefully coordinated with the FBI, as evidenced by the numerous communications (meetings, telephone calls and correspondence) between the

Laboratory and the FBI on this subject.

On August 22, 2002, Mr. Salgado, Mr. Tucker, Mr. Doran and I met with the FBI,

to inform it about the external review team. We told the FBI that the team would

be investigating fraud, waste and abuse in the purchase card program, including the

Mustang case and the purchase of tools from G&G, a vendor in Albuquerque. We

told the FBI that the team would conduct an end-to-end review of the purchase card

program and a forensic evaluation of whether there had been any misappropriation.

The FBI was invited to provide input so that its investigation would be coordinated

with the external review team’s investigation. We specifically discussed the boxes

of documents that had been collected from the office of the suspect in the Mustang

case and the fact that the external review team would review those documents as

part of its investigation. The FBI agreed that it was appropriate for the external

review team to review those documents. The FBI requested that the Laboratory preserve the documents as they would any other business record.

In September, October and November, there were correspondence and meetings

between my office and the FBI to establish the external review team’s interview list

and to insure that it did not interfere with the FBI’s investigation. By letter dated

September 11, 2002, FBI Special Agent in Charge Andreas Stephens concurred with

the Laboratory’s decision to have the external review team audit purchase card program records and, with advance approval, conduct interviews. My office provided

the FBI with lists of Laboratory employees whom the external review team wished

to interview and the FBI approved the list, with some exceptions.

Any allegation that the Laboratory was not cooperating with the FBI in the investigation of purchase card misuse completely ignores these numerous interactions between my office and the FBI. Indeed, Agent Stephens specifically expressed his gratitude to me for the Laboratory’s continued cooperation in coordinating the investigations.

The OSI was reluctant to permit the external team access to the suspect’s records,

asserting that the records were FBI evidence. Mr. Walp permitted PwC auditor

Kristin Rivera to examine the documents, but under such stringent conditions that

it was difficult for the team to effectively review the material.

Eventually, Mr. Layton directed Mr. Masten (himself a former FBI agent) to go

to OSI and determine whether the records appeared to be impounded by the FBI

and whether the tape protecting the records was FBI tape. Mr. Masten inspected

the records and determined that the FBI had not taped the records, that they were

not FBI records, and that they had not been impounded by the FBI. After several

phone calls, the records were transferred that day to the Office of Laboratory Counsel for the external review team to examine there, without restriction.

Thus, although the external review team did eventually get to review the documents it needed, it was only after a prolonged struggle with OSI, which appeared

to mistakenly believe that its investigation work was immune from review and use

by Laboratory managers. In my opinion, this demonstrates a fundamental misconception by Mr. Walp about his job duties and responsibilities. It is also inexplicable to me, because I had previously obtained FBI permission to review these

records, and I had so informed Mr. Walp. This incident was one of the final factors

that led to my request that Messrs. Walp and Doran be removed from their roles

as liaison with the FBI.

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THE EMPLOYMENT TERMINATIONS OF MESSRS. WALP AND DORAN

Initially, I welcomed the opportunity to work with investigators with the backgrounds and experience of Messrs. Walp and Doran, However, as I continued to try

to work with them on the purchase card and related investigations, I became increasingly disappointed and frustrated over my inability to secure the cooperation

and assistance I expected from OSI. I frankly did not understand their reluctance

to cooperate with what I perceived to be our common goals. Their resistance hampered my ability to do my job, which was to provide the FBI, the DOE and the University with accurate and timely information about possible misconduct, so those entities could make appropriate decisions regarding criminal prosecutions, national security, and employment matters.

It was never my purpose or intent to cover up or withhold any information, nor

to impede the FBI or DOE from investigating any misconduct, and I never did so.

In October 2002, following a meeting with the United States Attorney in Albuquerque, I concurred with Mr. Salgado’s decision to remove Messrs. Walp and Doran

from their roles as liaison with the FBI. They did not appear to understand that

my office had a legitimate interest in obtaining the information necessary to determine the Laboratory’s legitimate concerns. Instead, Messrs. Walp and Doran appeared to view me, the Office of Laboratory Counsel, and the purchase card review

team as adversaries.

I did not make the decisions to terminate the employment of Messrs. Walp and

Doran. However, it is clear that my complaints about their assistance and cooperation were important factors in the ultimate decision. I provided information and

opinions about their performance, I expressed my frustration in working with them,

I participated in discussions about their removal, I reviewed and commented on documents regarding their termination, I told Mr. Salgado I could not work with them

on the assignment he had given me, and I provided legal advice to the Laboratory

about the risks of terminating their employment.

Putting aside the concerns that I have expressed regarding the performances of

Messrs. Walp and Doran, I do recognize that the circumstances these men confronted were less than ideal. Upon reflection, I realize that we at the Laboratory

could and should have done more to provide Mr. Walp and Mr. Doran with a better

understanding of the Laboratory and their roles, including an understanding of all

the parties with a legitimate oversight interest at the Laboratory, and the importance of comity between these parties. If they had been provided with adequate

guidance regarding the specifics of their job duties, perhaps they might have better

appreciated the inter-relationship between law enforcement concerns and national

security and other legitimate concerns. In retrospect, I believe the Laboratory

should have attempted to work through the difficulties with Mr. Walp and Mr.

Doran.

It has always been my sole intent to preserve and protect the law, and to provide

my client, the University, with my best legal advice and services, to promote and

protect the interest of the government in the performance of my job, and to uphold

the ethics of my profession. I have tried very hard to do that, and I believe I have

done so.

Thank you for the opportunity to present my views on these matters.

Mr. GREENWOOD. Thank you.

We thank Mr. Udall for joining us and Mr. Walden for joining

us as well. The Chair recognizes himself for 10 minutes for questions.

Let me address a question to Mr. Salgado first. Several times in

your written statement you claim that you had ‘‘no knowledge that

Walp and Doran had claimed whistleblower status and no reason

to believe that they had any legitimate grounds for doing so.’’ I

think that is a direct quote.

During our first hearings on these matters, Mr. Darling testified

that shortly after the firings he asked you to explain why you fired

Mr. Walp and Mr. Doran. He told this to me, that you said you

were afraid that Walp and Doran would achieve whistleblower status and that you felt that their new status would prevent LANL

from firing them within their 1-year probationary period.

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Mr. Darling also told committee staff that you told him that you

suspected Walp and Doran had anonymously sent the 30-pound box

of documents to the Albuquerque Journal and that you wanted to

stop the leaks so you fired Walp and Doran. Your testimony is inconsistent with Mr. Darling’s. I would remind you that you are

under oath here. Do you wish to amend your testimony in anyway

or can you explain these differences?

Mr. SALGADO. No, I do not care, Mr. Chairman, to amend my testimony. Let me address the first issue. The first issue dealt with

timing. The question by Mr. Darling and his staff, as I recollect,

during the course of their investigation is they wanted to know

why was the timing important in the process.

I indicated to Mr. Darling that the discussion about the release

of Mr. Walp and Doran, they were on probationary status and the

Laboratory needed no justification to let them go. I said that we

had had this discussion on their status in the early part of September and October timeframe.

I indicated to him that with the IG coming out and with the IG

that we at the institution had requested to come out pursuant to

the article that appeared in Energy Daily about the senior management cover-up. I indicated to him that one of the reasons for the

timing of that was that I wanted to make sure that we did it so

that it did not appear to be that they were being terminated because of a retaliatory component, i.e., whistleblower status.

To this day, sir, I still have no indication, No. 1, that they either

have claimed and/or are whistleblowers pursuant to the instructions of the California sketch or the administrative process.

The second component dealt with, sir, as to the 30-pound box of

documents. I do not believe that I have ever accused—I have ever

accused Mr. Walp or Doran of releasing those documents. But what

I have addressed is I believe that the documents that were released, the 30 pounds of pages or 30 pounds of documents were released did come out of the OSI or into that group of which Mr.

Walp had supervisor responsibilities.

The issues with those documents were twofold, sir. No. 1, that

obviously any time that 30 pounds of internal documents are released it would be a concern to any institution. Second point is I

did not know, and still to this day do not know whether those documents being released that were, in my opinion, in the supervision

of that unit within the security division had any classified material

in them whatsoever. That, of course, would be a concern both to

this committee and other committees at the Hill.

The second component of that box that was released, it did raise

issues and concerns to me that I was led to believe, and do believe,

that that box contained sensitive information concerning ongoing

criminal investigations that were undertaken both internally and

externally by the Laboratory.

Nowhere have I ever indicated that I thought that I would personally accuse, as my statement indicates, that either Walp or

Doran were responsible for the release of those documents, though

there is a responsibility if the documents came from that group.

Mr. GREENWOOD. Did you tell Mr. Darling that you suspected—

I heard you clearly say twice that you did not accuse them. Did you

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tell Mr. Darling that you suspected that they were the source of

this document leak?

Mr. SALGADO. I believe and my indication to Mr. Darling is that

out of that unit upon which Mr. Doran was employed and being supervised by Mr. Walp that out of that unit it was my professional

opinion, and I believe supported by other members at this table,

that is where the information came from.

Mr. GREENWOOD. Okay. So you did not accuse them but you did

suspect them?

Mr. SALGADO. I suspected it was out of that unit. As my statement indicate, as prior law enforcement, and I mentioned to various staff members, I have not and will not impugn their integrity

as to releasing those documents. It is not the culture of law enforcement and, as a ex-cop, I would not do that.

Mr. GREENWOOD. And you just raised the issue of the possibility

of there being classified information among those documents. Did

you raise that concern with anyone in law enforcement or anyone

else?

Mr. SALGADO. Yes, sir. I did. Before I left it was an issue. I

raised it with the University of California. During this time things

were moving quickly. I personally contacted the IG and raised the

issue. They were not sure how to handle it given 1st Amendment

rights and reporters. Then I also contacted NNSA and put it in

DOE’s court basically to assume any responsibility for follow-up indications on were there any classified documents in there or additional sensitive documents.

Mr. GREENWOOD. When did you make the decision to fire Walp

and Doran?

Mr. SALGADO. Actually, Mr. Busboom probably has the better

dates. The discussion and the decision, I do not have the exact

date, sir. I really do not. It was sometime obviously after the October 24 meeting with the U.S. Attorney and the FBI. It was sometime in the first part of November is my recollection.

There was a decision made for the termination of Mr. Walp and

Doran. Then it was delayed at least a week plus because one of the

individuals, I believe, had gone on vacation so we backed that up

a week.

Mr. GREENWOOD. Who participated in making the decision to fire

these two gentlemen?

Mr. SALGADO. There as a meeting, I believe, that took place between myself and Mr. Dickson. I believe Mr. Busboom was there.

I believe that Mr. Holt was there and I believe that Mr. Marquez

was at the meeting when the discussions took place about, No. 1,

the underlying reasons for the terminations and, No. 2, the process

that should be engaged in.

Mr. GREENWOOD. Who drafted the letter that ultimately went to

them?

Mr. SALGADO. There was a draft letter that was proposed out of

my office that accumulated the information from various components of the Laboratory. That draft letter was sent through the

chain of command through Mr. Holt down, I believe, to Mr.

Busboom. Mr. Busboom deleted some areas and added additional

facts in that letter and I believe that is the final document that

went forward, if I am not mistaken.

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Mr. GREENWOOD. Did you have conversations with Mr. Busboom

about whether or not he should sign that letter?

Mr. SALGADO. Whether he should sign the letter? I do not believe

that I had conversation with Mr. Busboom about if he should sign

that letter.

Mr. GREENWOOD. Okay.

Mr. SALGADO. I do not recall.

Mr. GREENWOOD. What conversations did you have with Mr.

Dickson regarding the November 20 letter?

Mr. SALGADO. If it was the November 20 letter, there were conversations that took place in a general form. I believe that the

draft letter that was submitted was vetted through the appropriate

individuals that had input into the letter and the meeting that we

had with a discussion over the termination.

Mr. GREENWOOD. Did you have conversations with Dr. Browne

about this matter?

Mr. SALGADO. Yes, sir.

Mr. GREENWOOD. Could you describe those conversations for us?

Mr. SALGADO. Yes, sir. My recollection is that after we had the

meeting when there was the decision made about the termination

of the individuals. I would like as a sense of background to backup

that the first part in the October/September timeframe I had a discussion with Mr. Holt through the associate director and Mr.

Busboom of trying to get to a reasonable position of a path forward

for Walp and Doran to see whether or not their tenure within the

Laboratory could be successful. Subsequent to that I had asked—

I did ask them to make a determination whether they were going

to keep them or not.

After the Dr. Browne conversation, as I recollect, it took place in

an evening. Mr. Dickson was there with myself. We had a discussion about the reasons, the rationale for the terminations. That

was in the evening. We went through what I have articulated partially in my statement.

Mr. GREENWOOD. You made the statement that there seemed to

be an attitude among various lab managers that they were playing

with, these are your words, Monopoly money. What do you mean

by that?

Mr. SALGADO. I want this to come across. I was brought to the

lab—as I indicated in my oral statement, there was an awareness

by the director of the Laboratory, John Browne, that the transformation of this Laboratory was important. There were cultural

issues to deal with at the institution, sir. These are cultural issues

that maybe some would like to believe started with me but they did

not. They go back 30, 40, 50, 60 years.

What I am saying now before this committee I have said to every

senior manager at the institution. I have said it to the University

of California. I have said it in training classes and I have said it

to NNSA.

The Laboratory had a culture, in my opinion, that the money

that the taxpayers give them, a fiduciary relationship that we

should have with the taxpayers, was not treated in an appropriate

fashion. At times it was treated like Monopoly money, play money.

It was part of the theme of trying to transform and change the

management of the institution. Again, what I am saying today——

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Mr. GREENWOOD. Let me understand what you mean by that. Do

you mean that it was spent with disregard to its value? That managers paid too much for things? That managers bought things that

weren’t necessary?

Mr. SALGADO. Yes.

Mr. GREENWOOD. Does that include concern about taking personal possessions of property? Does it include a culture that includes—are you describing a culture in part that has to do with

misappropriating Federal property for personal use?

Mr. SALGADO. No, it is not. This is where it is a delegate balance.

Let me, if I might, because I know it is important to the committee

and it is important that I be reasonably clear. There is a fiduciary

relationship and the relationship that deals between the taxpayers

and us to spend their money is one that it should be spent efficiently and effectively in the best manner possible.

That leads us into a gray area of activity. If you move into a new

office you use the furniture that is there or you go off and have a

brand new set of furniture and design furniture put into your office. It means to me the fact of the matter is when I came to the

institution little things like if you are going to have food delivered,

do you know how much it is costing you to do these things. The

question of meals at the institution. The question of gray areas.

Again, I have said this to everybody up front. The question of if

we have a great safety record, is it efficient and effective to spend

$15,000 to buy ourselves shirts. That is the type of thing that I am

addressing, Mr. Chairman. It is a mindset and it is a culture that

has existed, I believe, at that institution since Oppenheimer and

Graves established it. It is important because the world changed.

The executive branch, the legislative branch, and the taxpayers

of this country expect more. They do great science. They do great

engineering but we need to do it effectively and efficiently. I have

lectured on this issue of Monopoly.

In fact, one particular time I paid out of my own pocket, bought

a Monopoly game and laminated it and I was going to hand it out

to managers to try to raise the awareness of this fiscal responsibility and this fiduciary relationship. I think it underpins and undermines our credibility as an institution and does a disservice to

the taxpayers.

Mr. GREENWOOD. Let me understand one other thing because you

made a comment that could be considered as controversial about

others who have described a culture that included in that description harsher charges about personal misappropriation of funds and

materials.

You referred to those kind of comments as being racially profiling

of Spanish Americans, I think you said. I am trying to understand

how it would be that describing a culture as you have is different

than describing the culture as others have and why one is a racial

matter and one is not.

Mr. SALGADO. Well, do the racial component of ‘‘greening of the

valley,’’ the valley itself has been well defined as the Hispanic population that primarily is in support service of the institution. That

has a racial connotation to is.

The ‘‘greening of the valley’’ as I interpret the phrase, No. 1, is

in connection with a culture of theft which there is not at the instiVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00134 Fmt 6601 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
127

tution. I respectfully will believe that sincerely. There is not a culture of theft. The ‘‘greening of the valley’’ on the assumption of the

culture of theft is that there is a nexus between that and the drug

activity in the valley which is, in my personal opinion, tantamount

to racial profiling.

The distinction I am making, Mr. Chairman is the fact that the

culture that I have talked about, the culture of this lack of a sense

of fiduciary relationship is not for personal gain of individuals. It

is not that people are buying computer and taking them home for

their children. But it is a culture by which I think people have

failed to release that they are—there is a responsibility of the institution to effectively and efficiently spend those dollars. Hypothetically if it is costing $15,000 to buy everybody shirts because we did a great job, that may be a morale issue but is that

what the taxpayers expect of us to do, particularly if it is not pursuant to our contract and is that mindset—our meal policy and

things of that nature.

I mean, there are constant issues here of that issue and trying

to change to the mindset. When you sign off on something to pay

for it, are you doing with a mindset that you do have that relationship and that responsibility. That culture has not been there. It is

not a criminal culture but it is culture that has to be addressed.

Dr. Browne has noted it. It was part of Dr. Browne’s vision of

where this Laboratory had to get to.

But there is a distinction, sir, between a criminal culture of theft

and stealing and taking money and doing those things as evidence

in the TA-33 issue versus what I would call this area of this lack

of real awareness of our fiduciary relationship. As I said, I have

said this in front of God, country, and everybody at that institution

for the 3 years that I have been there. I believe it firmly.

Mr. GREENWOOD. I think it is not hard to imagine how loose fiscal controls that allow the kind of waste and abuse of taxpayer’s

dollars that, as you have described, could slide in among those who

are so constituted toward personal misappropriation because the

fiscal controls were not there to protect against it. My time has expired. I recognize the gentleman, Mr. Walden, for 10 minutes.

Mr. WALDEN. Thank you very much, Mr. Chairman.

Mr. Salgado, I want to pick up on a point of a statement you

made and just see if I understand it. You said that the Inspector

General request is one that you made, or your folks made, to have

the Inspector General come in.

Mr. SALGADO. Yes, sir.

Mr. WALDEN. If I heard you right, you said that was after the

story ran in Energy Daily.

Mr. SALGADO. If I may clarify, there were two requests of the Inspector General, the Department of Energy Inspector General, the

very day, the morning that there was an allegation in print concerning that their senior management cover-up or criminal activity

of the Laboratory.

I personally contacted Greg Freedman, the IG, seeking some advice and council on how to address it. He rightly told me, sir, that

I could not request an IG investigation. Within an hour I contacted

Dr. Browne within Washington, DC that was going in to meet with

the acting administrator for NNSA, Ambassador Brooks.

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I discussed the issue with Dr. Browne and Dr. Browne immediately made a request that afternoon, the very day the article ran,

to have the NNSH request the IG on our behalf to come in and institute an investigation on senior management coverup.

Mr. WALDEN. The Energy Daily story, was its genesis clear back

to the Albuquerque leaks?

Mr. SALGADO. No, sir. I believe the Energy Daily story, as far as

I know, and some of this is hearsay, was a first letter. There was

a letter sent out with a series of allegations, an anonymous letter.

I have never seen the original letter. That was the first time that

we heard about that. The box of documents was subsequently—I

believe approximately a week later is that I learned that this box

of documents.

Mr. WALDEN. You believe that the two are connected or came

from the same individuals or same part of——

Mr. SALGADO. I think they probably came—I have not read the

entire letter, to be honest, but I believe that the genesis and much

of the information appears to be in the same vein.

Mr. WALDEN. Would it be appropriate to say then that the IG request never would have taken place had these stories never been

leaked or the anonymous letter sent? You would have had no reason to ask the IG to come in otherwise?

Mr. SALGADO. I would have had no reason, nor would I have believed that there was any coverup or criminal activity going on at

the institution.

Mr. WALDEN. I want to go to the issue of Mr. Walp and Mr.

Doran. Mr. Doran testified in front of this committee under oath

about 2 weeks ago that he was advised by FBI agents that he

worked with in New Mexico. The FBI’s relationship with Mr. Walp

and Mr. Doran was the best relationship the FBI has had with the

lab in its history.

I am told in your calendar notes for October 28, 2002, you indicate a conversation with the FBI agent, Jeff Campbell, where he

states, and I quote, ‘‘Steve and Glenn are the most professional,

etc.’’ I am sorry. This is Mr. Busboom. My apology. ‘‘Steve and

Glenn are the most professional.’’

Additionally, DOJ has advised this committee that to its knowledge no law enforcement agency has had any concerns about Mr.

Walp and Mr. Doran’s performance. However, one of the circumstances constantly used an example of why Mr. Walp and Mr.

Doran were fired as the U.S. Attorney and the FBI advised the lab,

‘‘Blew the Mustang case.’’ Senior management blamed Mr. Walp

and Mr. Doran for this statement. Did you relay to senior management the excellent report given to you by the FBI of Mr. Walp’s

and Mr. Doran’s performance, Mr. Busboom?

Mr. BUSBOOM. Did I relay that particular comment?

Mr. WALDEN. To senior management.

Mr. BUSBOOM. I believe I did. We had a meeting that Tuesday.

I received that comment, I believe, on a Friday. We had a meeting

that next Tuesday to discuss the role of the FBI, the IG, and our

own staff. The FBI, it turned out, was not at that meeting, but at

that meeting we discussed the need to appoint a new liaison. I am

certain that it did come up. Yes, sir.

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Mr. WALDEN. How could senior management place the blame on

them for blowing the case?

Mr. SALGADO. Two things. I think, first of all, that—first, in fairness, I will indicate in the October 24 meeting that I requested,

and that was the FBI and the U.S. Attorney, I was personally advised by Jeff Campbell, not by his supervisors, that he was very

comfortable and felt that Walp and Doran were doing a competent

job. That was on the 24th. I don’t recollect the meeting that Mr.

Busboom engaged in.

Mr. WALDEN. So you both heard basically the same thing from

the FBI.

Mr. SALGADO. I heard that from Jeff Campbell, the agent in

charge, that had the day-to-day liaison going forward, No. 1. The

issue of the case being blown was an issue that was raised in passing during a whole series of other activities taking place at the October 24 meeting between myself and the U.S. Attorney and the

FBI. It was a statement made not by the FBI. It was a statement

made by the U.S. Attorney. I never pursued what was actually

meant by that statement given the other tenor of the conversation

that was taking place on some other matters.

The U.S. Attorney merely looked at me and said, ‘‘You, the Laboratory, blew the case.’’ That was essentially what they said. It has

been—I am not sure whether I—I do not know if I ever put credence in part of the issues of the termination of Walp and Doran

on that particular aspect.

Mr. WALDEN. If you have got somebody telling you that you, the

lab, blew the case, did you ask for specifics? What they——

Mr. SALGADO. No. I am sorry.

Mr. WALDEN. My natural reaction would be, ‘‘What do you mean

we blew it? How did we blow it? Tell me more.’’ Did anybody ask

that of them?

Mr. SALGADO. No. At that particular time we were engaged in a

series of other activities. That was minor in passing. It was really

dealing with whether or not the FBI that had assumed the Mustang case, whether they were going to pursue this or whether we

were going to take it and refer it to the IG or local law enforcement

officials.

We tried to get to closure on several issues at that meeting. One

of them was, ‘‘Either you are going to decline the Mustang case or

not.’’ They indicated they were going to decline the Mustang case

after a brief conversation given the facts of the case, the evidence

in the case, and the lack of criminal history on proposed suspect.

The declination with an offhand comment that the U.S. Attorney

said, ‘‘We are not going to pursue the case because A, B, C. Besides

that, you blew the case.’’ To be honest, Congressman, we moved on

to some other areas that were of much more importance to us at

that particular date and time.

Mr. WALDEN. I want to go to the issue of Mr. Walp’s termination

because I got a copy of his performance summary that was done

here that I understood was supposed to be done by July that was

actually conducted, I believe, in October. Is that correct?

As I look at it, and I am not familiar with these, but if you go

through it says, ‘‘Implement ISSN, 100 percent effort effectuated.

Safety performance, 100 percent effort. Human capital, 100 percent

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effort. Walk-arounds, 100 percent accomplishment. Employee communications, over 100 percent accomplishment. Effective cost

schedule management, 100 percent attainment. Financial management, 100 percent attainment. Time management, office leader

visible to all SI personnel on a daily basis.’’ It is a pretty positive

finding. Is it not?

Mr. Busboom, did you do the evaluation?

Mr. BUSBOOM. Yes, sir, I did, in conjunction with my deputy, Mr.

Tucker. I believe I did sign it, yes.

Mr. WALDEN. I understand this is supposed to be for the first 6

months but if you are doing it in October, were there issues on

your mind then about performance that would differ from this?

Mr. BUSBOOM. At that time the answer is yes, sir. That report

closed out on July 31 as did every other employee in the lab. That

is the normal cycle. Then there is a period of time while salaries

are considered before the information is actually present to the employee.

That was presented to Mr. Walp in late September of early October, but the closeout period was for July 31. It is a very positive

report. The overall rating, I believe, is an eight. That was consistent with his peer group. That was an average score within his

peer group.

Mr. WALDEN. And that is on a scale of one to 10?

Mr. BUSBOOM. That is correct. The managers tend to get higher

aggregate scores.

Mr. WALDEN. It is a good report, sir?

Mr. BUSBOOM. Yes, sir.

Mr. WALDEN. He also got a $5,000 year bonus or raise or something at that point?

Mr. BUSBOOM. He received a pay raise and it is not a bonus. It

was a pay raise consistent with that score during that salary exercise. Yes, sir.

Mr. WALDEN. What happened between then and when he was

dismissed that turned this all upside down? Something must have

gone dramatically different the following couple of months. Right?

Mr. BUSBOOM. Yes, sir. As I have noted in my testimony, it was

first brought to my attention in mid-September that for the previous few weeks there had been an ongoing dispute between some

of the outside auditors, our own legal counsel, and our staff, OSI,

which includes Mr. Walp and Mr. Doran.

The principal matter was about access of records and information

by a PricewaterhouseCoopers group. That had been an issue of

great discussion and great debate between my staff, our own legal

counsel, and the forensic auditors who were on the ground.

Mr. WALDEN. My time has expired. Thank you, sir.

Mr. GREENWOOD. The gentlelady from California, Ms. Eshoo, recognized for 10 minutes.

Ms. ESHOO. Thank you, Mr. Chairman. Once again, I appreciate

your extending legislative curtesy to me to take part in these very,

very important hearings relative to the University of California and

the operation of the labs. I appreciate it.

I would like to begin by just asking each one of you how long you

have served at the lab. Mr. Busboom.

Mr. BUSBOOM. Yes, ma’am. I have been at the lab for 6 years.

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Ms. ESHOO. Six years?

Mr. SALGADO. Three years, 3 months.

Mr. DICKSON. Twelve years.

Ms. ESHOO. Twelve. Can anyone of you give me the short version

of why Mr. Doran and Mr. Walp were fired? I have heard a lot of

references so far today but there isn’t anything that is clear about

it. What was it that they had done that merited firing?

Mr. SALGADO. I accept the responsibility for that.

Ms. ESHOO. I know you do, but what was the reason for it?

Mr. SALGADO. The reasons were primarily two fold. No. 1, they

were in a probationary period when it was time for the institution

to make——

Ms. ESHOO. I have people that serve on my staff that are in a

probationary period but that is not the reason. You don’t use that

as a reason to fire someone.

Mr. SALGADO. I am just setting the background, if I might. The

reasons were two fold essentially. First of all, through the period

of time of the intense—from the July period to the November period of time there was incomplete, inaccurate information that was

being provided to the University and the Laboratory needed upon

which to base sound judgments affecting both personnel activities

and natural security issues.

Ms. ESHOO. All right. Let me ask this as a follow-up to that, Mr.

Salgado. You talked about shirts, shoes, food, and furniture. Other

than thinking about laminating Monopoly dollars, and firing the

whistleblowers, what did each one of you accomplish on your watch

for this culture that you oversaw? I mean, it seems to me that your

testimony today reminds me of someone from the outside looking

in rather than people that were in charge, even though it is after

the fact because you are gone and there has been a reduction in

your salary. How much is your salary now?

Mr. BUSBOOM. I was told last week. I was given a form saying

it was $140,000.

Ms. ESHOO. During your time did you oversee and route out of

this culture that you refer to?

Mr. SALGADO. Well, first and foremost was——

Mr. GREENWOOD. Mr. Salgado, could you move forward and use

the microphone?

Mr. SALGADO. Sorry, sir. I apologize. I was thinking. No. 1, I

think that Dr. Browne and myself commenced a reorganization of

the institution to put lines of authority and responsibility in place.

Ms. ESHOO. Did it go past an organizational chart into actual effectiveness to route out the things that you have come here and referred to today? Obviously you had a knowledge of it because you

are referring to it.

Mr. SALGADO. Yes. I believe those things were put into place a

year ago and those are part of the transition.

Ms. ESHOO. When you say put into place, what does that mean?

Mr. SALGADO. That means that——

Ms. ESHOO. On paper?

Mr. SALGADO. No. That the institution was reorganized. The

roles and responsibilities and lines of authority were changed.

There were movements of divisions in various activities.

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Ms. ESHOO. And what was the result of what you were just referring to, though?

Mr. SALGADO. Well——

Ms. ESHOO. How did the credit card—how could a credit card be

used for the kinds of things that have obviously become more than

public? And when you refer to reforms, what are you referring to?

What are the specifics?

Mr. SALGADO. I am getting a little bit lost. On the credit card

issues, once those issues were basically brought to the attention of

the institution, several things occurred immediately.

Ms. ESHOO. Don’t refer to the institution. You are referring to

the institution like it is a glob. There were people that were paid

taxpayer money to run this place. Now, you have come here and

you have outlined, as I said, shirts, shoes, food, furniture, laminated—you have made a reference to all of that. What did you do

on your watch? In my view, not very much. Otherwise, we wouldn’t

be here. But I want to give you an opportunity to tell me. What

did you root out?

Mr. SALGADO. When the purchase card activity surfaced, No. 1,

I personally contacted, No. 1, the—on the purchase card activity I

personally contacted the former IG to basically bring an external

group in to help us basically look at the process procedures and to

root out those activities that you have addressed. I notified the IG

of the Department of Energy of a process——

Ms. ESHOO. I need to interrupt because I only have 10 minutes

and I am a guest of the subcommittee. My observation so far is

that you were very adept at knowing who to call outside the institution, as you refer to it. But there is a dereliction of duty here.

You have more than made reference to what you knew to be wrong,

except you didn’t do anything about it.

Now, maybe it is looking over your shoulder but I don’t know

what was rooted out. I think that the public light that shines on

this is a very important one because it then is instructive in terms

of what needs to be done. I appreciate the fact, Mr. Salgado, that

you have come from a law enforcement background but this sounds

like the Keystone Cops to me. Now, lab employees describe a culture of fear. Now that you are on your way out do you have any

comments about that?

Mr. SALGADO. Well, if I may, first of all, I would address the fact

that we did do things and we were proactive and aggressive.

Ms. ESHOO. I don’t know what they are, though, because you are

not able to be specific.

Mr. SALGADO. Well, if I could submit it for the record then, I

would ask that I be allowed to submit for the record those

proactive things in the transformation of the institution, the reorganization, putting lines of authority and accountability in place,

and bringing in people to basically help us——

Ms. ESHOO. I need you to answer my question, though, because

you are on my time here.

Mr. SALGADO. Okay. I am sorry. I apologize. Is the question on

my way out of a culture of fear?

Ms. ESHOO. Been stated by employees.

Mr. SALGADO. I have heard that from the day I got there.

Ms. ESHOO. Do you agree or disagree?

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Mr. SALGADO. I agree that there is a perception of a culture of

fear.

Ms. ESHOO. No. Do you believe that is a truthful statement? And,

if not, you can say you don’t agree.

Mr. SALGADO. I believe that the people who have made that

statement believe it to be true.

Ms. ESHOO. You believe it to be true?

Mr. SALGADO. No. I believe that the people that made that statement, they believe it to be true, that there is a culture of fear.

Ms. ESHOO. I would think that they believe it to be true, too.

That is not what I am asking you. I am asking you if you find that

statement to be correct. If you don’t, say so.

Mr. SALGADO. I do not agree.

Ms. ESHOO. Okay. That is enough.

Mr. Busboom, do you have reflections about this statement?

Mr. BUSBOOM. Yes, ma’am. Certainly we moved forward in the

OSI office to address these issues by, first, establishing the office,

as Mr. Deutsch read in his opening statement. Second, we doubled

the staff there within that 1 year and we added many hundreds of

thousands of dollars in budget. I do believe we were on our way

in terms of the security participation. .

Ms. ESHOO. Was there ever anything—this is, I think, a question

that is on many individual’s minds. When you met with Mr. Doran

and Mr. Walp, did you find anything in their work that was laudatory or did you just think that they didn’t know what they were

talking about? Was there anything that you said, ‘‘Well, one out of

10 we agree with you and we are going to pursue this.’’

Mr. BUSBOOM. There were certainly positive things, yes.

Ms. ESHOO. There were positive things. Did any of you ever follow up on them?

Mr. BUSBOOM. I followed up on the positive part, certainly. I

wrote that report that said that Mr. Walp had done a good job in

organizing the new office.

Ms. ESHOO. Was there any dissension between the decisionmakers on the firing? Was there kind of a minority view, so to

speak, or were you all in agreement with each other?

Mr. DEUTSCH. I supported the decision, or did not oppose it.

Ms. ESHOO. Mr. Salgado?

Mr. SALGADO. I supported it.

Ms. ESHOO. You supported it. Mr. Busboom?

Mr. BUSBOOM. I supported it after—it is Busboom. Thank you. I

supported it after the discussions that I had with by boss and his

deputy and with chief legal counsel and Mr. Salgado.

Ms. ESHOO. Mr. Salgado, you testified that the lab essentially

can be improved. Now, obviously you are gone. Do you have some

clarity around what the reforms should be? Any of you?

Mr. SALGADO. The answer is yes. I think the University of California needs to address its governance model, No. 1. And I think,

No. 2, the fact of the matter is that the process, believe it or not,

in the systems that are being put in place need to continue. The

change of culture of an institution does not take place over night.

That culture of that institution it will probably take 2 to 3 years

moving on a forward path of aggressive change.

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Ms. ESHOO. I think if we keep observing culture and don’t do

something about it is why it doesn’t change. That is my own take

on it.

With that, I see that my time has been used up. Thank you, Mr.

Chairman. Thank you, gentlemen.

Mr. GREENWOOD. The Chair thanks the gentlelady from California and advises you we will do a second round and I will begin

that second round now.

There is at tab 47, and if the staff would hand it to Mr. Salgado.

Tab 47 is an e-mail written by Jo Ann Milum to James Holst at

the University of California. It is dated December 11, 2002. This

is 15 days after Walp and Doran were fired. Its subject line reads,

‘‘Rationale for terminations.’’ I am going to ask Mr. Salgado, can

you tell us who Jo Ann Milum and James Holst are?

Mr. SALGADO. Jo Ann Milum——

Mr. GREENWOOD. Milum?

Mr. SALGADO. Milum.

Mr. GREENWOOD. I am going to ask you to sit forward.

Mr. SALGADO. I am sorry, sir. Jo Ann Milum was my chief of

staff previously and then took over as executive staff director for

the Office of the Director.

Mr. GREENWOOD. Which position was she on December 11?

Mr. SALGADO. She was the Executive Staff Director for the Office

of the Director. In all candor, sir, she was also my Chief of Staff

when I was at the Department of Energy so there is a long history

there.

Mr. GREENWOOD. Okay. Mr. Holst?

Mr. SALGADO. Mr. Holst is the General Counsel, I believe is his

title, for the University of California, Office of the President and

is a direct line supervisor for Mr. Dickson.

Mr. GREENWOOD. Okay. So why would she send this e-mail to

Mr. Holst, do you think?

Mr. SALGADO. To be honest, sir, I don’t know. I mean, I am assuming that it was requested by somebody. ‘‘Per your request’’ it

says so I am assuming that Mr. Holst requested some information

to be provided. That is my supposition.

Mr. GREENWOOD. Okay. Among the rationale for the termination

of probationary employees Walp and Doran, there is an allegation

that Walp and Doran failed to follow up on the Mustang case in

a timely manner. Mr. Walp, however, first learned of the case on

July 25, 2002 a week after the BUS division first learned of the

case. The FBI took over the investigation on July 29, 2002. During

a 4-day period before the FBI opened its investigation into the matter, how did Walp and Doran fail to follow up on the Mustang case?

Mr. SALGADO. I can’t say in that context that they failed to follow

up. There were other issues with the Mustang case that were of

concern to us but on that particular issue. For the record, there

was a meeting. The second time they met I directed Mr. Walp to

go to Arizona to follow up on that case.

The case was taken away from Mr. Walp and the FBI assumed

investigation of the case and told us we were not to send anybody

there to follow up on that part of the investigation. As to wording,

I am not sure. There were other issues in the Mustang case but

in that short period of time Mr. Walp agreed to go to Arizona. It

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was terminated by the FBI and they took over the case. Am I making myself clear?

Mr. GREENWOOD. I am not sure that you are. If you had a case

for 4 days—am I accurate when I say that Walp and Doran had

responsibility for this case for 4 days?

Mr. SALGADO. I don’t know the time, sir. I really don’t. I am assuming but I don’t know when the case came to them or anything.

Mr. GREENWOOD. Mr. Busboom, can you shed light on that?

Mr. BUSBOOM. That sounds correct, sir. I think July 25 was the

day it was reported. As far as July 29 being the date the FBI took

over, I couldn’t say from memory.

Mr. GREENWOOD. The e-mail says that among the things that

they did were foot dragging on the Mustang case. Now, I am not

sure but how much foot dragging can you do in 4 days?

Mr. BUSBOOM. Me, sir?

Mr. GREENWOOD. Yes, Mr. Busboom.

Mr. BUSBOOM. Again, I do not know if July 29 is the second date.

I haven’t seen this e-mail before so this is the first time I have read

it.

Mr. GREENWOOD. Do you think he dragged his foot on this? Do

you think Walp and Doran dragged their feet, all four of them, in

4 days? Isn’t it the case that your office was informed about this

case in September of the year before?

Mr. BUSBOOM. Of the Mustang case?

Mr. GREENWOOD. Yes.

Mr. BUSBOOM. No, sir. That is not correct.

Mr. GREENWOOD. I am sorry. The Bussolini case. When did your

office become aware of that matter?

Mr. BUSBOOM. The TA-33 case?

Mr. GREENWOOD. Yes.

Mr. BUSBOOM. I became aware in July 2002. Subsequent to

that——

Mr. GREENWOOD. When were your employees aware of it?

Mr. BUSBOOM. Subsequent to that I have seen memoranda, two

memos, that talk to someone knowing about it as early as fall of

2001.

Mr. GREENWOOD. When was action taken?

Mr. BUSBOOM. When was action taken, sir?

Mr. GREENWOOD. Yes.

Mr. BUSBOOM. Again, according to the memoranda that we have

on file, the person who knew about it in 2001 did call the FBI.

Mr. GREENWOOD. When?

Mr. BUSBOOM. In September 2001.

Mr. GREENWOOD. Okay. And did anything happen as a result of

that?

Mr. BUSBOOM. I don’t know, sir.

Mr. GREENWOOD. Mr. Salgado, do you know the answer to that

question? Mr. Dickson, do you know the answer to that question?

Mr. DICKSON. I don’t believe anything happened.

Mr. GREENWOOD. That employee is still there. Is that right?

Mr. SALGADO. My understanding that it is and that your are correct, sir, that as far as I know that there was a notification made

to the FBI and that nothing happened after that internally.

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Mr. GREENWOOD. Here is what I am trying to reconcile. Okay?

An employee of the Laboratory is aware that it appears that two

other employees of the Laboratory are ordering tens of thousands

of dollars of personal camping, hunting, sporting equipment and

hoarding it in a bunker somewhere.

How many months go by between the time that people at the lab

become aware of this issue and something is ultimately done to

propagate this case and to take some action on this case? How

much time goes by?

Mr. SALGADO. As far as I know, it was until the FBI in July

2000.

Mr. GREENWOOD. Mr. Salgado, would you sit forward, please?

Mr. SALGADO. As far as I know, it was not until Mr. McDonald

went to the FBI personally in the year 2002. It was between September 2001 and July 2002 that any active investigative

component——

Mr. GREENWOOD. Let us call that 10 months. Ten months go by

in that case and nobody is fired for foot dragging. Four days go by

in the Mustang case and we have got to get rid of these guys for

dragging their feet and blowing the case. Can you understand how

that looks to us? Can any reconcile—why should we not look at

that and say we have got two extraordinarily different standards

here.

In one case we are acutely aware—people at the lab are acutely

aware of what appears quite obviously to be thievery. Ten months

go by before anything happens. In another case, Walp and Doran

come into town and you give them the Mustang case and 4 days

later you accuse them of dragging their feet, blowing it. How can

you reconcile those two matters? Anybody? Mr. Busboom?

Mr. BUSBOOM. I wouldn’t attempt to reconcile it for you, sir. I

haven’t seen this e-mail so I wasn’t familiar with this logic here.

I will say on the other case that I have been told after the fact that

the FBI was immediately notified. My deputy told me that the information was——

Mr. GREENWOOD. Was a record made of that initial contact to the

FBI? Is it possible to document it that, in fact, the FBI was, indeed,

notified?

Mr. BUSBOOM. The only thing I have seen, sir, were memoranda

written after the fact.

Mr. GREENWOOD. Written after the fact.

Mr. BUSBOOM. That is correct, sir.

Mr. GREENWOOD. Mr. Salgado, can you understand how we

would—is that the standard procedure? If you contact the FBI

about a matter as serious as that, is it standard procedure at the

lab to not make any contemporaneous record of that contact?

Mr. BUSBOOM. I would have expected a contemporaneous record.

I have not seen one.

Mr. GREENWOOD. Okay. Have you asked the individual why it

was that he did not make—how he reconciles his statement after

the fact that he notified the FBI in September with the fact that

he made no record of that contact?

Mr. BUSBOOM. Yes, sir. We certainly did ask that question. Mr.

Salgado asked us in October who knew what when and I personally

was sent off by Mr. Salgado to get that answer. That is when the

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memoranda were written. One was written in October by Mr. Walp

which outlined who, what, when.

It referred to a second memorandum written by Mr. Sprouse in

July of that year which had similar information. Mr. Sprouse’s

version of it was that it was, indeed, turned over to the FBI but

they were extraordinarily busy with September 11 stuff because

that is exactly when it was reported and nothing happened.

Mr. GREENWOOD. I am just waiting for someone to explain to me

how you can look at the 4 days of responsibility that Walp and

Doran had on the Mustang case and say they dragged their feet

and they blew the case. What did they specifically do wrong in

those 4 days, Mr. Salgado?

Mr. SALGADO. I have never said that they blew the case, No. 1.

No. 2, I don’t know anything about dragging their feet in this

arena. I may have seen e-mail before. I don’t recollect it, to be honest with you.

Mr. GREENWOOD. What did they do wrong in the Mustang case?

Mr. SALGADO. I think in the Mustang case there was a series of

issues in the Mustang case that were difficult for us to deal with

which was tied itself to misinformation, inaccurate information.

Mr. GREENWOOD. Provided by Walp and Doran in 4 days?

Mr. SALGADO. In my opinion, provided by Walp and Doran in 4

days and the continuing period of time in which there were further

engagement, No. 1.

Mr. GREENWOOD. Be specific. What misinformation did they provide?

Mr. SALGADO. There was——

Mr. GREENWOOD. I am going to ask you to sit forward. I am

going to have to tie your chair forward.

Mr. SALGADO. May if I move this, a little bit. There were a series

of issues, sir, that dealt with it. There were things, and Mr.

Dickson has probably a little bit more of the details, but there were

issues about where the vehicle was to be delivered, who lived at the

location, were the names the same or were they not the same, was

there——

Mr. GREENWOOD. And this was all the information that was

gathered during that 4 days?

Mr. SALGADO. I am not sure. As I indicated to you, sir, there

were issues of inaccurate and incomplete information that was delivered both within the 4 days and beyond because there was a continuation of information.

Mr. GREENWOOD. Mr. Dickson, can you shed any light on this?

Mr. DICKSON. I do not subscribe to the notion that there was foot

dragging with respect to the Mustang case. That was not the complaint that I had made.

Mr. GREENWOOD. My time is up but, Mr. Salgado, you just testified that the sender of this e-mail, Milum, is someone who have

known for a very long time.

Mr. SALGADO. Yes.

Mr. GREENWOOD. They have worked closely with you. Are you

aware that she says they were foot dragging?

Mr. SALGADO. I am aware now.

Mr. GREENWOOD. You were not aware until this moment?

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Mr. SALGADO. Sir, I really don’t remember looking at that e-mail.

I may have but I don’t remember that. I really don’t.

Mr. GREENWOOD. Would you concur that they dragged their feet?

Mr. SALGADO. On the Mustang case? No. There was not a foot

dragging in the Mustang. There was a lot of issues surrounding

that case but foot dragging is not how I would describe it.

Mr. GREENWOOD. The gentleman from Washington is recognized.

Mr. WALDEN. Oregon.

Mr. GREENWOOD. Oregon. I am sorry.

Mr. WALDEN. One of those northwest states. Thank you, Mr.

Chairman. Mr. Dickson, I want to have you refer to Tab 87 which

is an e-mail from—the sender says Schiffer@beasley.LANL.gov. It

is addressed to you, Mr. Busboom, and to Mr. Tucker from Kenneth

Schiffer. I want to read it for the record.

I says, ‘‘Subject: IG. FYI I was called this morning by Peter

Schleck from the IG’s office in the Forrestal. He made an appointment to meet with me on 12/17/02 to discuss my knowledge of the

issues surrounding Walp and Doran. I proposed to limit my remarks to the documentation I have from 8/00 concerning meetings

we held with the Bureau and LAPD regarding the issue of lost/

theft of lab property.

The thrust of my message would be to point out that as early as

8/00 the lab surfaced this problem to law enforcement and worked

with them to address it. This was not something ‘‘new’’ which Walp

and Doran discovered. I recollect also that I mentioned this meetings to Glenn when he was hired and provided him with a general

background of the meetings we had had.

I also recall saying this was not a simple matter and that there

were sensitivities Glenn would have to consider when moving forward with it. I further explained my role in the matter. Let me

know how this sits with you all. Ken.’’ Mr. Dickson, I guess the

question I have, it would appear from an outsider that maybe Mr.

Schiffer is trying to get the story straight about what you and Mr.

Busboom and Mr. Tucker should tell the IG. Doesn’t this e-mail

seem a little odd to you from a legal standpoint?

Mr. DICKSON. No, it actually does not, Congressman Walden. It

is not uncommon for Mr. Schiffer in particular, and some others

around the Laboratory, who are going off to become involved in

some interview or something to just give me a heads up about what

they are dong.

I remember this e-mail. I never responded to it. I never talked

to Mr. Schiffer about it. He is an experienced FBI agent and for

some reason or the other from time to time if he is doing something, he will just let me know what it is I guess on the theory that

if I hear about it, I will at least know what is going on. There is

no effort on his part, as best I can remember, to ever clear anything that he is trying to do with me, or to ask for my input as

to what he ought to say.

Mr. WALDEN. Mr. Busboom, did you respond?

Mr. BUSBOOM. I don’t recall if I responded but I certainly did get

this e-mail. I have seen this. Yes, sir.

Mr. WALDEN. What about the concept that the IG’s interviews

are confidential? Doesn’t this raise an issue with that? Tell me how

139

the IG process works. Maybe I don’t understand. I thought it was

supposed to be confidential.

Mr. DICKSON. Mystically. I am not aware and was never told by

the IG that their process was confidential. I have looked at the IG

orders and have not seen anything that suggested confidential. If

it is confidential, I did not know about it and was not instructed

that way when I was interviewed by the IG myself.

Mr. WALDEN. Do you know, to the best of your knowledge, did

Mr. Tucker respond to this e-mail?

Mr. DICKSON. No, I don’t know.

Mr. BUSBOOM. I don’t know, sir.

Mr. WALDEN. You don’t know? All right. Mr. Salgado, I want to

go into the issue of the stolen items because you have taken offense

to the concept of the ‘‘greening of the valley’’ or whatever. I have

never been there. I don’t have a clue but I watched the digital pictures they displayed here for us of the equipment the chairman referenced that was allegedly stolen equipment and all of that.

As a taxpayer I get kind of upset about that. We have heard also

reports of some $800,000 in hand tools being purchased from a sole

source contractor, an individual. I don’t know if that is still under

investigation or not but it is a little difficult to understand.

You state in your testimony that Los Alamos is not a den of

thieves who are keeping the valley green. We know that the majority of lab employees are honest people. I fully believe that. That is

generally the case in most organizations.

But can you explain why our staff can go through procurement

records and in a few hours find purchase after purchase of knives,

camping gear, sleeping cots, top of the line Gore-Tex camping gear,

auto equipment, and many other of what would appear to us to be

obviously personal purchases that the Laboratory and the Federal

Government have paid for. I have got a list here that the staff has

provided me of card transactions for Boundary Waters tent. It is

Tab 136 if that would be helpful.

While you’re looking that up, I want to give you a couple of examples that we received just last night. These purchases do not involve any of the people whose names have already been in the

press. Tab 136 there are photos included for your viewing convenience.

This is just for one vendor of camping supplies. Let us start with

$1,435 Boundary Waters two-person tent. We can go on to the

hunting knife sharpener, two bought in a month. There is my personal favorite, a pet heating pad for $119.99. Women’s lined slippers, apparently necessary at the lab, as are GameView digital

cameras which can sense game hundreds of yards away. This just

goes on and on. These are pretty obvious ones. Did you find it, Mr.

Salgado?

Mr. SALGADO. I have the chart. For clarification of my point, are

the items that we are addressing at this Tab 136, are those items

that are outside the scope of what I refer to as the TA-33 investigation?

Mr. WALDEN. The answer, I am told, is yes.

Mr. SALGADO. I have no knowledge of these. I will say this. There

were a lot of items that were purchased subsequent to the Sierra

Grande fire. Many of these things, I believe, that the former IGs,

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Mr. Layton and Mr. Masten, also looked at to see whether or not—

they raised issues, I know, for instance, about water coolers and

things like that that were needed for environmental work.

I know nothing about these. The first time I believe I have just

seen this is right now. I have no indication, but I would assume

that if it was done in 2002 this was part of the study that was undertaken by the former IGs but I don’t know that.

Mr. WALDEN. It actually says fiscal year 2001.

Mr. SALGADO. I am sorry, fiscal year 2001. The former IGs that

we brought in, John Layton and Charles Masten, and the

PricewaterHouse group, I believe, went back 48 months. I would

think this should have been included in that review but I don’t

have personal know of it, sir.

Mr. DICKSON. Mr. Walden, may I?

Mr. WALDEN. Certainly, Mr. Dickson.

Mr. DICKSON. If I may, in August of this year one of the responsibilities I was assigned was to work with the purchase card review

team in its efforts to try to get to the bottom of the Mustang and

other related vulnerabilities. As a part of that work, the

PricewaterHouseCoopers team developed withering lists of items,

like you’re talking about, as a way of trying to test the system and

see if there was glitch.

I interceded because I learned not to jump to any conclusions

about some of these more exotic sounding items in terms of their

business purpose at the Los Alamos National Laboratory. You will

find as you go through many—I don’t know about these obviously

but if you were to pull the string on these, there is a very good

chance that you would find, although at this point they are seemingly ridiculous purchases, they turn out to have a very legitimate

business purpose. PricewaterhouseCoopers did, in fact, work their

way through page after page of these items.

Mr. WALDEN. Let me interrupt you for a second. I am sorry. Who

made the determination that they have legitimate purposes? The

people who purchased them?

Mr. DICKSON. No. The PricewaterHouse did selected searches,

identified seemingly inappropriate items, made phone calls, made

visits, looked at items, and strangely found explanations for the

great majority of those items.

Mr. WALDEN. A great majority. Okay.

Mr. DICKSON. I think it is very appropriate to look at those and

question them, but I don’t think you’re at the end of the process

by just having looked.

Mr. WALDEN. I understand that. Let me switch subjects for a

minute. Prior to firing Mr. Walp and Doran, did you discuss with

Mr. Salgado the possibility they could achieve whistleblower status

and, if so, did Mr. Salgado say to you—what did he say to you

about that prospect? Did you discuss it with him?

Mr. DICKSON. Yes, I did. What we talked about was the notion

that there was risk in any action that had to do with Mr. Walp and

Doran. My position with respect to those two gentlemen was that

we should assume for purposes of making the decision that they

would be looked upon as whistleblowers and then decide whether

or not the reason that the Laboratory was—the decision that the

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Laboratory was making was based upon ground unrelated to their

disclosure of information.

Mr. WALDEN. What role did Dr. Browne play in the decision to

fire Walp and Doran?

Mr. DICKSON. I would say that he relied upon other and was provided with information before the decision was made and incurred

in it based upon the recommendation.

Mr. WALDEN. Was he actively involved in considerations to fire

Mr. Walp and Mr. Doran?

Mr. DICKSON. He was informed before the action took place. I

would say that of all of the managers of the Laboratory who were

involved, John was not the principal person.

Mr. WALDEN. Why were there so many folks at the lab in management involved in this decision in your perspective?

Mr. DICKSON. Well, you know, there really aren’t that many

when you think about it. The S Division, Stan Busboom reports to

Jim Holt. He is one of the people that was listed. Jim Holt then

reports to Mr. Salgado who reports to Director Browne. I am the

Laboratory counsel and provide legal services for the Laboratory.

It is sort of really chain of command type issue.

Mr. WALDEN. Is that the standard practice for probationary employee dismissals?

Mr. DICKSON. No. It can be. It depends on the circumstances.

Mr. WALDEN. How often?

Mr. DICKSON. I am not involved in a great number of these decisions but in cases that have a propensity to be high profile, they

can go all the way up to the top. The rationale—the problem with

this particular one, Congressman Walden, is that the purchase

card review team in this activity were considered to be extremely

important to the Laboratory.

A lot of people were interested in and involved in that process.

The fact that Mr. Walp and Mr. Doran were supposed to be supporting that team had the tendency to elevate their work perhaps

to an abnormal level.

Mr. WALDEN. Given that it was so high profile, or you indicate

that was a concern, why was Mr. Busboom involved?

Mr. DICKSON. He is my manger. The division leader.

Mr. GREENWOOD. The time, gentlemen, has expired. The

gentlelady from California is recognized for 10 minutes.

Ms. ESHOO. Thank you, Mr. Chairman. I would like to ask the

panelists today if there is anything that you know of, relative to

all of the mismanagement that we are reviewing, and the abuse,

and what I think is fraud as well, and I really think a dereliction

of duty on the part of the top team at the lab. Does any of this in

your assessment impinge on any national security issues? Mr.

Busboom first.

Mr. BUSBOOM. I am not aware of any direct connection. I haven’t

seen any security incidents connected with the thefts. The only

time I know that took place was the TA-33 had a concurrent security incident with the suspects involved in the case itself Ms.

ESHOO. Is that resolved that you are referring to?

Mr. BUSBOOM. I don’t know, ma’am, because I didn’t conduct that

inquiry.

Ms. ESHOO. Whose responsibility is it to check it out?

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Mr. BUSBOOM. That particular inquiry was conducted by Mr.

Hawkins.

Ms. ESHOO. Who is Mr. Hawkins?

Mr. BUSBOOM. He is the division leader of Nonproliferation and

International Security who owns TA-33.

Ms. ESHOO. Where is that now?

Mr. BUSBOOM. I don’t know, ma’am.

Ms. ESHOO. Does anyone follow up on any of these things? Can

any of you inform the committee?

Mr. SALGADO. Yes. I would advise the committee that the security violations or infractions were addressed by line management

and appropriate action was taken pursuant to those.

Ms. ESHOO. When was that?

Mr. SALGADO. That was taken immediately following the October

24 meeting I had with the U.S. Attorney and the FBI.

Ms. ESHOO. So that has been resolved?

Mr. SALGADO. Yes. And, in my opinion, there has been no jeopardy of national security in either of these activities. It was a high

profile for the Laboratory and myself to be the balance of activity.

Ms. ESHOO. I would appreciate that. I have in the previous hearing asked everyone that came to testify that same question because

I think that obviously we have to keep our eye on the main ball,

so to speak, not that today’s testimony we are discussing today

isn’t important.

I think in the last question that was asked by my colleague, the

term ‘‘abnormal level’’ was used by you, Mr. Dickson. What do consider abnormal level? What did you mean by that? They raised

their concerns to an abnormal level.

Mr. DICKSON. The intention to the dismissal of what we would

call probationary employees had greater level of attention just because of who they were and what they were involved in at the

time. I was asked the question is it normal for all of these terminations or dismissals of probationary employees to be at that level.

He answered no. The next question was why was this one and that

was the answer to that question.

Ms. ESHOO. Have any of you ever participated in prior to Mr.

Doran’s and Mr. Walp’s firings in anything like this before that we

perhaps didn’t know about that you can tell us about today? Is this

the very first time on your watch that anyone that raised serious

questions, were they caught in some probationary period? Were

there others that were fired that we may not know about?

Mr. DICKSON. I think I may have created a misapprehension.

What I meant when I used the word raised is that the decisionmaking process of Mr. Walp and Doran was at a higher level than

perhaps might be typical. That is all I meant. It has nothing to do

with the fact that they claimed to have raised issues.

Ms. ESHOO. Well, the issues that they raised were clearly not appreciated. Otherwise, I don’t think you would be here today. I

mean, that, to me, is one of the more obvious things. It is like a

10,000 pound gorilla in the middle of the room.

What I am very disappointed in today, I must say this, is that

if I were to entitle or to characterize this panel, with all due respect to each one of you, is that this is the panel of denial. I think

that goes to the heart of why the abuses that we are reviewing why

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we are even reviewing them. And refer to the place as the institution.

We have a probationary period and people that maybe their style

of communicating you found objectionable. As stewards of a public

place and a public contract, I don’t know what it would take to get

your attention to the things that really mattered.

You are saying the things that were charged on the credit card,

where was it appropriate? Did anyone ever see that there was an

attempt for a Mustang? Does that fit into something that is kind

of regular order or regular business at your place?

Mr. SALGADO. Of course not.

Ms. ESHOO. Whose attention did that come to before it was Mr.

Walp or Mr. Doran? Let me ask you that. Mr. Busboom, do you

know anything about it? Anyone ever bring it to your attention?

Mr. BUSBOOM. Specifically about the list there?

Ms. ESHOO. The Mustang.

Mr. DICKSON. The Mustang came to the attention of the card

holder who disputed the charge. The charge was reversed by the

credit card company and there has been no loss to the Government.

That is the answer.

Ms. ESHOO. How about the person that tried to charge this? Did

that say anything to you? I have to tell you, if someone on my staff

tried to charge a Mustang on the Federal credit card I have, it

would have raised a real flag. Now, maybe I am unusual. All right?

Then again, maybe you are in the way you have run this place.

Doesn’t that just violate you?

Mr. SALGADO. Ma’am, if I may respond.

Ms. ESHOO. Yes.

Mr. SALGADO. Absolutely Ms. ESHOO. Do.

Mr. SALGADO. Absolutely. First of all, it was raised basically by

the BUS Division who brought it immediately to our attention. We

immediately at that time put an internal review team to start looking at all the purchase card activity that we had looked at.

We immediately also then decided that we needed to bring in an

external review team in immediately to start looking at and questioning the process, procedures, and activities that were going on.

That immediately raised a red flag to us. It wasn’t brought to us

by Walter Doran. It was brought to us by the BUS Division operations and we put the internal team in place and then an external

team in place immediately.

Ms. ESHOO. External, internal, but Walp and Doran didn’t count

into this. I have to tell you that I think that in an organization who

is at the top counts. Why? Because by what they say, what they

do to help create a transparent organization, an organization that

understands that rules matter, that conduct matters, and that it

starts from the top. You see?

So I think you have failed, with all due respect, the good people

that are part of this place. But that is not enough. That is not

enough. In order to restore confidence both to the policymakers and

to the American taxpayer, this place has to be hosed out. I don’t

think people should be rewarded by contracts. I stated this in the

last hearing.

I think that the University of California has to go tier by tier

through the management however that is done. That is up to the

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University of California to do that. There has been a contract in

place for decades. The University of California is a great university. I think that you have failed her by what you have done and

what you have not done.

I think if there is anything that has underscored that today, it

is what I would call the denial panel. It is doing this. I raised two

children and it is instructive to raise children. I remember going

into a room and saying, ‘‘Who spilled the milk on the rug?’’ One

would say, ‘‘I wasn’t even here.’’ He was standing in the room. The

other one would say, ‘‘It is my brother.’’ You see? This panel reminds me of that.

I think there is serious denial on your part. I am sorry to say

that but I think that it is absolutely the case. I also think that if

I thought so last time around that the university has to go tier by

tier in terms of the management team because this is not a management team. This is not a management team in my view.

Mr. Chairman, thank you for allowing me again to participate in

the subcommittee’s investigation in oversight. It is an important

one. I believe that this can be fixed but I don’t have confidence in

terms of the people that are still left in charge. With that, I know

that my time is up. The red light is blinking. Thank you.

Mr. GREENWOOD. Thanks, gentlelady. I want to go back, Mr.

Salgado, to the e-mail from Milum. Is it your testimony that you

had nothing to do with the preparation of this e-mail?

Mr. SALGADO. I have no recollection of this e-mail. There were

a lot of facts that went into it. Mr. Chairman, could you give me

the number again?

Mr. GREENWOOD. Yes. It is 47. Did she say to you, ‘‘The University of California wants to know why you fired Walp and Doran

and I have to respond to them,’’ and ask you any questions as to

why they were fired?

Mr. SALGADO. I have no recollection of the request coming in, No.

1, and so——

Mr. GREENWOOD. My question is did you have conversations with

her about a request or about her communicating to the University

of California about why Messrs. Walp and Doran were fired?

Mr. SALGADO. I don’t have a recollection of that conversation specifically, but there were—I am not even sure of the date of this—

December 11. Previous to that that she had been engaged in the

conversations and helped draft the proposed letter of dismissal so

there were conversations that took place. I really have no recollection of this. I don’t know whether the request came to her. I guess

it came to her specifically. I don’t know.

Mr. GREENWOOD. In there she says among the complaints

against Walp and Doran was that they had ‘‘no plan for bringing

the review to closure.’’ This is the Mustang case. Now, to this day

LANL has failed to addressed Ms. Anaya’s employment status at

LANL. She has been on paid leave for over 6 months. The question

is is there a plan for bringing this matter to a closure 6 months

later?

I mean, Walp and Doran were criticized for not bringing it to closure in 4 days. It is still not in closure. It is 6 months later. The

woman who is suspect in this case, or at least people suspect that

she is responsible for this conduct, is on paid leave.

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The question is is the pot calling the kettle black here? If these

guys are criticized for not bringing this to closure in 4 days, and

the Laboratory hasn’t closed it for 6 months, should everyone involved in this case be dismissed in the same unceremonious way?

Mr. SALGADO. Obviously the answer to that question is no. I

don’t know where that case is.

Mr. GREENWOOD. Do you, Mr. Busboom?

Mr. BUSBOOM. No, I don’t, sir.

Mr. GREENWOOD. Mr. Dickson?

Mr. DICKSON. I do, Mr. Chairman. The action on the Lillian

Anaya matter was deferred for a number of months with the specific request first of the Federal Bureau of Investigation and, second, request of the DOE IG. Two weeks ago——

Mr. GREENWOOD. Was that request before or after the 4 days

that Messrs. Doran and Walp had responsibility?

Mr. DICKSON. It was. Those were later.

Mr. GREENWOOD. Afterward. Okay.

Mr. DICKSON. Those requests were, let us just say, relieved for

lack of a better words, about 2 weeks ago. The discipline process

has been invoked and it is expected that there will be a review

board which is convened next week for the purpose of asking whatever division is to be made with respect to her employment status.

Mr. GREENWOOD. Okay. The e-mail also says that, ‘‘Walp lost or

misplaced evidence in his custody. This rationale actually refers to

two knives that were stolen from the S Division after they had

been received by S Division employee James Mullens from Michael

Alexander, the brother of one of the T-33 suspects.

At the time that Mullens received items from Mr. Alexander he

was serving as the LANL liaison with the FBI. In fact, at this point

Mr. Busboom had removed Mr. Walp from his role as FBI liaison

and instructed Mr. Walp to have no involvement in the TA-33 matter.

Mr. Mullens was holding the Alexander items pursuant to the instructions of FBI Special Agent Camel.’’ Mr. Busboom, do you really mean to hold Mr. Walp responsible for the theft of evidence from

the investigation from which he had specifically been instructed to

stay away?

Mr. BUSBOOM. Not as the FBI liaison but as the office leader,

certainly. I expected all the property issues to be properly addressed.

Mr. GREENWOOD. In fact, isn’t it true that Mr. Walp took immediate action to determine who stole the knives from the evidence

custodian and even offered to take a lie detector test regarding this

matter.

Mr. BUSBOOM. I don’t know about the lie detector test but my understanding was that the Inspector General was investigating.

Mr. GREENWOOD. Did Mr. Walp take immediate action?

Mr. BUSBOOM. I don’t know what immediate action he took. No,

sir.

Mr. GREENWOOD. Is it true that following the discovery of the

theft of the knives that one of S divisions long-time employees, Bill

Sprouse, went home sick for the afternoon and later refused to take

a lie detector test regarding the theft of the knives?

Mr. BUSBOOM. I am not aware of that, sir. No.

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Mr. GREENWOOD. Anybody else aware of that? All right. Do you

think that Mr. Walp is responsible for the theft of the knives?

Mr. BUSBOOM. No, sir. I think he is responsible for the safeguarding of the evidence.

Mr. GREENWOOD. Okay. And did he—has evidence been safeguarded historically in a different way at the lab?

Mr. BUSBOOM. Oh, absolutely. You put in the chain of custody

and you lock it up in the evidence locker or in a vault. Yes, sir.

Absolutely.

Mr. GREENWOOD. It was in a locked office in a secure building.

Was it not?

Mr. BUSBOOM. It was in a locked office as far as I understand.

Yes, sir. But it was not in the property locker and it was not in

chain of custody.

Mr. GREENWOOD. Let me ask this question. I would like you to

describe, Mr. Salgado, the interaction with Messrs. Walp and

Doran with regard to their firing. This letter was written. They

were given the letter. Were they afforded the opportunity to defend

themselves?

Mr. SALGADO. I was not part of that process so I can’t answer

the question.

Mr. GREENWOOD. Mr. Busboom, do you know the answer to that

question?

Mr. BUSBOOM. The answer is no. They asked for their resignations and then when they weren’t forthcoming, they were terminated 2 weeks later.

Mr. GREENWOOD. Okay. Ms. Anaya has taken 6 months, is going

before a board. Will she have the opportunity to present her side

of the story?

Mr. DICKSON. Yes, she will.

Mr. GREENWOOD. Okay.

Mr. DICKSON. Ultimately.

Mr. GREENWOOD. Okay. Let us assume that hypothetically that

the conclusion is that she did wrong and she is terminated here.

Okay? Now, I would like you to compare the way that she is handled. She is allegedly a perpetrator of a crime.

Messrs. Walp and Doran are people looking for perpetrators of

crimes. They are given no opportunity whatsoever to defend themselves. They are told to leave, to resign. They don’t resign and they

are told that they are fired. I think they are given half an hour to

get out.

Now, Ms. Anaya, on the other hand, has been waiting 6 months.

She is going to come before a board. Why would these two matters

of dismissal of an employee be handled in such radically different

fashions?

Mr. DICKSON. The answer is basically a creature of lab policy

which is not dissimilar to Government policies all over the place.

Congressman, it is normal for Government employers to have what

are referred to as probationary period. These employees in these

probationary periods are treated as employees at will and they do

not have all the due process rights that long-service employees

such as Mrs. Anaya had.

The problem with Mrs. Anaya’s termination all along has been

the request and the demands of law enforcement agencies not to

147

disturb the status quo while ultimate decisions are being made

with respect to her employment. We would love to have taken action with respect to her entirely back in October.

Mr. GREENWOOD. Let me ask this question. I am sure that—my

guess is that Messrs. Doran and Walp were not the first probationary employees to be asked to resign or fired. Is that a fair

statement?

Mr. DICKSON. I am sorry? I think I missed the——

Mr. GREENWOOD. My guess is that over the course of time other

employees at LANL who have been on probationary status have

been terminated.

Mr. DICKSON. That is right.

Mr. GREENWOOD. My question is because they are on probationary status is it the policy of the Laboratory they don’t get an

opportunity to defend themselves? They can make allegations

against probationary employees? Is that the way it works?

Mr. DICKSON. Well, what that really means is that there is no

formal process by which they can complain over their termination.

That is not to say that managers will turn a deaf hear if a probationary employee would——

Mr. GREENWOOD. My question is this. I asked why it was that

Messrs. Walp and Doran were not afforded the opportunity to respond to the charges made against them and the causes given to

them for why they were fired. The answer is because they were on

probation.

Mr. DICKSON. Yes.

Mr. GREENWOOD. So if that is the answer, then I would assume

that is the way you treat all probationary employees. You make allegations about them, they are not afforded an opportunity to respond, and out they go. The allegations against them could be absolutely false but because they are on probationary status, they don’t

get to offer up their side of the story or defend themselves in any

kind of a process. Is that the way it is?

Mr. DICKSON. That is correct.

Mr. GREENWOOD. That sounds like a terrible policy.

Mr. DICKSON. Congressman Greenwood, that is in my experience

the rule or the policy that exist in every governmental entity in the

State of New Mexico and, as far as I know, throughout the country.

There is a period of time during which employees come to an organization which they do not accrue the due process rights. We call

it the new employee evaluation period. A lot of other places call it

probation. That is the way the rule is and whether it is fair or not

is open to question.

Mr. GREENWOOD. Mr. Salgado, did you want to make a point?

Mr. SALGADO. I just want to make a point, Mr. Chairman, that

this did not happen in somewhat of the stark vacuum we are talking about. It is my recollection that there were issues of performance that were raised in the early part of September and that those

were basically—those issues were gone through the chain of command and that I believe Mr. Busboom or Mr. Tucker had ongoing

discussions with Mr. Walp and Doran about their performance.

There were these issues that did take place I know in the early

part of September and October timeframe. I believe that is correct.

Mr. GREENWOOD. Mr. Busboom, did you have a comment?

148

Mr. BUSBOOM. That is correct, yes.

Mr. GREENWOOD. All right. Mr. Dickson, you want to make a

comment?

Mr. DICKSON. I would like to address the notion of the aggressiveness with which these disciplinary actions have taken. Since

the beginning of the Mustang case there have been a lot of attention focused on the Laboratory. The first thing that the Laboratory

did in order to rectify the situation was to establish the purchase

card review team.

In my view that was an aggressive, open, thorough process by

which we were going to specifically deal with some of these issues

that have been raised by Congresswoman Eshoo. It was an expected outgrowth of that activity that we would discover other acts

of misconduct if you are auditing you might find.

Parallel to these ongoing events with the purchase card review

team was the theft of TA-33. We have coordinated that investigation with the FBI very closely. As a matter of fact, you may recall

from your review of the record that we were criticized for having

threatened the FBI by saying we are going to move Mr. Bussolini

and Mr. Alexander out and thereby disturb the FBI investigation.

We needed to get those people out of TA-33. We needed to make

sure that the security was preserved and that we didn’t suffer any

further loss. We gave the FBI a window of time and after a point

said this is as far as we can go and took them out. They were dealt

with within a matter of days. They are no longer employed by the

Laboratory.

The force of circumstances in order to accommodate the law enforcement needs, accommodate the security needs and accommodate just the operational needs, we have to make accommodations

between the law enforcement and all of these people in order to do

things. Some of these delays built into the system are caused by

the collaboration among those various entrants.

Mr. GREENWOOD. Okay. I want to thank all the panelists for your

testimony, for being here with us voluntarily today. We are going

to have to recess now because we have votes on the floor. I would

also without objection include into the record Congressman Walden’s introductory opening statement.

With apologies to the second and third panels, this recess will

have to continue until 4. We will return here at 4.

[Whereupon, at 1:31 p.m. the subcommittee recessed to reconvene at 4 p.m]

Mr. GREENWOOD. We will reconvene and we will call forth Mr.

Darling.

Mr. Darling, if you would come and be seated.

Mr. Bruce Darling is the Senior Vice President of University Affairs and Vice President for Laboratory Management, University of

California.

Welcome back.

Mr. DARLING. Thank you, Mr. Chairman.

Mr. GREENWOOD. We appreciate you being here and we are trying to accommodate your schedule so we will try not to delay you

too much.

149

As you recall from the last panel, this is an investigative hearing.

We take testimony under oath. Do you have objection to giving

your testimony under oath?

Mr. DARLING. I do not, sure.

Mr. GREENWOOD. Okay. Pursuant to the rules of the committee

and the House, you are entitled to be represented by counsel. Do

you wish to be represented by counsel?

Mr. DARLING. I do not.

Mr. GREENWOOD. Okay. Then if you would stand, raise your right

hand.

[Witness sworn.]

Mr. GREENWOOD. You are under oath and recognized for your

opening statement, sir.

TESTIMONY OF BRUCE B. DARLING, SENIOR VICE PRESIDENT,

UNIVERSITY AFFAIRS, INTERIM VICE PRESIDENT FOR LABORATORY MANAGEMENT, UNIVERSITY OF CALIFORNIA

Mr. DARLING. Thank you, Mr. Chairman. Good afternoon, Mr.

Chairman, Mr. Deutsch, and members of the committee. First of

all, I appreciate your willingness to accommodate me. My father

died at the beginning of January, my uncle died at the end of January, and unfortunately my great uncle suffered a stroke Monday.

We had to make a difficult decision of terminating life support and

I would like to go home and visit him before he dies in the next

day or two so I really appreciate your willingness to accommodate

me.

What I would like to do with your permission is to read my brief

oral testimony and then perhaps respond to one or two questions

that came up this morning for which I don’t think you received a

complete answer. Then I would be happy to answer any questions

that you might have.

Mr. GREENWOOD. Excellent. Thank you.

Mr. DARLING. What I would like to do today is to reemphasize

to the committee and to the American people that the University

of California is committed to reforming the business and management practices at Los Alamos National Laboratory; that senior

University officials continue to investigate potential abuses at the

Laboratory and to institute appropriate reforms. Our goal remains

to raise our business practices to the level of our science and weapons programs and to restore public confidence in the Laboratory

and the University.

As you know, I was appointed Interim Vice President for Lab

Management in addition to my other role at the university on January 8 of this year. At the first hearing on February 26 I provided

you with a comprehensive list of options that the University has

taken to address the business, procurement, and property problems

at the lab.

With your permission, what I would like to try to do today is to

address several specific issues raised by the committee during the

hearing on February 26, 2003. I would just note that on a number

of these issues, I have consulted with Steven Doran in the last few

days prior to coming here so that you know we are maintaining

open communications as we go forward.

150

I would also say that we intend to review each of the answers

that we come up with in response to these questions that were

raised by Mr. Walp and Mr. Doran and the committee with them

and with you and will do so in complete candor. If you have additional information that leads us down another track, we will be

happy to pursue that with the same level of diligence.

We have continued to make additional management changes at

Los Alamos. Most recently we reached settlement agreements with

former Security Division Director Stanley Busboom and his Deputy

Gene Tucker, as well as with the former Audits and Assessments

Director Katherine Brittin. All three will be leaving the Laboratory

in April, two retirements and one separation.

In addition, our Deputy General Counsel is meeting, as we

speak, with the U.S. Attorney in Albuquerque to obtain the additional information we need to make decisions about further management changes at the Laboratory and to better understand some

of the circumstances that are still in question about the relationship between the U.S. Attorney and the FBI and Senior Laboratory

managers.

Another important issue is the current status of the individual

who is alleged to have misused her purchase card to attempt to buy

a Ford Mustang, Lillian P. Anaya. With the Department of Energy

Inspector General’s permission the Laboratory is now investigating

possible disciplinary action. There was an interview with her on

Friday, March 7, and although this requires due process, we expect

the matter to be completed and the individual’s employment status

to be qualified in April.

Additionally, I now have more information about Mary Francis

Wood and Clarissa Rodriguez in response to Chairman Greenwood’s questions during the last hearing. At my direction the Laboratory this week did send a letter to Ms. Wood’s employer demanding repayment of the nearly $2,000 inappropriately charged

on her purchase card at a casino and elsewhere. We have referred

this matter and the Clarissa Rodriguez case, which involved a

fraudulent travel voucher, to the Los Alamo District Attorney for

possible law enforcement action and we wait his decision.

There were a number of additional questions raised about the

misuse of the Laboratory’s procurement systems. Let me address a

number of them:

First, the allegation regarding excessive gasoline purchases

seems to be explained by an improperly calibrated compressed natural gas pump meter. That meter has been corrected and is now

dispensing the same amount of fuel as it shows on the meter.

And, further, there was the fact that one of the vehicles that was

receiving fuel was a fuel tanker that would take gasoline up to the

Laboratory, distribute it then to emergency vehicles that were not

supposed to leave the premises, generators and other onsite machinery. This might well explain why there was a high level of gasoline usage that did not correspond with the very low mileage on

that tanker truck. Again, we are pursuing these issues and if there

is additional information that comes to light, we will pursue that

as well.

Second, there has been no settlement to date with the Contract

Associates matter. I think there was a statement made that the

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university and the lab had settled up for $50,000. However, the

University’s Audit Office has confirmed poor controls and record

keeping both by the lab and the vendor, and that inadequate controls were built into the contract terms.

The new controls are now in place and we have contracted with

PricewaterhouseCoopers to conduct a comprehensive contract closeout audit of that contract so we know whether there are any disputed issues that need to be resolved and how to do so.

Based on the findings, we will seek appropriate reimbursement

from Contract Associates. I might add, we have encouraged competition from a number of other vendors so we are not relying solely on that company to make the purchase of the goods that were

previously bought from that company.

Finally, questions were raised about the ineffectiveness of the

Laboratory’s controls over its Local Vendor Agreements (LVAs) and

Just-in-Time contracts (JITs). The external review team that was

led by two former Federal Inspectors General and

PricewaterhouseCoopers did begin a review in mid-January of

those procurement practices and it is scheduled to issue its report

in April. The University will act aggressively to implement any and

all necessary reforms.

In the meantime, I should let you know that we have reduced the

number of LVAs from 35 to 27, set new restrictions on their use,

reviewed each agreement to determine its continued value to the

Laboratory, and we are developing additional controls to strengthen these agreements.

On security matters, it was alleged that the security clearances

of those involved in the thefts at the TA-33 facility had not yet

been revoked. We have looked further into this matter and, as I

testified before, the clearances were suspended by the Department

of Energy at our request a full 6 weeks before they were officially

terminated from the Laboratory on December 17, 2002.

Finally, there was testimony 2 weeks ago about the current state

of morale in the Office of Security Inquiries. While this has been

a continuing concern of Interim Director Nanos, I should also note

that the University independently dispatched its Director of Security to speak to the OSI staff both as a group and individually.

He concluded that morale of the office is indeed poor, that the

unit is understaffed and has a large backlog of work. We intend immediately to address these problems, both through reorganization

and other steps Interim Director Nanos will take.

A number of allegations were made regarding time card and

work order fraud. While a 2001 audit does not suggest systemic

problems, we intend to expand our 2002 audit procedures to more

aggressively look for time and materials overstatements.

Additionally, we have discussed this matter with Steven Doran

to see if there are any other avenues that he thinks are available

that we might pursue.

In closing, I want to emphasize, as I did 2 weeks ago, that the

University has not and will not let its focus on the important business and management issues that we are discussing today distract

the Laboratory from fulfilling its mission to the Nation. We remain

focused on ensuring that the Laboratory’s scientific and weapons

programs continue to meet their objectives.

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These objectives include ensuring the continued viability of the

Nation’s nuclear stockpile, monitoring nuclear proliferation around

the globe, and helping prevent and prepare for nuclear, biological,

and chemical attacks. The work being done at Los Alamos today is

as important as at any time in the 60 years that the University has

had the privilege and responsibility of managing the Laboratory.

We remain honored to oversee this important work on behalf of the

Nation.

I would like to just conclude by thanking you again for this opportunity to address you. I would be pleased to answer your questions. If I may, I will just respond to some of the items that came

up this morning.

[The prepared statement of Bruce B. Darling follows:]

PREPARED STATEMENT OF BRUCE B. DARLING, SENIOR VICE-PRESIDENT, UNIVERSITY

AFFAIRS, UNIVERSITY OF CALIFORNIA

Good afternoon, Mr. Chairman, Mr. Deutsch, and members of the Committee: I

would like to take this opportunity to reemphasize to the Committee and to the

American people that the University of California is committed to reforming the

business and management practices at Los Alamos National Laboratory that are the

focus of this hearing. I would also like briefly to address several specific issues

raised the last time I appeared before you about which I now have additional information.

Senior University officials continue to investigate potential abuses at the Laboratory and to institute appropriate reforms. As I said the last time I appeared before

you, our goal is to raise our business practices to the level of our science and weapons programs—which all of us agree the nation can be proud of—and in so doing,

restore public confidence in the Laboratory and the University.

With your permission, I will now address several specific issues raised during the

Committee’s hearing on February 26, 2003. On a number of these issues, I have consulted with Steven Doran for clarification and additional information.

MANAGEMENT CHANGES

We have continued to make additional management changes at Los Alamos. Most

recently we reached settlement agreements with security division director Stanley

Busboom and his deputy Gene Tucker. Both will be separated from the Laboratory.

We have begun discussions with Katherine Brittin and we expect resolution of her

status in the very near future. In addition, our Deputy General Counsel is meeting,

as we speak, with the U.S. Attorney in Albuquerque to obtain the additional information we need to make decisions about further management changes.

Another important issue is the current status of the individual who is alleged to

have misused her purchase card to attempt to buy a Ford Mustang. For some time,

the Laboratory refrained from pursuing a personnel action against this individual

because of a pending investigation by the Department of Energy Inspector General.

The Laboratory recently obtained the Inspector General’s assurance that a Laboratory investigation could be conducted without interfering with the Inspector General’s investigation.

Since receiving the Inspector General’s permission, the University has directed

the Laboratory to investigate whether disciplinary action is appropriate. As you

know, the Laboratory and the University must observe certain requirements of due

process in conducting such an investigation. The Laboratory’s human resources division is expected to complete its formal investigation by the end of this week. The

result may be to convene a Case Review Board to evaluate the findings underway

by the human resources division investigation, and to recommend disciplinary action

against the individual in question. We expect this process to be completed—and the

individual’s employment status to be finally resolved—in April.

Additionally, I now have more information about Mary Francis Wood and Clarissa

Rodriguez in response to Chairman Greenwood’s questions during the last hearing.

Ms. Wood was a contract employee at the Laboratory who used her purchase card

to make cash advances and other inappropriate purchases. The Laboratory terminated her employment on August 19, 2002, and the matter was later referred to the

DOE Inspector General. At my direction, the Laboratory this week sent a letter to

Ms. Wood’s employer demanding repayment of the amounts inappropriately charged

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on her purchase card. The University has referred this matter to the local New Mexico District Attorney for possible law enforcement action.

Clarissa Rodriguez was a Laboratory employee who cashed a fraudulent travel

voucher. The Laboratory accepted Ms. Rodriguez’s resignation on September 23,

2002, and she repaid the Laboratory on that date. The Rodriguez matter was referred to the DOE Inspector General shortly after the Laboratory learned about it.

The University has referred this matter as well to the local District Attorney. To

the best of our knowledge, the Inspector General’s investigations into the Wood and

Rodriguez matters are ongoing.

PROCUREMENT MATTERS

There were a number of additional questions raised about the misuse of the Laboratory’s procurement systems. Let me address a number of them:

First, it was asserted that purchase cards were used to purchase more fuel than

fire trucks and other similar vehicles could hold. In looking into this matter, we

were informed that some of the purchases involved compressed natural gas that was

being dispensed from a gas pump with a miscalibrated meter. (The meter has been

re-calibrated to properly record the amount of fuel that is dispensed.) The other purchases involved a dual-tank fuel truck that dispenses fuel to emergency response

vehicles, emergency generators and other critical machinery at the Laboratory. This

explains the unusually high amount of fuel that was used. In neither case does it

appear that there was any fraud or abuse involved.

A second issue was the allegation that Contract Associates ‘‘overbilled’’ the Lab

for millions of dollars and yet the Lab is prepared to settle the case for only $50,000.

For the record, there has not been a $50,000 settlement. However, the University’s

Audit Office has confirmed poor controls and record keeping both by the Lab and

the vendor, and that inadequate controls were built into the contract terms. The

new controls are now in place and we have contracted with PricewaterhouseCoopers

to conduct a comprehensive contract closeout audit, which will be supervised by the

UC Auditor. Based on the findings, we will seek appropriate reimbursement from

Contract Associates. In addition, several other vendors are now providing the goods

provided by Contract Associates so that there is competition in obtaining the goods.

Finally, questions were raised about the ineffectiveness of the Laboratory’s controls over its Local Vendor Agreements (LVAs) and Just-in-Time contracts (JITs).

The University learned about these concerns from Mr. Walp and Mr. Doran several

weeks prior to the last hearing. We took these concerns seriously and pursued them

immediately, as we have with every other issue that has been raised by Mr. Walp

and Mr. Doran.

In response, we asked the External Review Team chaired by two former federal

Inspectors General, and aided by a dozen forensic accountants from

PricewaterhouseCoopers to expand its review of the Laboratory’s purchase card program to include a review of all Laboratory procurement, including LVA and JIT contracts to determine whether these agreements are vulnerable to abuse.

The External Review Team began this project in mid-January; it is scheduled to

complete its review and issue a report in April. When the External Review Team’s

review is completed and its report is issued, the University will act aggressively to

implement any and all necessary reforms. In the meantime, we have reduced the

number of LVAs from 35 to 27, set new restrictions on their use, reviewed each

agreement to determine its continued value to the Laboratory, and we are developing additional controls to strengthen these agreements.

SECURITY MATTERS

It was alleged that the security clearances of those involved in the thefts at the

TA-33 facility had not yet been revoked. We have looked further into this matter

and, as I testified before, the clearances were suspended by the Department of Energy on October 31, 2002—a full six weeks before the employees’ official terminations on December 17, 2002.

Finally, there was testimony two weeks ago about the current state of morale in

the Office of Security Inquiries. While this has been a continuing concern of Interim

Director Nanos, the University independently dispatched a representative to speak

to the OSI staff both as a group and individually. He concluded that morale is indeed ‘‘poor,’’ that the unit is understaffed and has a large backlog of work, and that

it remains divided between those who share Mr. Walp and Mr. Doran’s concerns and

those who reject the allegations made about inadequate reporting and poor accountability. We intend immediately to address these problems, both through reorganization and other steps Interim Director Nanos will take.

154

TIME CARD AND WORK ORDER FRAUD

A number of allegations were made regarding time card and work order fraud.

While a 2001 audit does not suggest systemic problems, we intend to expand our

2002 audit procedures to more aggressively look for time and materials overstatements. Additionally, we have discussed this matter with Steven Doran, in his new

capacity as the Director of Security for the Office of the President, to determine

other avenues for possible investigation.

In closing, I want to emphasize, as I did two weeks ago, that the University has

not and will not let its focus on the important business and management issues that

we are discussing today distract the Laboratory from fulfilling its mission to the nation. We remain focused on ensuring that the Laboratory’s scientific and weapons

programs continue to meet their objectives. These objectives include ensuring the

continued viability of the nation’s nuclear stockpile, monitoring nuclear proliferation

around the globe, and helping prevent and prepare for nuclear, biological, and chemical attacks. The work being done at Los Alamos today is as important as at any

time in the 60 years that the University has had the privilege and responsibility

of managing the Laboratory. We remain honored to oversee this important work on

behalf of the nation.

Thank you again for this opportunity to address the Committee. I would be

pleased to answer your questions.

Mr. GREENWOOD. Why don’t you just go right ahead and do that.

Mr. DARLING. Thank you. One of the questions that came up this

morning was is any of the material that appeared in the 30-pound

box of Laboratory documents that went to the Albuquerque Journal

classified information.

This was an area of concern to us and with the cooperation of

both the attorney for the Albuquerque Journal and the publisher

of the Albuquerque Journal we were able to have a national nuclear security administration classifying official go out, review the

documents, and determine that there are no classified documents

in that material and so we are all comforted to know that there

was no breach of national security by the release of those documents to the newspaper.

In addition, you asked about two key meetings. One was the

meeting with the FBI and senior Laboratory management officials.

Just to clarify, that was a meeting that took place on October 24,

to the best of my recollection. It was a meeting between Mr.

Salgado and Mr. Dickson from the Laboratory and the U.S. Attorney, and I believe some FBI agents.

That remains a very important meeting because that is the meeting at which there continue to remain differences of opinion about

what the U.S. Attorney and the FBI conveyed to the Laboratory officials about either their satisfaction or dissatisfaction with Mr.

Walp’s and Mr. Doran’s performance.

You also asked about the date of the meeting in which senior

Laboratory officials met to determine the fate of Mr. Walp and

Doran. To be clear, to the best of my knowledge, that was on November 18. There was some confusion about who was present at

that meeting. I believe it was said that Mr. Busboom and Mr.

Marquez were present. To the best of my knowledge they were not

present.

In previous meetings they told us that they were not members

of that meeting in which Mr. Walp and Mr. Doran’s fate were discussed. I believe the participants in that meeting were Mr.

Salgado, Ms. Milum, Mr. Dickson, Mr. Holt, and Mr. Kruger. So I

would be happy at this point, Mr. Chairman, to answer any other

questions you might have.

155

Mr. GREENWOOD. Thank you, Mr. Darling. The Chair recognizes

himself for 10 minutes. On December 18, 2002, you interviewed

several people including Mr. Salgado. At that time you took extensive notes. During your interviews you asked Mr. Salgado to explain why LANL fired Mr. Walp and Mr. Doran.

You previously testified that Mr. Salgado told you he was concerned that Walp and Doran would obtain whistleblower status following their anticipated meeting with the Department of Energy

Inspector General.

Reportedly he also told you that he suspected that they were the

source of the anonymous 30-pound box of documents that were delivered to the Albuquerque Journal to which you just referred. Can

you tell the subcommittee about your interview with Mr. Salgado

and whether any of the other people you interviewed told you that

they had discussed Walp and Doran’s potential whistleblower status with Mr. Salgado prior to their firing.

Mr. DARLING. Yes, I would be pleased to. As I indicated at the

last hearing, we interviewed 14 officials both at Los Alamos and at

the university over a 2-day period, December 18 and 19. What

emerged was a story with many consistencies and a few striking

differences.

Mr. Salgado was very candid with us. He told us that the meeting that I just described on November 18 had taken place. He described that Mr. Busboom, who was Mr. Walp’s and Mr. Doran’s

immediate supervisor, was not present in the room. He indicated

that there were two issues that were discussed that was related to

their termination during their new employee evaluation period.

One of those items was that the Inspector General had sent an

official from Washington, DC to Los Alamos to interview employees

at the lab. That Mr. Salgado had spoken to the DOE Inspector

General. That the DOE Inspector General refused to tell him who

the representative was going to interview at the lab and that he

suspected that it was going to be Mr. Walp and Mr. Doran.

He did indicate to us, as he said today, that he thought there

were a number of performance issues which contributed to the decision to terminate their employment. But he did go on to say that

he was concerned that if Mr. Walp and Mr. Doran were interviewed by the Inspector General, that would somehow confer, I

think the term he used was technical whistle blower status on

them and that it would make it more difficult for them to be terminated after that meeting. One of the reasons for making the decision to terminate them when they did was because of that forthcoming meeting.

Second—I am sorry. I have forgotten your second point.

Mr. GREENWOOD. So have I. Oh, the 30-pound box of documents.

Yes. Did he raise that issue?

Mr. DARLING. Yes, he did. He indicated—no, I am sorry. There

was a separate meeting on December 12 at which some of us met

with Secretary Abraham, Deputy Secretary Costello and NNSA Administrator Brooks. It was in that meeting that he told the Secretary that he suspected, though I think the term he used was it

is very likely that it was Mr. Walp and Mr. Doran who had provided the materials to the Albuquerque Journal and that he was

156

certain that the box of documents had come from the Office of Security Inquiries.

Mr. Abraham, the Secretary, I think captured all of our feelings

at that meeting when he responded by saying, ‘‘If you do not know

that to be a fact, you should not be raising that issue. It undermines your case and it is not something that you should be saying.’’

As I said, I think that echoed the sentiments of everyone else in

the room at that time.

Mr. GREENWOOD. The University of California terminated Mr.

Busboom’s association with the lab yesterday. Is that correct?

Mr. DARLING. Mr. Busboom will retire on April 2. I believe the

agreement with Mr. Busboom was reached at the end of last week

if I recall correctly.

Mr. GREENWOOD. And why did the university want Mr. Busboom

to retire?

Mr. DARLING. We had three options. One option was to terminate

Mr. Busboom. A second option was to allow him to take the position that I described at the last hearing with a reduced salary. I

think his salary currently is $190,000 and the law practice would

have been to reduce it to, in this case, $140,000 commensurate

with responsibilities of the new position that had been identified.

The third was to reach a legal settlement.

Given his prior performance as reflected in the performance evaluations that are in Laboratory files, our general counsel said that

if we did terminate him, that he would have strong grounds for a

wrongful termination suit. In these wrongful termination suits he

would prevail and that the Laboratory would be responsible for

paying many, many multiples of what it is that we have agreed to

settle for.

If you pursue the second option, which was to allow Mr. Busboom

to be reassigned to an additional position—a new position at the

lab at a lower salary, we would then be faced with paying that

lower salary for an indefinite period of time.

As you might imagine, as the years would roll on that would also

amount to a very large amount of money. What we decided is in

view of the recent events, the best thing that we could do for Mr.

Busboom and for the Laboratory and for the American people

would be to allow him to retire and to provide him with a fair settlement.

Mr. GREENWOOD. And what was that?

Mr. DARLING. That fair settlement is a 12-month compensation

equal to his current compensation of $190,000 per year, COBRA

health insurance benefits for that same period of time, and his attorney’s fees.

Mr. GREENWOOD. Okay. You just explained to me how you could

terminate the relationship or change the relationship with Mr.

Busboom. My question is why? In other words, Mr. Busboom sat

here and you were here and basically said he didn’t do anything

wrong. Your attorney said he advised you that if he had a strong

wrongful termination case, that he could win. Under those circumstances why did the university want him to be gone?

Mr. DARLING. Well, we believe that the circumstances surrounding the termination of Mr. Walp and Mr. Doran were inappropriate. That we received discrepant views from Mr. Busboom

157

and Mr. Tucker in our meeting with them on December 18 about

why they were hired in the first place. What degree of authority

they were to be given at the Laboratory for conducting their investigations.

And I would just summarize it by saying that if we were told

they were only to do inquiries and not investigations and that was

an important distinction for the Security Division. On the plane

home that night as we reviewed documents, what we found was

that the job description, the job announcement, and the job advertisement all suggested that they were being hired to do investigations which I think conveys a different level of seriousness about

the matter than just an inquiry.

And that we did not believe that either the Laboratory Security

Division or the senior management of the lab took appropriate

steps to guide them, to try to reconcile the issues that came up that

caused the conflict that you heard about today, and ultimately the

decision to terminate them was an unwarranted decision and so we

have made that decision for that reason.

Mr. GREENWOOD. How about Mr. Salgado? Tell us about his separation.

Mr. DARLING. I was not directly involved with Mr. Salgado. Dr.

McTague, who will appear on a later panel, was the Vice President

for Lab Management at that time. When Dr. Browne informed

President Atkinson, I believe, on December 23 that he intended to

resign from the Laboratory, Dr. McTague spoke to Mr. Salgado.

Mr. Salgado had not yet heard the news.

My notes reflect the fact that Mr. Salgado told Dr. McTague that

Mr. Salgado would step down as well. He was prepared to assume

responsibility for what had happened. The understanding between

them, I believe, was that Mr. Salgado would come to work in Dr.

McTague’s office for a period of 6 months or be compensated for a

period of 6 months.

There was somehow a breakdown in communication because Mr.

Salgado says that he did not learn that he was separating from the

Laboratory until January 2 when the university issued the press

announcement. I can’t explain that discrepancy but then the university began a series of negotiations with Mr. Salgado.

Those negotiations concluded on January 31 without reaching

agreement and the president decided on January 31 to terminate

Mr. Salgado who is an at-will employee and, therefore, could be terminated whereas Mr. Salgado and others, that I am sure we will

be talking about, were not at-will employees. Excuse me, Mr.

Busboom. Thank you, Mr. Walden.

Mr. GREENWOOD. You testified that Charles Lobello, one of the

University of California’s outside counsel, was scheduled to meet

with the U.S. Attorney’s Office in New Mexico today. What do you

hope to learn from the U.S. Attorney in New Mexico and has the

University of California had any other substantive discussions with

the U.S. Attorney or the FBI regarding the LANL investigations of

2002?

Mr. DARLING. Yes. Both Mr. Lobello, former U.S. Attorney, and

Mr. Lumburg, our Deputy General Counsel, are in Albuquerque

today to meet with a number, I think four or five members of the

U.S. Attorney’s Office there.

158

This is something that we sought to do beginning of December

right after December 18 when we learned more details about the

terminations of Mr. Walp and Doran, but this is the first occasion

that it was possible to hold that meeting.

We had no substantive discussions up until then. There have

been a number of discussions trying to explain what our intentions

our, trying to schedule the meetings, etc. This will be the first

meeting. The purpose of the meeting is to try to find out, one, what

were the relationships between the Laboratory and the U.S. Attorney and the FBI. Were they good. Were they not. Were there differences in the relationship between Mr. Walp and Mr. Doran, on

the one hand, and the senior Laboratory management on another.

Is it possible that senior FBI officials were saying one thing to

Mr. Dickson and Mr. Salgado and yet the agent involved in the

case was saying something different to Mr. Walp and Doran that

specifically relates to the question of whether Mr. Walp and Mr.

Doran were authorized or not authorized to provide information

about cases being reviewed by the FBI to senior Laboratory management.

Third, how might we keep that relationship strong and more productive in the future. Last, whatever information they might have

about the cases that Mr. Walp and Mr. Doran were pursuing and

how is it that they view the professionalism and the competence of

Mr. Walp and Mr. Doran.

Mr. GREENWOOD. Thank you, Mr. Darling.

The Chair recognizes the gentleman from Florida, Mr. Davis, for

10 minutes.

Mr. DAVIS. Mr. Darling, before it becomes painfully obvious I will

confess to you that I have stepped into the middle of this and I will

do my best to try to handle this in a competent fashion. I am going

to read you some questions that have been prepared by our staff

and perhaps some of these points have been covered if I am not

being sufficiently clear. I am sure you will help me.

One of the points that was surprising to us this morning is Mr.

Salgado stated that the cultural issues at Los Alamos including the

lack of operational formality and management discipline caused

many of the problems. But the evidence further suggest that neither Mr. Salgado nor Mr. Dickson really practiced operational formality or management discipline in their dealings with Mr. Walp

and Mr. Doran.

Both of them moved outside their designated roles to try to run

criminal investigations instead of leaving that job to the professionals the lab had hired. Mr. Salgado wanted to direct on a daily

basis the Mustang investigation. Mr. Dickson wanted to be in

charge of the TA-33 investigation and control all the communications with the FBI and the U.S. Attorney’s Office. Is this the way

you view the situation as well?

Mr. DARLING. One of the conclusions that I think came—there

were five people who met with me at the Laboratory to pursue

these matters. I think it is fair to say that all of our view was that

Mr. Walp and Mr. Doran were being held to more exacting standard of competence than Laboratory management was holding either

other employees or holding itself. I will give you a couple of examples that were brought up this morning.

159

You will recall that Mr. Dickson and Mr. Salgado said that Mr.

Walp and Mr. Doran provided inaccurate information about an address for Lillian P. Anaya. The confusion arose because there is another employee that I should add very clearly here was not involved in any of these matters but who has the name of Lillian M.

Anaya.

There was some initial confusion during that short period on

which they were working on the Mustang case about whose address should be examined for the purposes of finding out where the

Mustang had been delivered. We were told that was inaccurate information because they provided Lillian M. Anaya’s address.

Yet, that night on the plane flying home when we reviewed a

Laboratory document that was being supported by the Laboratory

administration, we found four separate addresses for Lillian P. and

Lillian M. Anaya, none of which corresponded to the address that

the Laboratory had told us was the correct address.

Now, if there was that much confusion on the part of the Laboratory management and its advisors about the address, yet they did

not hold themself to that same standard of accuracy, we did not

understand why it was that Mr. Walp and Mr. Doran were being

held to that standard of accuracy and why it was that that fact was

a fact that was used for their termination.

That is one example of the type of issues that we found very

troubling that led us to pursue the matter with the degree that we

have and finally to reinstate the employment of both of these individuals. There were other discrepancies like this. That wasn’t the

only one.

Mr. DAVIS. One of the surprising points is that Mr. Walp and

Doran were never allowed to attend meetings with Mr. Salgado

and Mr. Dickson. Mr. Walp’s counterpart at the FBI often attended, however. How was Mr. Walp supposed to understand the

agreements made or have any input into them if he couldn’t attend

these meetings?

Mr. DARLING. Well, I think the Laboratory administration would

say that Mr. Dickson was assigned the responsibility for liaison to

the FBI and the U.S. Attorney so it was appropriate for that to

take place. Like you, I come to the conclusion that the people who

are working on issues need to be deeply involved.

They are the ones who hold the facts and it is very important

that those work as a team. I, again, do not believe that the Laboratory administration reflected that sense of a team involving the

people who had the greatest responsibility in these matters and I

think that was a misjudgment on their part.

Mr. DAVIS. I believe it was Mr. Salgado who said he had only

spoken to Mr. Walp a few times. Yet, he had a strong opinion that

Mr. Walp was not competent. Does it surprise you that he never

asked Mr. Walp about any of his complaints?

Mr. DARLING. That is one of the troubling issues. As I say, the

October 24 meeting was a key meeting that was cited as a reason

for terminating Mr. Walp and Mr. Doran. Mr. Salgado told us that

he came back from that meeting having heard from those officials

that the lab had blown the Mustang case.

Mr. Salgado came back from that meeting telling us that he believed that meant that Mr. Walp and Mr. Doran had blown the

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Mustang case. Mr. Salgado came back from that meeting thinking

that the U.S. Attorney and the FBI were saying that Mr. Salgado

had blown the case by the aggressive nature in which he pursued

it. Am I misusing names again?

Mr. WALDEN. I think you meant either Mr. Dickson or Mr.

Busboom came back.

Mr. DARLING. I meant Mr. Dickson came back. Mr. Dickson, who

had accompanied Mr. Salgado had a different interpretation of the

message. I am sorry for confusing names here today. Mr. Dickson

believed it was Mr. Salgado who was being pointed to by the U.S.

Attorney for blowing the case by pursuing it before the FBI was

able to develop a case.

Now, our question was why did they not speak to each other

about that? Why did they not speak to Mr. Walp and Mr. Doran

about that? Why did they not ask the U.S. Attorney and the FBI

about that?

Therefore, when you take the action to terminate someone and

you do it on the ground that you are going to cite later, it seems

to me you have a deep responsibility to inquire a little bit further

than just wondering about what someone said. You have the responsibility to go back and be sure of what someone said.

Mr. DAVIS. Just one more question. If you will bear with me, I

am going to read you something that our counsel is attempting to

write right now more abbreviated. There has been discussion about

changing the 60-year-old culture at Los Alamos. Yesterday at a

hearing in the California State Senate the university’s treatment

of whistleblowers was challenged. Mr. Nanos admitted that he had

not been kind to whistleblowers.

I want to refer you to a case we have begun to look into as an

example of what can happen. With reference to Tab 132, this is a

report from an administrative law judge concerning the termination of Jimmy Russell from S Division. Mr. Russell was a contract employee who had worked at S Division for 15 years. He was

a self-assessment team leader, did audits and assessments of security programs.

In 1999 he had a dispute over whether certain data should be

identified as security infractions or security incidents. Shortly

thereafter he was terminated and removed from the work place for

threatening behavior. His group leader, Kevin Leifheight and Mr.

Busboom were specifically cited as playing a crucial role in collecting and transmitting unfounded allegations of Mr. Russell’s

threatening behavior.

The Judge further found the consensus for the immediate termination of Mr. Russell. It was reached by an emergency advisory

panel at LANL, was substantially tainted by the selective and misleading information that it received from these UC managers. Mr.

Russell won in court but lost his job. No disciplinary action was

ever taken against either one of these gentlemen.

One of the members of the emergency panel told us that Mr.

Russell was not dangerous and that he simply went along with Mr.

Busboom and Leifheight. We are going to look into this further and

want you to promise that you will also look into the treatment of

Mr. Russell and his accusers who were found in the wrong.

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Mr. Russell was unemployed for 2 years and lost an opportunity

to become a lab employee because of these actions by Mr. Busboom,

Mr. Leifheight. He is not the first Los Alamos contractor employee

who has found himself in the street as the barrier of bad tidings.

This is what you need to deal with if you are going to change the

culture at the Laboratory. What can you do in this situation?

Mr. DARLING. Mr. Davis, let me just say that Admiral Nanos is

the new interim director so he has only been on the job since January 6 so I don’t think he has helped create that culture. I think he

is one of the individuals who is involved in trying to change that.

He has been very open. He has been holding meetings with all Laboratory employees receiving hundreds of e-mails from employees. I

think there is a sincere belief on the part of the lab employees that

he will help open up the communication for the reasons that you

mentioned.

With regard to Mr. Russell I first learned about the case in a

question from Mr. Deutsch at the hearing on February 26. We have

reviewed the decision by the representative of the Department of

Energy. We have not talked to counsel that represented the Laboratory which is something we are seeking to do and we need to

do.

Unfortunately, it appears to be a case in which the personnel in

the Office of Securities Inquiries failed to sufficiently analyze the

underlying fact of the case. It appeared there was a failure to resolve issues short of an administrative hearing.

It appeared that there was an underlying distrust reflected in

what I briefly read in the decision from the Department of Energy

official toward the Laboratory officials who were dealing with Mr.

Russell so we need to understand a few more facts which we are

trying to do in order to address your question. The first fact why

the supervisors in the Office of Security Inquiries did not do an in

depth analysis of the facts prior to termination.

Second, why the deficiencies in the evidence and why was there

no effort made to reconcile these differences before the termination.

I think we have some of the same questions in this case that I alluded to in the case of Mr. Walp and Mr. Doran and it is something

we are pursuing right now.

Mr. DAVIS. Once you conclude your analysis, what conceivably is

the best thing you could do to compensate Mr. Russell and to send

the appropriate message about how people will be treated henceforth in situations like that?

Mr. DARLING. That is a good question, Mr. Davis, but I think it

would be premature of me to try to respond. We really don’t know

the full set of facts. We are pursing them seriously. Once we have

them, I think as you have seen in many of our options, we are prepared to take action. We will not be reluctant to do so. I think it

is important that we look at the facts first.

Mr. WALDEN. Thank you, Mr. Davis.

Mr. Darling, let me just read for the record here part of a statement from the decisionmaker in the case. It says, ‘‘I find the UC

based its decision to terminate his assignment [meaning Mr. Russell] on the alleged incident of threatening behavior by Mr. Russell

which lacked any substantial factual basis and other incidents

were grossly exaggerated. Moreover, I find that Mr. Russell’s suVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00169 Fmt 6601 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
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pervisor, his group leader, and his division director appeared to

have played a crucial role in collecting and transmitting unfounded

allegations of Mr. Russell’s threatening behavior.’’ It goes on from

there. I am sure you have read.

Mr. DARLING. I have skimmed it.

Mr. WALDEN. Who is his supervisor or who made the decision to

terminate? Was that Mr. Busboom?

Mr. DARLING. Mr. Walden, you are taking me beyond a level of

knowledge that I have. As I said, I have just learned about this.

I have not read the full case so I am not able to answer that question.

Mr. WALDEN. That goes back to July 2000, I think. It would be

interesting to know. That is a pretty damning indictment, frankly,

from an administrative law judge.

Mr. DARLING. It is a very troubling statement.

Mr. WALDEN. I don’t envy the task that you have agreed to walk

into either, Mr. Darling. You have a lot on your plate. I have a

question, though. Several of them. Maybe we can move through

them. So Mr. Busboom is going to get paid $191,000 salary, his insurance for a year, and his attorney’s fees?

Mr. DARLING. Yes. I believe the figure is $190,000 but I am not

going to quibble.

Mr. WALDEN. $190. Okay. Mr. Salgado is terminated without any

compensation because he is an at-will employee.

Mr. DARLING. That is correct.

Mr. WALDEN. What about Mr. Doran? What is his status right

now in terms of settlement?

Mr. DARLING. I am glad you asked. You asked that question at

the last hearing and I had to go off and attend to other duties. Mr.

Doran is someone with whom we were negotiating since we reinstated him on January 17. He is now employed by the President’s

Office of the University of California as Director of Security for the

Office of the President to do two things.

One is to oversee the security guards that we have in the building. The second is to assist Senior Vice President Molinex who is

responsible for business and financial matters and the university

auditor who reports to Mr. Molinex and any special investigations

that they deem appropriate at any of our 10 campuses or three national laboratories.

Mr. WALDEN. So his status is settled?

Mr. DARLING. It was settled. I learned this morning from his attorney, Ms. Bonabe—we though we had an agreement in terms of

the settlement. I learned from her this morning that there is one

outstanding issue. I believe she is here, or at least was here. It is

something we are trying to understand and resolve as quickly as

possible in the same sense of openness and fairness in which we

have pursued his rehiring in the first place.

Mr. WALDEN. How much compensation is he seeking?

Mr. DARLING. Let me see if my memory will serve me well here. I believe his compensation is $105,000 per year. That is for working at the university.

Mr. WALDEN. Right. In terms of a settlement?

Mr. DARLING. There is a settlement amount. I am sorry but I am

just drawing a blank on the dollar amount.

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Mr. WALDEN. Perhaps we can get that at some point.

Mr. DARLING. If you will bear with me for a moment I have

something here but I don’t know if it has—no, I am sorry. I do not

have those details. I would be happy to report back to you.

Mr. WALDEN. I guess at least the fundamental question with

these sorts of settlements, who actually ends up paying that?

Mr. DARLING. I am glad you asked that question.

Mr. WALDEN. Does that get billed back to the Federal Government?

Mr. DARLING. No. With many of the costs that we have taken on

whether it be hiring in PricewaterhouseCoopers, whether it is hiring Ernst & Young, all of these settlement agreements will be paid

for by the university. We will not seek reimbursement from the

Federal Government for them.

Mr. WALDEN. Mr. Darling, I am told that recently LANL disclosed that an employee came forward to declare that for a number

of years he had been selling LANL computer source codes and then

using the proceeds to purchase new computers for his section routing the money through his personal bank account. Who is handling

this matter? What is the status of the review? Have you determined whether any LANL funds or computers were converted to

this employee or others for personal gain or benefit?

Mr. DARLING. Yes. I learned about this, I believe, about the time

of the last hearing or shortly thereafter. There was an individual

who was writing unclassified computer code. I just want to emphasize that so we don’t get confused with any national security issues.

Apparently we have an apparatus where one can take technology

and license it to the private sector so that we get good ideas into

the market place and that way, I think, do the American public a

great service from inventions developed with Federal funds.

He instead apparently chose to go around that process either out

of frustration with it or for some other reason. I don’t know. I don’t

want to attribute motives. He did, indeed, license that software

code to a number of firms. We are looking into that. The university

auditor is looking into that aggressively.

One of the issues we had to deal with was whether to put him

on investigatory leave while this was going on. The decision was

made that since he was very cooperative there was no need to do

that. We have learned that there are at least $100,000 involved.

Perhaps more. He says he used it solely to make purchases at the

Laboratory and that is one of the things we will be investigating

along with, frankly, reviewing all of his bank records and any other

financial transactions and see if that is true.

Mr. WALDEN. I appreciate that, Mr. Darling. I guess the entrepreneurial spirit is alive and well at the lab. We have seen a number of different examples, this being among them. What are the

safeguards? How do you know that somebody else isn’t doing this

that hasn’t come forward or hasn’t been caught? How do you keep

track of that? Do you feel the system is adequate?

Mr. DARLING. Mr. Walden, I don’t know the system at Los Alamos very well. The University of California has one of the most—

let me just back up and say this comes about as a result of the

Bayh Act in the early 1980’s. The idea was to take ideas that at

that point languished within the realm of the Federal Government,

164

put them to work in the market place, and drive the creation of

new companies, jobs for people, and much of what you have seen.

The University of California is the largest licenser of technology

of any university in the United States. I believe our revenues last

year were around $80 million from licensing everything from technology, etc. We have a very good system. You are obliged as an employee when you go to work at the university, or one of our labs,

to sign an agreement that you will turn over all of your patentable

inventions to the University of California.

We then have a process that provides an incentive back to the

scientists so that they will receive personally some of the money in

return. The department will receive the money and the university

will receive some money in order to achieve that. We have a process that is reviewed, audited, and so forth in order to try to ensure

the sanctity of that.

Mr. WALDEN. Yes. I understand. I guess my question would be

the process for somebody who wants to play by the process is pretty

easy to follow. The question is what are the safeguards to make

sure that somebody doesn’t go around that. I assume you will be

looking into that.

Mr. DARLING. Yes.

Mr. WALDEN. Reportedly the FBI recently interviewed Janet

Campbell, an architect formerly employed by UCSF regarding allegations that certain construction engineering contractors violated

California law regarding bids for UC construction projects. Are you

aware of any lawsuits or allegations of bid rigging, price bundling,

or improper drafting of proprietary building specifications at recent

UC construction projects at LANL or Sandia?

Mr. DARLING. I am not. I did learn from Mr. Molinex that there

was a complaint. I don’t know whether it was by this individual.

We are looking into a complaint. I was not aware that it was at

Los Alamos. Sandia is a separate Laboratory. I am not aware of

anything to do with Sandia.

Mr. WALDEN. Reportedly the plaintiff in one of these lawsuits

against UC is scheduled to meet with the representatives of the UC

Office of the President and has asked that Mr. Doran attend this

meeting. Apparently UC has denied this request. Do you have any

information on that?

Mr. DARLING. That is the first I have heard about this, Mr. Walden. I would be happy to inquire about it as soon as the hearing

is over.

Mr. WALDEN. Mr. Busboom was paid to retire. What about Tucker and Katherine Brittin?

Mr. DARLING. Mr. Tucker is a very similar circumstance to Mr.

Busboom. He will also be retiring on April 2. The terms of the

agreement are quite similar. One year of compensation at his compensation which I believe is $165,000 per annum, 1 year of COBRA

insurance benefits, and, in this case, partial attorney’s fees.

Mr. WALDEN. And Katherine Brittin?

Mr. DARLING. Katherine Brittin will be departing from the Laboratory on April 17. We have provided, again, for the same reasons

that I explained earlier, 1 year of salary, 18 months of COBRA benefits but no attorney’s fees or other costs.

Mr. WALDEN. All right.

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Mr. DARLING. I realize that these are very large numbers. For

many Americans these are salaries that they might never be able

to aspire to in a lifetime. I don’t want to minimize in any way the

dollar amounts involved, but I do want to just to reiterate that

when we looked at the alternatives, they would have indeed been

much, much more expensive.

Mr. WALDEN. There are a lot of people in my district who would

love to come there and get fired or retire early.

Mr. DARLING. I understand that.

Mr. WALDEN. It is outrageous. I understand, I guess, what you

face. It seemed to me that given the issues that are involved in the

lab and the people that have not been held responsible in any

measure seem to be able to milk this system and walk out the door

with an extraordinary settlement and——

Mr. DARLING. Mr. Walden, your display is one that my colleagues

that are here with me today have seen me express in recent weeks

as I have pursued how it is that we might come to a different conclusion here. They will tell you that I pushed very hard for termination. It was only after repeated attempts on my part to find a

way to do so that we ended up where we are today.

Mr. WALDEN. Do you concur with the IG’s comment that it was,

I believe the term was, incomprehensible that Mr. Walp and Mr.

Doran were fired?

Mr. DARLING. I do. In my oral testimony on February 26 I said

that not only was it unwarranted, but that we did agree with the

DOE Inspector General’s term that we found it utterly incomprehensible.

Mr. WALDEN. If everybody agrees that it is incomprehensible,

why isn’t the person who did the firing and signed the letter fired

without compensation?

Mr. DARLING. Mr. Salgado was terminated without compensation.

Mr. WALDEN. Mr. Busboom signed the letter. Didn’t he?

Mr. DARLING. Yes, he did. I think, however, he testified today

that he did not make the decision and that is one of the points of

discrepancy that became evident on December 18. Mr. Busboom

told us initially that he had made the decision to terminate them

for a variety of performance reasons.

Then as we progressed through the day and informed Mr.

Busboom that there had been a meeting on November 18 at which

their termination was discussed and ultimately settled, we asked

Mr. Busboom whether he had been aware of that meeting. Mr.

Busboom expressed great surprise. He had not only not participated in the meeting, he had not been aware that the meeting had

taken place.

He had not been aware that the chief of staff, the director and

deputy director of the Laboratory, had offered the termination letter. He only knew that it came from his immediate supervisor, Mr.

Holt. I think Mr. Busboom would acknowledge as he did today that

he did not make the termination decision, that it was made by Mr.

Salgado. I think I heard him say that earlier this morning.

Mr. WALDEN. But it sounds like you just said that he told you

initially that he made it based on a series of reports.

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Mr. DARLING. I believe he thought he did. Then I think as we

pursued our interviews with the 14 people and new information

came out, I think we gave Mr. Busboom information that caused

him to realize that he had not after all made the decision, that the

decision had been made for him and the letter had been drafted for

him.

I would say what he did was he probably believed there were

performance inadequacies that might have justified the termination and he edited very slightly the letter but the decision was

made by Mr. Salgado as he said to us, and as he said to you.

Mr. WALDEN. My time has expired but that is the most bizarre

story I have ever heard in employment and I have been a private

employer for 17 years. I don’t understand how somebody thinks

they are letting somebody go and then discovers they really didn’t

do it.

Mr. DARLING. It is another instance of troubling issues that left

us not only perplexed but troubled and why it is that we pursued

the issues well before we knew that your committee was even interested. This was a very troubling matter to the five of us as you

might imagine.

Mr. WALDEN. I can.

Mr. GREENWOOD. My wife just got me to buy her new drapes and

she convinced me it was my idea.

Mr. DARLING. I think the chairman had seen the movie ‘‘My Big

Fat Greek Wedding’’ where one can see an example of that transaction taking place.

Mr. WALDEN. And now for either a song or a poem, I hope. The

gentleman from Massachusetts, Mr. Markey, is recognized for 10

minutes.

Mr. MARKEY. I can actually go to ‘‘My Big Fat Greek Wedding’’

and I think I am going to go to that for my opening moment then.

I will say that the problem with the University of California, Mr.

Darling, is that they thought they could spray Windex on anything

and it would make it okay like the father in ‘‘My Big Fat Greek

Wedding.’’ It is important ultimately to have to deal with the

issues. You just can’t spray it away and hope that it is gone.

The questions I have for you relate to the way the University of

California treats whistleblowers. In the case of Mr. Walp and Mr.

Doran, their stories were all over the press. Congress weighed in.

UC has, at least, partially remedied the situation.

Not all whistleblowers at UC get much attention. Take, for example, Dee Kotla who worked for Livermore until 1997. She was fired

after she testified that she had witnessed sexual harassment at the

lab. The lab said she hadn’t been retaliated against but rather was

fired for ‘‘improperly using her telephone and computer.’’

It turned out she made a whopping $4.30 worth of personal calls.

She sued and she won $1 million. The university appealed. She

then asked for her legal fees, about $700,000 to be paid by UC, and

she won that, too. The University of California continues to appeal.

The University has run up at least $800,000 in legal fees fighting

this case for 6 years, all over $4.30 worth of personal calls bringing

the grand total to $2.5 million, all supposedly because of a $4.30

telephone call.

167

In the meantime, Dee Kotla has to live each day of her life explaining why she was fired to perspective employers. Now, my

question is, Mr. Darling, are you going to pay for all these legal

fees or is the Federal Government going to pay for all the legal

fees?

Mr. DARLING. I do not know the answer to that question, Mr.

Markey, because I am not familiar with the case, but I assure you

I will look into it.

Mr. MARKEY. Well, again, you said earlier, ‘‘We are going to pay

for the legal fees’’ in this one case that we were talking about. I

wouldn’t want anyone to get the misimpression that you are willing

to assume all of these legal fees since the Federal Government ultimately reimburses you, the Department of Energy. Unfortunately,

that creates a disincentive for you to settle since the Department

of Energy will reimburse you for continuing on with this case indefinitely over a $4.30 phone call.

I will get to my question momentarily, but before I do I want to

name just a few other whistleblowers that the University of California has forced to fight for justice for years since they have not

had the benefit of major press attention or a congressional hearing.

Michele Doggett. I would like to say her name. She was fired by

Livermore in 1999 after she disclosed waste, fraud, and mismanagement. Don Adrian who alleges that in 1997 Livermore conspired to steal a defense contract from his company after he reported waste, fraud, and mismanagement of funds that the lab was

supposed to use as part of a cooperative research and development

agreement.

Janet Benson who has had a whistleblower case pending against

Livermore since 1994. Charles Quinones, a security guard, fired by

Livermore right after September 11 after he disclosed security and

safety problems. And you have already been talking about Jimmy

Russell, a former Los Alamos employee who was fired after making

disclosures of security violations who had to fight for years with no

income before he finally won.

Is the University of California, Mr. Darling, committed to quickly

resolving these and the other whistleblower cases?

Mr. DARLING. Mr. Markey, you bring these to my attention for

the first time. I have only been in this position since January 8,

as I mentioned before you came into the room. If you bring them

to our attention, we will look into them with a degree of seriousness that we have shown thus far.

Mr. MARKEY. The university often argues in court that it has

State sovereign immunity and, therefore, can’t be sued under Federal statutes even though these activities occurred at a Federal nuclear weapons lab. It then turns around and bills DOE and American taxpayers for its legal fees. How do you justify that?

Mr. DARLING. I am not an attorney and I am simply not in the

position to have the information to comment in response to your

question.

Mr. MARKEY. Okay. Now, in each of these cases that I have just

listed, is it your understanding that the Department of Energy will

bear the legal cost or will the University of California will bear the

legal costs?

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Mr. DARLING. Since this is the first time I have heard of them,

I am in no position to answer you either way.

Mr. MARKEY. Again, I continue to believe that 95 percent of these

costs are passed onto the Department of Energy, again creating a

tremendous disincentive for you to ever settle since the Federal

taxpayer will pick up the legal fees. As a result, you could continue

harassing these poor people forever at Federal taxpayers’ expense.

I just think there is a point in time at which this just has to end.

If you are willing to put these bills on the University of California, these incredible legal bills, that is one thing, but if you

going to try to continue to put this on the Federal tab, believe me,

okay, it is not going to last much longer because I think there is

a bipartisan commitment here to end this practice of harassing

these people indefinitely.

Now, you said earlier that one of the individuals who fired the

two Los Alamos whistleblowers just agreed to leave the lab for settlement of $190,000, health insurance, and all his legal fees. This

is the guy who fired the whistleblowers. Have you ever offered a

year’s salary, health insurance, and legal fees to Mr. Walp or to the

other whistleblowers who were wrongly fired?

Mr. DARLING. Mr. Markey, we had an extended discussion about

this right before you walked into the room. I did say that the individual who terminated their employment was terminated himself

with no compensation whatsoever. Second, we have rehired both

Mr. Walp and Mr. Doran at their full former salaries. I think we

have shown the seriousness of intent here to try to redress these

improper activities.

Mr. MARKEY. So Walp is a consultant and you have rehired him?

Mr. DARLING. We rehired both Mr. Walp and Mr. Doran. Let me

just back up and walk you through the sequence. We learned about

their determination on November 25 midday. They had been terminated and escorted off the lab property that morning. We immediately began to pursue information because we did not feel that

the reasons that were offered to us for their termination were appropriate.

In late December after we learned that they had an attorney we

started meeting with them. That meeting occurred on January 17.

As I explained at the last hearing, once we had an opportunity to

meet with them and hear their story, we immediately offered to rehire them and did so that very day.

Coincidentally, that was the day a letter arrived from, I believe,

this committee urging us to do that same thing. Your investigators

had met with them beforehand and I think it was a display of our

honesty and integrity that we came to the same conclusion that

you did and decided to rehire them.

They were rehired not only from that day forward, Mr. Markey,

but we did pay their retroactive pay back to the date they were

originally fired and we immediately entered into settlement discussions to try to compensate them financially for the fact that they

had been terminated improperly in our judgment.

In addition to that, we have with the exception of the one item

I mentioned a moment ago to your colleagues reached agreement

with Mr. Darling going forward to assume the new position at the

university. With regard to Mr. Walp, Mr. Walp’s attorney and our

169

attorney are still in settlement discussions so I am not able to comment further on that.

Mr. MARKEY. I guess what I would say is that if the guy who fired the whistleblowers gets $190,000, health insurance, and all

his legal fees, somebody who gets fired should at least be offered

the same deal. If it is not that as a minimum, then you have to

question whether or not there is an uneven playing field still in existence at UC in terms of how you view these two groups of people,

the perpetrator and the victim.

Mr. DARLING. You make an important point. What I did say is

that while Mr. Walp and Mr. Doran are being compensated, the individual who fired them is receiving no compensation whatsoever.

That is Mr. Salgado. Mr. Salgado was terminated without compensation.

Mr. MARKEY. So the $190,000 is going to Busboom?

Mr. DARLING. Not to Mr. Salgado.

Mr. MARKEY. Not to Mr. Salgado. But Busboom did sign the letter that canned these people.

Mr. DARLING. That is correct. This morning Mr. Busboom testified, and as I was describing the scenario to your colleagues before

you walked in, that is not our judgment, nor is it the judgment of

Mr. Busboom that it was Mr. Busboom who terminated them. Mr.

Busboom was handed a letter that he signed. Mr. Salgado made

the decision. Mr. Salgado has admitted to making that decision.

Mr. MARKEY. So you consider him to be an innocent party here?

Mr. DARLING. I do not consider him to be an innocent party.

What I did say is that we had three options. We had the option

to terminate Mr. Busboom. We had the option to allow him under

Laboratory policy to be reassigned to another position at the Laboratory at a lower salary. Or we had the opportunity or the option

to settle the matter.

Based on a review by general counsel of Mr. Busboom’s previous

employment and performance evaluations at the Laboratory, I was

informed after extended discussions that if we had terminated him,

he would have grounds for successful wrongful termination suit

that would have cost the university many, many multiples of the

$190,000 figure you just described.

Second, if we had reassigned him at a lower salary, he would

have had indefinite employment which would have kept him on the

payroll at a very large dollar amount ultimately, or the option of

settling as we did. I explained to Mr. Walden a moment ago, I realize these are very large dollar amounts and I in no way wish to

minimize them. I do wish to say that was the lowest dollar amount

that we felt we could conclude this matter—with which we could

conclude this matter.

Mr. GREENWOOD. The time of the gentleman has expired. The

gentleman from California, Mr. Radanovich, is recognized for 10

minutes.

Mr. RADANOVICH. Thank you, Mr. Chairman. I will be brief, Mr.

Darling, with my questions. They are really surrounding the questions that I have on CREM devices. My first is regarding that incident and wanting to know whether there was any classified material that was missing or vulnerable. Was it classified material or

was it declassified? What was the nature of the material?

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Mr. DARLING. Let me back up and say that in, I believe, November or December 2002 Los Alamos did a complete and comprehensive inventory of all classified removable media. That is what

CREM stands for, classified removable electronic media; disks,

flash cards, etc.

There were over 61,000 items. They found none to be missing.

What I understand is there are a number of instances that came

up prior to that. There was one hard drive carrier that had been

bar coded improperly, was maintained in a properly secured and

stored area where it was not accessible to anyone who did not have

access to that area.

But as I think Admiral Nanos indicated on January 15, the person who put that barcode on unfortunately did not check to see

whether there was an electronic media with classified information

in it. To this day we do not know whether there was such an item.

It does not show up on the inventory.

Every effort to try to determine whether it existed is negative so

I cannot answer your question but we do not believe after checking

to the best of our ability that there was any classified information

missing.

Mr. RADANOVICH. Has the system that you have set up since

then, has it shown itself to be effective?

Mr. DARLING. We are changing the system. It is becoming much

more robust for the very purposes that you allude to. We will be

checking it thoroughly to make sure that it does. I would ask you

to hold us accountable for doing that.

Mr. RADANOVICH I am going to be quick because we have a vote

going on, but has Los Alamos officials followed Department of Energy and NNSA procedures in self-assessing whether any of the

classified material was missing or vulnerable and did the lab report

the incidents to the DOE?

Mr. DARLING. My understanding, Mr. Radanovich, is that the

Laboratory reported the items to DOE within the time period in accordance with DOE guidelines and that the lab is following DOE

guidelines.

Mr. RADANOVICH. Were any classified material mislabeled or destroyed during routine Laboratory efforts to discard old CREM devices?

Mr. DARLING. My understanding is that any classified material

whether on a hard drive or on removable medium is put through

an extensive and very carefully monitored process to first erase any

information from the medium, second to sanitize it, and third to destroy it so that there is no possibility whatsoever after doing that

that anyone can obtain the material that was originally stored on

those devices.

Mr. RADANOVICH. All right. Thank you very much.

Mr. GREENWOOD. Thank you, gentlemen. At the risk of causing

our future witnesses to pull out their hair, let me mention that we

have three votes on the floor. We will recess and we will return

here at 5:30. We will then bring Mr. Hernandez and Mr. Marquez

forward and we will try to speed up the process thereafter. We

don’t have anymore votes on the floor tonight so that should go

more quickly.

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Mr. Darling, thank you again for your testimony. You are excused and the committee is in recess.

Mr. DARLING. Thank you, Mr. Greenwood, for accommodating my

schedule. I appreciate it.

[Whereupon, at 5:06 p.m. the subcommittee recessed to reconvene at 5:43 p.m.]

Mr. GREENWOOD. Okay. The committee will return to order

again. I apologize to all of you gentlemen for the long day.

Wisely, the staff has decided we are going to combine panels two

and three so welcome to John Hernandez who is the former BUS5 team leader at Los Alamos; Mr. Richard A. Marquez, Associate

Director for Administration at the lab; Dr. John Browne, Senior Research Scientist and former Laboratory Director; Mr. John P.

McTague, Professor of Materials, Materials Department, former

Vice President of Laboratory Management, University of California; Mr. Ralph Erickson, Manager of Los Alamos National Laboratory Site Office at the NNSA.

I should note that Mr. Marquez is accompanied by Mr. Stan

Hettich, Director of Procurement at Los Alamos. Welcome. You

gentlemen have heard me say that this is an investigative hearing

and it is our custom to take testimony under oath. Does anyone object to testifying under oath?

WITNESSES. No.

Mr. GREENWOOD. You are permitted pursuant to the rules of the

House and this committee to be represented by counsel. Do any of

you wish to be represented by counsel?

WITNESSES. No.

Mr. GREENWOOD. Okay. If you would stand and raise your right

hands.

Okay. Please be seated. You are under oath. I suspect that we

will start here with Mr. Hernandez.

Mr. Hernandez, you don’t have testimony? Is that correct?

Mr. HERNANDEZ. Not an opening statement, sir.

Mr. GREENWOOD. Not an opening statement. Okay. Very well.

Then Mr. Marquez.

TESTIMONY OF JOHN HERNANDEZ, FORMER BUS-5 TEAM

LEADER, LOS ALAMOS NATIONAL LABORATORY; RICHARD A.

MARQUEZ, ASSOCIATE DIRECTOR FOR ADMINISTRATION,

LOS ALAMOS NATIONAL LABORATORY; JOHN C. BROWNE,

SENIOR RESEARCH SCIENTIST AND FORMER LABORATORY

DIRECTOR, LOS ALAMOS NATIONAL LABORATORY; JOHN P.

McTAGUE, PROFESSOR OF MATERIALS, MATERIALS DEPARTMENT, FORMER VICE PRESIDENT FOR LABORATORY MANAGEMENT, UNIVERSITY OF CALIFORNIA, SANTA BARBARA;

AND RALPH E. ERICKSON, MANAGER, LOS ALAMOS NATIONAL LABORATORY SITE OFFICE, NATIONAL NUCLEAR SECURITY ADMINISTRATION, U.S. DEPARTMENT OF ENERGY,

LOS ALAMOS

Mr. MARQUEZ. Mr. Chairman, my name is Rich Marquez and I

am the Associate Laboratory Director for Administration, Los Alamos National Laboratory. Thank you for the opportunity to provide

testimony today regarding the Laboratory’s procurement and property management issues.

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I have submitted a written statement and I would like that to

be included as part of the record.

Mr. GREENWOOD. It will be.

Mr. MARQUEZ. Thank you. Within 90 days of beginning my assignment in February 2002 I directed the development of a 3-year

strategic plan to address what I considered to be weaknesses surrounding the procurement function. Simply stated, the Laboratory’s

procurement function had not kept pace with the robust science

and technical side of the house.

When we did develop a procurement excellence plan, in hindsight

it is clear we prescribed a tune-up when an overall was probably

required. The special inquiry of the DOE Office of the Inspector

General found no evidence of coverup. However, there were concerns and allegations that the laboratory had obscured or even concealed issues regarding property and procurement vulnerabilities.

I would like to address a number of these issues.

First is the so-called Palmieri memo dated April 10, 2002. According to the IG the Laboratory issued and immediately rescinded

a memorandum requiring corrective actions to address problems regarding the management of Government property.

While this has raised some doubt about management’s commitment to address control weaknesses, the fact is that the memo was

reissued by me after full and formal coordination with the Laboratory senior executive team as well as with Mr. Palmieri and his

subordinate staff. And, I might add, in my humble opinion, between fiscal year 2001 and fiscal year 2002 I think it contributed

significantly to the reduction in the unlocated, lost, and stolen

property.

The next issue I would like to address is the Mesa contract.

Sometime in mid to late July 2002 I became aware that the FBI

had begun an investigation regarding alleged theft in connection

with purchases made under the Mesa contract. Mesa contract is a

blanket order agreement which was awarded on November 1, 2000.

In 16 months the contract had grown from a simple $100,000 task

order to $2.7 million.

As I have indicated to the staff of this subcommittee and their

field investigations, I cannot defend the manner in which this contract was administered. The contract has now expired but we have

taken a number of important corrective steps including reassignment of Mr. Hernandez’ team leader.

To his credit his wrote a letter to his management acknowledging

his responsibility and accountability and by his own admission his

skills are more suited to major procurement staff work than to supervision and management. In addition, as Mr. Darling has now reported twice at this subcommittee, the LaytonPricewaterhouseCoopers team is now conducting an extensive review of the entire procurement function.

Now I will address the various purchase card transactions that

have come to the attention of this subcommittee. On July 25, 2002

I was advised about the attempt to purchase a Ford Mustang using

a laboratory purchase card. At the same time I was told of $1 million of other purchases made by the same card holder over a 2-year

period from a company called G&G Industrial Supply. I later

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earned that the card holder had virtually unlimited purchasing authority levels.

Within a couple of weeks I also learned about casino advances

made under a Laboratory purchase card issued to a secretary in

the Procurement group. To compound the problem, I discovered

that she was a subcontractor employee and as a member of the

Procurement organization she could self-approve her purchases on

the card.

Shortly thereafter Mr. Salgado and I agreed to pursue a twofold

strategy for dealing with the purchase issues. First, we appointed

an internal committee to take a critical look at our current purchase card procedures and recommend immediate changes. As a result, within shortly over a month I issued revised purchase procedures on August 26, 2002.

Second, we established an external review committee led by John

Layton to do a thorough review of the Laboratory’s purchase card

program. This team and its work has been described to you in previous testimony by Mr. Darling.

Now that we have the Layton report and the UC audit report,

we will develop a formal corrective plan that meets the challenge

given us by Chairman Greenwood when he visited the Laboratory.

That is, we are committed to constructing a model purchase card

program.

We continue to aggressively pursue property management corrective actions as well including the beginning on February 3 or a

wall-to-wall inventory and the formation of a cross-cutting team to

take a hard look at the entire cradle-to-grave supply chain management process at the laboratory.

We need to manage our property acquisition in a more integrated

fashion. In conclusion, let me say that new processes and technology are only part of the solution. The real lesson learned from

this experience is that people are our most effective internal control.

It is precisely because we do not have a culture of thieves that

there was not a great exploitation of the flaws in our processes and

the breakdown of our business practices. The most recent Harvard

Business Review has an article entitle, ‘‘Predictable surprises and

disasters you should have seen coming.’’ The article makes the

point that by actively encouraging people to speak up, executives

can bring to the surface many problems that might otherwise go

unmentioned.

I think Interim Director Nanos recognizes this and has taken actions to create an open environment that celebrates the fact that

people are now bringing issues forward. This is the point that DOE

Inspector General Greg Freedman made in his testimony about

changing the culture and acting on employee concern.

Thank you for the opportunity to present testimony.

[The prepared statement of Richard A. Marquez follows:]

PREPARED STATEMENT OF RICHARD MARQUEZ, ASSOCIATE LABORATORY DIRECTOR

FOR ADMINISTRATION, LOS ALAMOS NATIONAL LABORATORY

My name is Richard Marquez, and I am the Associate Laboratory Director for Administration, Los Alamos National Laboratory, a position I have held since February

of 2002.

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I am joined today by John Hernandez and Stan Hettich of the Laboratory’s Business Operations Division, which reports to me.

I thank you for the opportunity to provide testimony regarding the procurement

and property management issues reported in this and other public forums.

Virtually all of my career has been directly or indirectly related to the nuclear

weapons complex and to federal resources management. Because of that, I keenly

appreciate that the road to strong mission and program performance at a national

laboratory leads through the effective and efficient buying of goods, services, construction, and equipment.

Within 90 days of beginning my assignment, I directed the development of a

three-year strategic plan to address what I considered to be weaknesses surrounding

the procurement function at the Laboratory. I did this after reviewing the internal

and external audit reports on file and after considering some key metrics on volume

of procurement activity versus staffing.

I was struck by the fact that from 1996 to 2002, the procurement volume had virtually doubled from $620 million to well over $1 billion. But I was concerned when

I discovered that staffing over that same period had remained almost static. Moreover, attrition and leadership changes were continual. When I arrived at the Laboratory the third procurement director in a three-year time frame had only recently

taken the helm.

I also found very critical audit reports that were somewhat dated and that reputedly had been responded to with corrective actions by management.

Of note, I also found ‘‘Outstanding’’ performance evaluation ratings under the contract for procurement as well as virtually all business management functions, including property management.

In spite of what I regarded as somewhat conflicting indicators, it was my view

then that the Laboratory’s procurement function had not kept pace with the robust

science and technical side of the house. That view, and my resolve to upgrade the

procurement function, has only increased since that strategic plan was developed.

What has changed is the understanding of the depth of the problems and the extent

of commitment required to fix those problems—the diagnosis was for a tuneup and

an overhaul is required.

As Bruce Darling testified to this Subcommittee two weeks ago, the University

of California has taken a very active and strong role in correcting the deficiencies

that have been reportedly publicly. I am heartened by the commitment and resolve

that the University has shown in tackling the many issues we face. Coupled with

Pete Nanos’s leadership, I believe that we can and will make changes and that we

can sustain those changes over time.

I am not surprised by the special inquiry of the DOE Office of Inspector General

(OIG) in that it found no evidence of coverup regarding the problems at the Laboratory. However, I would like to address reported concerns and allegations that the

Laboratory ‘‘obscured’’ or even concealed issues regarding property management or

procurement vulnerabilities.

PROPERTY MANAGEMENT

In the January 28, 2003, DOE OIG report on their special inquiry of Los Alamos

National Laboratory operations, the report concluded that the Laboratory took a

number of actions that ‘‘obscured’’ serious property management and security problems.

Palmieri Memo Rescinded and Reissued

One area of OIG concern involved the finding that the Laboratory ‘‘issued, then

immediately rescinded without adequate explanation’’ a memorandum requiring corrective actions to address problems regarding the management of Government property. In the opinion of the OIG, this raised doubts about management’s ‘‘commitment to address identified control weaknesses’’. The memorandum has also been the

subject of various news media reports.

Let me list a quick chronology regarding that memorandum:

• The memorandum in question was issued by the former Laboratory Chief Financial Officer, Thomas Palmieri. Mr. Palmieri’s memorandum was dated April 10,

2002, but not formally issued until April 18, when it was distributed via e-mail.

• The memorandum was retracted by Mr. Palmieri on April 19 as a result of direction I received from Joe Salgado, former Principal Deputy and Chief Operating

Officer. He was sensitive to a wide-spread distribution of employees’ names beyond those who had a need to know this information and, because of the importance of the subject, Mr. Salgado wanted a more formal ‘‘top down’’ discussion

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and dissemination of the memorandum from me to each of the other Associate

Laboratory Directors.

• With respect to his concern for a more formal distribution, on Sunday, April 28,

I wrote an e-mail to the Laboratory’s senior executive team in advance of an

April 29 weekly senior executive meeting conducted by the Laboratory Director

every Monday morning. The e-mail covered four topics, three of which were related to business and financial management, which I intended to discuss as

agenda items for that meeting. The e-mail also included an advance copy of a

memorandum that I formally distributed April 29.

• On April 29, I did, in fact, re-issue the memorandum to the Laboratory’s senior

executive team.

It is significant to note that, on the morning of April 29, prior to the senior executive team meeting, I forwarded my April 28 e-mail to Mr. Palmieri, his deputy Dennis Roybal, his chief of staff, and the Laboratory’s two principal property managers,

Allen Wallace and John Tapia. It should also be noted that the formal distribution

of the April 29 memorandum also included those same individuals as well as the

60 Laboratory property administrators and the 120 Laboratory business team leaders deployed across the Laboratory.

OIG Interview of Mr. Palmieri

I mention this because Mr. Palmieri, when interviewed on December 18, apparently forgot that the memorandum had been re-issued and advised the OIG otherwise. I do not agree with the DOE OIG’s conclusion that we ‘‘obscured’’ serious property management problems but it would appear that we did obscure the very serious

manner in which we followed up on property management issues.

The April 29 Memorandum

My April 29 memorandum was virtually the same as the Palmieri memorandum

except that each Laboratory Associate Director was given the relevant unlocated,

lost, and stolen property lists for each Division that reported to him. It included the

guidance that all reasonable efforts be made to locate such property and provided

that, after review of the circumstances for the loss, managers ‘‘may deem that individuals should be held accountable or otherwise disciplined’’.

Attached to the memorandum were the same four reporting mechanisms intended

by the Palmieri memorandum:

• missed assignment of property to accountability statements within 60 days as required by Laboratory policy;

• lost and stolen property per Division;

• inventory exceptions, by which we intended to report discrepancies between assignment of property and exceptions taken by the assigned custodian; and,

• trend reports.

Of these four reports, the Property Management Group did issue the 60-day assignment report and the inventory exceptions report was produced in accordance

with Appendix F requirements of the prime contract. The property group produced

trend reports on request of management. The lost and stolen report was sent with

my April 29 memorandum. Also, I received two corrective actions plans, one for a

Division with unusually high levels of property unaccounted for and one for an Associate Director covering all of the Divisions reporting to him.

The Year-End Results

I think any fair assessment of the results of the re-issued memorandum and the

Property Management Group’s follow up actions would conclude that the memorandum was highly effective in raising the management level of attention to property management.

At the time the memorandum was distributed, the cost of ‘‘unlocated’’ property in

the inventory was $735 thousand and by September 30, 2002, that number was

down to $484 thousand. With respect to lost or stolen property, we dropped from

$533 thousand at the time of the memorandum to $206 thousand by September 30,

2002.

Clarification of Reporting Lost and Stolen Property

The DOE OIG special inquiry found a substantial degree of ‘‘dysfunction’’ with respect to roles and responsibilities regarding lost and stolen property. As indicated

by Mr. Darling in his February 26 testimony, the Laboratory has clarified that lost

and stolen property is to be reported to the Office of Audits and Assessments, which

now directly reports to the University of California Office of the President.

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THE MESA CONTRACT

The next issue I would like to address is the Mesa Contract and the involvement

by people in the Business Operations Division. That involvement was two fold. One,

Business Operations Division administered the contract. And, two, personnel in

Business Operations Division supported Security Division and the Federal Bureau

of Investigation in the criminal investigation of property purchased under that contract for personal use.

Some time in mid-to-late July, 2002, Joe Salgado, then Principal Deputy and

Chief Operating Officer of the Los Alamos National Laboratory, advised me that the

Federal Bureau of Investigation (FBI) had begun an investigation regarding alleged

criminal improprieties in connection with purchases made under the Mesa Contract.

Mr. Salgado did not share with me many details but advised me that my ‘‘need to

know’’ was in order to make sure the FBI and our security organization had appropriate support from the Business Operations Division in terms of getting access to

contractual records.

Security Division and FBI investigation

Shortly after this meeting, Stan Busboom, then Security Division Director for the

Laboratory, called me and requested support from John Tapia, Deputy Group Leader for Property Management. Mr. Busboom advised me that John’s expertise in

property management would be useful to Glen Walp and Busboom as they worked

with the FBI on the TA33 case. I agreed to that support and notified John Tapia

that he was to provide any support required from the Security Division.

To my knowledge, Mr. Tapia provided excellent support to Mr. Walp, Mr. Doran,

Mr. Sprouse, Mr. Tucker, and even the FBI agent in charge. According to Mr. Tapia,

his support included a description of the buying and property functions, copies of

the Mesa Contract, credit card transactions, and Local Vendor Agreement records.

Because Mr. Tapia required information from the procurement organization as

well as his own property management group, Mr. Tapia would call me and ask me

to advise procurement officials that he was authorized to request business records.

I did that and, so far as was ever reported to me, the security investigation on the

TA33 case was fully supported by the Business Operations Division and the staff

in my directorate.

Procurement Background

I would like to make some observations about how the Mesa Equipment & Supply

contract got to where it was and where the contract stands now.

Before it had its own contract with the Laboratory, Mesa was a supplier to the

Laboratory as a sub-tier contractor to a Just in Time vendor known as Frank’s Supply. Their volume of sales under the Just in Time arrangement was reportedly on

the average of $400 thousand per year.

The Mesa Contract was awarded by the Laboratory as a small business contract on November 1, 2000, with a not-to-exceed ceiling of $100 thousand. On March 6,

2001, the contract was modified to increase the ceiling to $500 thousand. On January 23, 2002, the fourth and final change to the dollar ceiling increased the ceiling

to $2.7 million. In sixteen months, the contract had grown from $100 thousand to

$2.7 million.

The contractual arrangement is referred to as a Blanket Order Agreement which,

in simple terms, means that employees with purchase authorization across the Laboratory can make purchases under the contract.

As I have indicated to the staff of this Subcommittee in their field investigations,

I cannot defend the manner in which this contract was administered. I know that

our procurement personnel questioned some individual purchases with at least one

of the individuals who was terminated and is under FBI investigation. But we could

have, and should have, done more.

I was advised by Laboratory Counsel to leave the contract open pending the FBI

field investigation. The contract term expired October 31, 2002. The FBI executed

search warrants in this case on October 31, 2002.

Follow up Actions

What have we done since the FBI action?

• As the purchase card events unfolded and after my own review of the Mesa contract file, I directed the Business Operations Division to create a separate procurement review organization that would serve as a quality assurance office for

Laboratory procurements. I wanted this office to serve as the agent of standardized policies, consistent terms and conditions, training requirements for staff,

and, perhaps most importantly, institution of periodic desk-top audits of contract administration files and management of trend data. My experience as well

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as management literature tells me that just the fact that management is reviewing files and transactions eliminates a substantial percentage of internal

control vulnerabilities. • The University of California and the Laboratory are reviewing what can be done

relative to eligibility of Mesa Supply & Equipment to do business at the Laboratory, including an evaluation of breach of contract and what debarment policies

apply. Preliminary evaluation indicates that our policy is to utilize federal government debarment actions as the operative determinant for precluding contractors from doing business with the Laboratory. Given that, I will engage in further discussions with DOE and NNSA procurement officials on this matter. • We have reassigned the Team Leader who had direct oversight of the administrator of that contract. John Hernandez was that Team Leader and he is here

with me today. Similar to the Team Leader who had oversight of our purchase

card program, Mr. Hernandez wrote a letter to his management acknowledging

his accountability. By his own admission, Mr. Hernandez’ skills are more suited

to major procurement staff work than to supervision and management and his

long career at the Laboratory reflects this. • I plan to determine the amount that represents fraudulent transactions and, to

the extent they are not within the scope of the Mesa contract, I plan to present

a claim to that firm in that amount. For those items for which I cannot substantiate that they are out of scope, then we will go through a process of finding

items of use by our facilities support contractor or by the Laboratory. After that,

we would consider those items unallowable costs and so advise the NNSA Contracting Officer. • Finally, as reported by Mr. Darling, the University of California has engaged the

Layton/Price Waterhouse Coopers team to do an extended review of the entire

procurement function, to include two years of data mining in connection with

the various procurement mechanisms utilized by the Laboratory. Those include

Blanket Purchase Orders, Just in Time contracting, and Local Vendor Agreements. The University of California and the Laboratory are committed to acting

on any findings and recommendations resulting from that review, similar to the

review of the purchase cards.

THE MUSTANG CASE, G&G TOOLS, AND CASINO ADVANCES

Now I will turn my attention to the various purchase card transactions that have

come to the attention of this Subcommittee.

The Ford Mustang case

With regard to the attempt to purchase a Ford Mustang using a Laboratory purchase card, I was advised of that case on July 25, 2002, by Stan Hettich, Procurement Group Leader, and Dennis Roybal, Deputy Division Leader for the Business

Operations Division. They informed me that the Purchase Card Administrator, Ms.

Arleen Roybal, had received a call from Bank of America on July 18 that informed

her of the attempted Mustang purchase as well as vehicle accessories. The attempted purchases occurred during a period from May 3 through May 23, 2002,

using the Laboratory purchase card issued in the name of a Laboratory purchasing

official.

I was also told that the cardholder disputed the charges with Bank of America

when the May purchase card statements were issued by the bank.

G&G Tools

At the same June 25 meeting, Mr. Hettich advised me of other purchases made

by the same cardholder over a two-year time frame. These included over $1 million

in tools for our Engineering, Sciences and Application Division. I was not particularly surprised by the volume of tool purchases given the scope of engineering effort

by this Division. I was taken aback by the fact that tools were purchased under our

purchase card program instead of our Just in Time Program, which is the appropriate mechanism for tool purchases.

The Just in Time Program requires dye-marking of tools by vendors. The purchases were made under a limited exception granted by the procurement organization but the terms of the exception were not met. Moreover, I was surprised to find

out that the cardholder had virtually unlimited purchasing authority levels. This

particular cardholder had a single transaction limit of $50 thousand and her monthly limit was $900 thousand.

I directed Mr. Hettich to notify both Audits and Assessments and Security Division. I followed up a few days later with Mr. Hettich and he advised me that he

had, in fact, notified Mr. Walp and Gil Griego of the Audits and Assessments office.

Also on July 25, 2002, I notified Mr. Salgado and advised him that I had directed

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Mr. Hettich to notify Audits and Assessments and Security Division. Mr. Salgado

pointed out to me that the Department of Defense was undergoing critical reviews

of their purchase card programs and he asked me for a briefing on the purchase

card process and procedures. Mr. Vern Brown, Mr. Hettich and I briefed Mr.

Salgado on July 29.

The Casino Advances

On or about August 9, Dennis Roybal, Deputy Division Director of the Business

Operations Division, advised me of casino advances made under a Laboratory Purchase Card issued to Ms. Mary Frances Wood. Apparently this surfaced as a result

of a desktop audit done by the Purchase Card Office on past transactions. Eleven

cash withdrawals at three New Mexico casinos were made in the amount of $1,400

between March 19 and April 26, 2002. I was told that the purchase card office had

directly notified Mr. Doran but, similar to the Mustang case, I asked Mr. Roybal

to notify Audits and Assessment and Security Division and I notified Mr. Salgado.

Ms. Wood was placed on administrative leave on August 19 and subsequently terminated.

What particularly troubled me about this notification was that Ms. Wood was a

contractor employee assigned to the Procurement Group Leader’s Office. I was even

more concerned that Mr. Stan Hettich, Procurement Group Leader, was listed as

the approving official for Ms. Wood’s purchases. I later discovered that Ms. Wood,

as well as other personnel in the procurement organization, could ‘‘self approve’’

their purchases.

Some time between the date (July 25, 2002) I was informed of the Mustang case,

and August 26, 2002, I took two actions that are relevant to your inquiry here.

• One, I assigned John Tapia as the single point of contact for purposes of information flow to Security Division regarding property management, purchase cards,

as well as the Mesa contract. Frankly, I was concerned about a possible conflict

of interest in the procurement group given the fact Stan Hettich was shown as

an approving official for Ms. Wood. I did not want to compromise any ongoing

law enforcement investigations. I personally called the Purchase Card Administrator, Arleen Roybal, and advised her that she was to give full cooperation to

Mr. Tapia and the Security Division.

• Two, I advised Mr. Salgado on the details I had regarding the Mesa Contract and

the purchase card incidents. It was difficult at that time to know whether any

of these were related incidents or how rampant the problem was. Mr. Salgado

was equally concerned and he and I agreed to a two-fold strategy, which involved an immediate fix to the purchase card policies and procedures and an

in-depth review of purchase card transactions to see how widespread the purchase card abuse problem was.

Purchase Card Policies & Procedures

First, we agreed to appoint an internal committee to take a critical look at our

current purchase card procedures and recommend immediate changes that addressed problems such as the purchase card authorities and limits, lack of approving officials, and receipt of property ordered. That committee consisted of John

Tapia, Laboratory Counsel Frank Dickson, and the former Contracts and Procurement Director of the NNSA’s Albuquerque Operations Office, Mr. William Meyers,

who serves as a consultant to me on special assignments. I chartered that committee and directed them to thoroughly study the most current Department of Defense OIG reviews and the recommendations from those studies. Based on those recommendations, and after feedback from Laboratory Division Directors, I issued revised Purchase Card Procedures on August 26, 2002.

The Layton Committee

Second, it was agreed that Joe Salgado would have a conversation with John

McTague, the former University of California Vice President for Laboratory Management about the establishment of an external review committee to do a thorough

review of the Laboratory’s purchase card program. After Mr. Salgado and Mr.

McTague discussed the idea, it was decided that McTague would direct the Laboratory to form such a team and direction was given accordingly. A team was put in

place by the Laboratory which was led by former DOE Inspector General John

Layton and supported by the University of California’s audit firm of Price

Waterhouse Coopers to do a thorough review of purchase card purchases over the

past few years.

On August 26, 2002, Mr. Salgado chartered that committee and the committee

began its methodical review of some 170 thousand transactions and $120 million

dollars worth of purchase card activity covering the period from October 1, 1998,

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through June 30, 2002, a forty-five month period. The Layton Committee issued a

formal report of its findings on December 12, 2002, and, in addition to several findings and recommendations, referred $4.9 million in transactions to the Laboratory

for further disposition, including several which they suggested for referral to the Office of Inspector General.

The Laboratory’s Management Response to the Layton Committee Report

By memorandum dated December 9, former Laboratory Director John Browne formally tasked me to respond to the Layton Committee report. The memorandum was

premised upon a November 20 draft report issued by the Layton Committee to Joe

Salgado. My assignment was to reconcile all purchase card accounts that had not

been reconciled, resolve all questionable purchase card transactions, and otherwise

address the Layton report findings and recommendations. Shortly after that time,

Joe Salgado requested that the University of California independently audit the

Laboratory’s management response to the Layton Committee report.

In anticipation of that requirement, on December 4, I issued a Laboratory-wide

data call for documentation required to validate purchases called into question. On

December 6, I formed a Project Team, led by Jay Johnson, Acting Controller in

Business Operations Division, to methodically address each and every questioned

transaction and account. On December 13, I again made a Laboratory-wide request

for documentation based on preliminary conversations with Patrick Reed as to the

extent of documentation he required to satisfy his audit methodology. He wanted

convincing documentation relative to software licensing purchases and items that

the Layton Committee considered questionable. The Laboratory cooperation was

overwhelmingly positive, the project team worked incredibly long hours under arduous conditions, and we concluded our project on January 31, 2003.

Mr. Reed issued an interim audit report on February 10, 2003. His report concluded that we had provided adequate documentation or justification to support all

but around $200 thousand in purchase card purchases. As reported by Mr. Darling,

the University of California plans to reimburse the NNSA for those costs.

Laboratory Purchase Card Program Corrective Actions

Now that we have both the Layton report and the Reed report, we are developing

an action plan that integrates the recommendations and implements corrective actions. In addition to the changes articulated in my August 26 announcement of purchase card changes, we have implemented many fixes already but I know we still

have a ways to go before we have a program that is sustainable.

• We have made current all of our reconciliations, eliminating a significant backlog

of reconciliations.

• We have re-formed the Purchase Card Program office, providing new interim leadership and staff to work off the corrective actions and develop robust administrative tools including monthly and quarterly audits.

• We have completed purchase card refresher training for all Laboratory card holders and approving officials. We have suspended cards for failure to meet the

training requirements.

• We have dropped the number of purchase card holders from over a thousand to

around 585.

• We have begun to design automated systems changes that will eliminate the need

for manual reconciliation and to enhance internal controls features.

• We have collaborated with Livermore National Laboratory and Lawrence Berkeley Laboratory to establish standardized University of California purchase card

policies.

In addition, I have shared with NNSA Headquarters and the Los Alamos Site Office some Lessons Learned which might be of use to the rest of the Nuclear Weapons

Complex M&O contractor sites.

CORRECTIVE ACTIONS

Wall-to-Wall Inventory

When John Browne tasked me to respond to the Layton Committee report on December 9, he also assigned me several actions related to property management. The

key assignment required revised Laboratory procedures for:

• ensuring that controlled property is entered into the inventory at the time of receipt, regardless of how purchased;

• periodic reconciliation of property records with procurement records;

• ensuring that the Security Division, line managers, and property custodians take

prompt action to find unlocated property;

• ensuring that spot and random property audits are completed; and

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• addressing any other property management issues that I found warranted action.

My evaluation of the property management issues surrounding this assignment

made me realize that, as an institution, we were not prepared to implement ‘‘fixes’’

without a thorough understanding of the problem. In my opinion, it was a matter

of ‘‘first things, first’’, and I thought it would be wise to scope the magnitude of the

problem through a wall-to-wall inventory. I was not comfortable with the current

use of accountability statements given the lack of public credibility in our property

management controls.

After a follow up meeting in December with John Browne and Joe Salgado, we

concluded that the appropriate course of action was a wall-to-wall property inventory. I directed the Property Management Group to develop a wall-to-wall inventory

project plan, which I subsequently approved, and on February 3, that wall-to-wall

inventory was initiated. The methodology and the results will be validated by Price

Waterhouse Coopers and the NNSA.

As of today’s date, we have inventoried over 70% of the 84,000 controlled property

items in our inventory. We have accounted for over 70% of the cost of our controlled

inventory, which is approximately $940 million.

Cradle-to-Grave Supply Chain Integration Team

We are also finding items in our Laboratory sweep that were not originally barcoded. This underscores the importance of reviewing the cradle-to-grave process of

supply chain management at the Laboratory. We need to formalize and integrate

the steps that lead from ordering, to purchase, to receipt, to accounting, to entry

into the inventory, to reporting as lost or stolen, and, where necessary, the need to

institute individual accountability.

In January, I chartered a team of Laboratory personnel to re-engineer the entire

supply chain so that it is integrated and visible to the entire Laboratory. That team

is led by Carol Smith, our very capable Warehouse Manager, and her team is expected to provide a report within the next few weeks.

Drop Point Survey

In my opinion, the single largest vulnerability of the Laboratory’s property management system is the fact that, at our 43-square-mile Laboratory, it is not feasible

to have a single warehouse as the sole location for delivery of property.

As a part of the business and financial improvements that Bruce Darling discussed at the February 26 Subcommittee hearing, the Laboratory has also performed a survey of its 580 property delivery points which are referred to as ‘‘drop

points’’. The Business Operations Division surveyed each of those points to assess

the security, the volume, and the safety and housekeeping issues. I expect a report

soon with their recommendations for improvement and tighter control but in the interim the number of drop points have been reduced to 440 and we have re-instituted

clear accountability of control of these points by building and facility managers.

Clarification of Reporting Lost and Stolen Property

The DOE OIG special inquiry found a substantial degree of ‘‘dysfunction’’ with respect to roles and responsibilities regarding lost and stolen property. As indicated

by Mr. Darling in his February 26 testimony, the Laboratory has clarified that lost

and stolen property is to be reported to the Office of Audits and Assessments, which

now directly reports to the University of California Office of the President.

Management of Data

The two external review teams that are reviewing property and procurement data

have expressed concern regarding the Laboratory’s ability to produce consistent and

reliable data without significant manual manipulation of data. In essence, this was

the root cause of the primary finding of the recent OIG review of our firearms inventory—we were unable to document the inventory of a dozen Glock handguns that

were stuck in a property accounting backlog. In too many instances we have Laboratory business and financial personnel trying to ‘‘muscle’’ inadequate data systems

on old information platforms. The Laboratory is embarked on an Enterprise Resource Project that will modernize our management of business and financial data.

This will help us document the right kinds of data and provide managers timely access to quality data they need to make resource management decisions and better

control assets and accountability for those assets.

Sanctions and Accountability

There have been legitimate concerns raised by this Subcommittee and others regarding individual accountability for Government property and the sanctions in

place for violation of Laboratory procedures. I believe that our current disciplinary

policies provide for such accountability but our practice in consistently enforcing

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sanctions needs improvement. Interim Director Nanos has a Laboratory-wide initiative in place to study all of our policies and he has indicated clear support for enforcing accountability in connection with our Federal stewardship responsibilities.

CONCLUSION

Let me close by assuring you that the Laboratory is committed to correcting the

many vulnerabilities in our business operations. I am highly encouraged by the resolve and commitment the University of California has shown in vigorously supporting positive change. I am proud of my association with the many thousands of

honest and dedicated employees who have been working long hours, day after day,

to regain the credibility of our neighbors, our customers, and the American taxpayers.

We can fix processes and we can apply technology to the problem of internal controls, but we would fail again as a Laboratory if we don’t heed the real lesson

learned from this experience. People are our most effective internal control. It is precisely because we do not have a ‘‘culture of thieves’’ that there was not a greater

exploitation of the flaws in our processes and the breakdown of our business practices.

The most recent Harvard Business Review has an article entitled, Predictable Surprises: The Disasters You Should Have Seen Coming. It makes the point that organizational vulnerabilities are often the toughest to overcome but that, by actively encouraging people to speak up, executives can bring to the surface many problems

that might otherwise go unmentioned. I think Interim Director Nanos recognizes

this as a value and has taken actions that acknowledge this by creating an open

environment that celebrates the fact that people are now bringing issues forward.

This is the point that DOE Inspector General Greg Friedman made in his testimony

about changing the culture and acting on employee concerns.

Thank you for the opportunity to present testimony.

Mr. GREENWOOD. Thank you, sir.

Dr. Browne.

TESTIMONY OF JOHN C. BROWNE

Mr. BROWNE. Thank you, Mr. Chairman and members of the

committee for this opportunity to make this statement. I, too,

would like to submit my written statement for the record.

I will try to be brief. You have covered a lot of the points already

in earlier panels. Let me start by saying that there are no excuses

for theft, waste, fraud, or abuse by anybody. That is a strong personal belief that I hold.

I would like to put a few things in context if I may, Mr. Chairman. Los Alamos is a very large complex operation. We have on

any given day 12,000 to 14,000 people on our site. Our site covers

43 square miles. That is about the size of the District of Columbia.

We have a lot of buildings, over 2,000 buildings, hundreds of miles

of road. That is not to make an excuse but it is to put in context

the complexity of the large scale of operating this facility.

We have a very important national security mission which I

know you are aware of. I spent a lot of my time focused on this

mission. I had the responsibility as Laboratory Director to annually

certify the five weapons out of the seven types that are in the U.S.

nuclear stockpile in a letter that I am required to send to the Secretary of Defense and the Secretary of Energy. That is a very important responsibility and one that takes a lot of time throughout

the year to address.

The second part of our mission is to reduce the threat of weapons

of mass destruction. Since September 11 we spend a lot of time

dealing with threats of nuclear, biological, and chemical weapons

including the DNA analysis that occurred on the anthrax attacks

that occurred here in Washington, New York, and Florida.

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However, having said that, even though I did focus on our mission, I felt that I was fully accountable for everything that happened at our laboratory. I don’t want to make any excuses that because I depended on other people to look at operations because of

the scope of things that somehow I am less accountable. I felt that

I was fully accountable for all the actions of all the people on our

site all the time.

Let me just cover a few issues and then see if I can sum up. In

terms of the TA-33 theft, I know Mr. McDonald testified a couple

of weeks ago. When this was first brought to my attention that he

approached the FBI, which was in late June of last year, and Mr.

Salgado told me about this, I remember the discussion Mr. Salgado

had and Mr. Salgado said to me, ‘‘Mr. McDonald is a really standup guy. He was willing to come forward and really take a risk in

a sense by saying that there were things going on at our Laboratory which were improper.’’ I just wanted to make it clear that is

the discussion we had at that time.

Then in mid-July when I heard about the Mustang case from Mr.

Marquez and Mr. Salgado, the question came up earlier this morning, ‘‘Weren’t you outraged?‘‘ I was very outraged. I won’t use the

words that, in fact, I conveyed at the time to some of my managers.

I was incredulous that anybody would even attempt to use a procurement card for this.

The only good thing I would say is that the control system, in

a sense, in this one case actually worked because the charges were

blocked by the system. However, to me it pointed out we had other

serious problems. As Mr. Marquez has just said, we immediately

said, ‘‘Let us go look and see if we have other problems.’’ We had

seen what had happened in the Department of Defense. We read

the GAO reports and the first thing we said was, ‘‘Let us take a

quick look at what else is happening at Los Alamos.’’ When we

looked we didn’t like what we saw. We immediately said, ‘‘Let us

go get this external team together that the former IG John Layton

chaired.’’ That is the situation that I saw.

Let me just conclude since my time is up by saying that I don’t

believe I allowed any type of coverup to occur at our Laboratory.

I certainly had no intention of ever preventing any information

from getting out of our Laboratory to any investigatory body, the

Department of Energy, the University of California, or certainly

this committee. The DOE IG report did not find any evidence of

any coverup by management.

I wish that these events had not occurred at Los Alamos but they

did. People who committed illegal acts or inappropriate acts should

be held accountable for their actions. But I do not believe that Los

Alamos is a culture of theft. I don’t believe the facts support that.

Instead, I would say that Los Alamos really is a culture of public

service. That is, at least, the Los Alamos that I have been familiar

with for the last 24 years.

In my opinion, what we all need to do now, and Bruce Darling

brought this up, is I think we need to make these corrections that

the University of California and the Laboratory are putting in

place. But we need to learn from these mistakes. What were the

root causes of the mistakes, learn from them, make the changes,

and move on.

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The reason I say that is I believe our mission is very, very critical to our country at this time. Maybe as important as it has ever

been in our history. Thank you, Mr. Chairman.

[The prepared statement of John C. Browne follows:]

PREPARED STATEMENT OF JOHN C. BROWNE, FORMER LABORATORY DIRECTOR, LOS

ALAMOS NATIONAL LABORATORY

Mr. Chairman and distinguished members of the Subcommittee. Thank you for

the opportunity to present this statement regarding the procurement and property

issues at Los Alamos National Laboratory.

There are no excuses for theft, waste, fraud or abuse of government property,

whatever the amount and whether by University of California or subcontractor employees. In many talks and written statements to the Laboratory over my 5 years

as Director I have stated that integrity must be a key value of our institution. We

must be good stewards of the taxpayers’ money.

LANL is a large, complex operation with a very important national security mission. On any given day there are 12-14,000 people on site. Our site covers 43 square

miles—mesas, canyons connected by hundreds of miles of roads. There are over 2000

buildings, some of which require high physical and cyber security. To carry our programs we perform many hazardous operations—nuclear, high explosives, chemicals,

X-ray machines, etc. Our FY03 budget is close to $2 billion—roughly one-half of

which is spent on purchases.

We have a critical national security mission. Our core mission is to ensure the

safety and reliability of U.S. nuclear weapons. LANL has responsibility for certifying 5 of the 7 different nuclear weapon types in the U.S. stockpile. We take this

responsibility very seriously and it received my highest attention during the past

five years. Our other major mission area is to reduce threat of weapons of mass destruction to our homeland, our troops, and our allies. Since Sept. 11, 2001, we greatly increased our work on counter-terrorism—especially against weapons of mass destruction. For example, we designed and built nuclear detectors that have been deployed in Russian borders and ports; we assisted in the DNA analysis of the anthrax

attacks in Washington, New York, and Florida and fielded biological detectors

around the country, including at the Salt Lake City Olympics.

As Lab Director I was accountable for all the activities of the laboratory and the

actions of all the people on our site—good and bad—whether technical, administrative work or operations—a challenging job, but a rewarding job.

PROCUREMENT ISSUES

The possibility of theft at our TA33 site was raised by a contractor employee, Mr.

McDonald, who testified here a few weeks ago. Mr. McDonald did the right thing

by being persistent when his earlier attempts to report this illegal activity did not

result in action. When I found out about the TA33 theft allegations in late June

2002, I asked Mr. Salgado, my principal deputy, to stay on top of this issue and

keep DOE, UC, and me informed on a regular basis. We both felt that Mr. McDonald’s actions were exemplary.

A few weeks later, Mr. Salgado reported that an attempt to purchase a Mustang

with a procurement card had been uncovered by our Business Services Division and

by our bankcard service provider. This seemed incredulous to me, but in light of the

recently reported procurement card abuses in the Department of Defense, we asked

Mr. Marquez, my Associate Director for Administration, to conduct a quick scan of

other LANL procurement card activities. This quick review turned up several apparent abuses. Based on this information, and after consulting with Dr. John McTague,

UC Vice President for Laboratory Management, we decided to conduct an external

review that was set up in August under the leadership of two former Inspectors

General, John Layton and Charles Masten, and auditors from PricewaterhouseCoopers.

The external review found that, while policies and procedures were in place at

LANL, internal controls and oversight needed strengthening. We made significant

changes in our procurement card practices in August 2002; more changes have been

made recently.

PROPERTY INVENTORY ISSUES

While LANL has received outstanding grades for its property inventory results

since 1999, questions were raised in the press about missing equipment being an

indicator of widespread theft at the Laboratory. There are over 70,000 property

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items at LANL, whose original value is about $1 billion. Our inventory system accounted for over 99.7% of these items in each of the last four years. Many items

reported in the press, such as large magnets and specialized electronic equipment,

were located at the Lab after searches were conducted. These items had been moved

from their original site for new uses and the inventory system had not been corrected. There were over 400 computers reported missing in the last four years. We

have over 33,000 computers at LANL used for R&D, as well as administrative matters. I agree with our critics that this scale of unaccounted computers is too high

and steps have been taken to reduce the chances for theft of such computers. None

of the 400 computers was used for classified information.

There presently is a 100% wall-to-wall inventory being conducted at LANL. This

should help resolve discrepancies and increase confidence in our inventory methodology which follows best industrial and government practice.

OTHER MANAGEMENT CHANGES

LANL has been an organization in transition since the end of the Cold War. In

response to changing requirements, improvements in safety and security were made

in the mid- to late-1990s, including major changes following the hard drive incident

that this committee investigated in 2000. All 61,000 classified removable electronic

media were bar-coded two years ago and I directed several audits since that time.

Our Nuclear Emergency team was re-organized, under new leadership and with improved procedures. Overall, reports by the DOE Office of Independent Assessments

show a positive trend of improvements in safety and security over the past 5 years

at LANL.

To make further improvements in operations, UC and LANL brought in external

companies two years ago to review our safety and security operations, project management, planning and budgeting systems, and nuclear operations. We began to implement the recommendations of these reviews last year.

Based on my previous experience in information systems, I also brought in an Information Technology (IT) consulting company, Gartner Group, two years ago to recommend changes in our IT systems, which I believed to be insufficient to carry out

our responsibilities. We began to implement IT system changes based on their recommendations last year; the IT system was contracted to IBM/Oracle for development. It is designed to provide managers administrative and operational information in a timely manner. My regret is that all the changes did not come fast enough

to prevent these present problems.

CONCLUDING REMARKS

LANL does not have a culture of theft. I do not think that the facts and data support such a characterization. Yes, we have some people who committed some illegal

acts. We have fired some employees, some are under administrative review by

LANL, and some are still under FBI investigation. The vast majority of LANL people are dedicated to the service of this nation.

I did not allow or support any cover-up. The DOE IG report did not find evidence

of any cover-up by management. I believe that I kept the DOE and the UC informed

of the information on these events as it became available to me. I formed internal

and external reviews of the situation. I approved changes to LANL controls on procurement cards in August. When anonymous allegations of cover-up appeared in the

press in November, I immediately asked Undersecretary Brooks to have the DOE

IG investigate.

I wish that these events had not occurred at Los Alamos—but they did. Our employees are human and humans make mistakes, and they should be held accountable for their actions. But I do not believe Los Alamos has a culture of theft—it is

a culture of public service.

The University of California has responded aggressively and is making the needed

changes. In my opinion, we should learn from these mistakes and move on. LANL’s

mission has never been more important to our nation.

Thank you for the opportunity to make these remarks.

Mr. GREENWOOD. Thank you.

Mr. McTague.

TESTIMONY OF JOHN P. McTAGUE

Mr. MCTAGUE. Mr. Chairman, members of the committee, at the

outset I want to say that I regret what transpired at Los Alamos.

As the University of California Vice President for Laboratory ManVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00192 Fmt 6601 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
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agement when many of the events that are being investigated occurred, I am ultimately responsible for the mistakes and mismanagement by the Laboratory.

In my written testimony I explain my involvement with the

science policy and our national labs over the course of my varied

career and my long-standing belief that the labs must be run in a

manner that promotes and ensures excellence both from a scientific

and a business perspective.

When President Richard Atkinson appointed me Vice President

for Laboratory Management, I assumed the post with this in mind.

I took up my duties, determined to see the Laboratory implement

Appendix O of the contract between the University and the Department of Energy, improve their cooperation and coordination with

the Department, and prioritize proper project management and

best business practices.

In many ways I believe that the University and the Laboratory

made progress toward achieving these goals during my time as vice

president. When I stepped down from the position, for instance, the

Laboratory’s construction projects were on time and either at or

below budget. Problems, however, clearly exist at Los Alamos.

I first heard of the weaknesses being explored by this committee

in August 2002 when Joe Salgado informed me that one Laboratory

employee had attempted to purchase a Ford Mustang using her lab

issued purchase card and that another employee had received cash

advances at a local casino using her card.

In that same call I was told that some Laboratory employees

working in a high sensitive area were being investigated by the

FBI for purchasing goods for their personal use through a Laboratory contract. As with Dr. Browne, I found these incidents outrageous. Among other actions, I immediately called for the creation

of an outside review team to evaluate and critique the Laboratory’s

purchase card system. That is what became the Layton Committee

which I directed the Laboratory to do in a letter of August 16.

I also directed that the other University-managed labs, namely

Livermore and Berkeley, review their purchase card systems for

potential abuse. Similarly, the day I first learned of allegations

that managers at Los Alamos might be conspiring to conceal property mismanagement and to stifle ongoing investigations, I drove

to the Lab—I happened to be in Santa Fe that day—to look into

the accusations first hand.

These subsequent steps, however, cannot excuse what occurred

already at Los Alamos. I regret that I did not detect these problems

earlier. I spent much of my time as Vice President for Laboratory

Management addressing what I knew were actual or potential

weaknesses within the structure of the three laboratories. Regrettably, I missed some areas.

I also want to touch briefly on what I know about the terminations of Glenn Walp and Steven Doran. Mr. Salgado told me in

advance that he intended to recommend to Director Browne that

Los Alamos terminate Mr. Walp and Mr. Doran. That was in the

week prior to the actual dismissal.

Based on what I knew from Laboratory officials at the time, I

thought that the lab had valid grounds for firing both men and told

Mr. Salgado to do what he felt was right. However, in light of what

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I subsequently learned from this committee, from Secretary Abraham, and others, I now have serious reservations about the termination decision.

In conclusion, I find the conduct at Los Alamos inexcusable and

I am sorry that these events were not identified and corrected earlier in my tenure. Our national labs are extraordinary facilities and

they must be managed with the utmost care and diligence.

I do believe that the investigations by this committee, the Department of Energy, the University and others, will make Los Alamos and the University stronger improved institutions. Thank you.

[The prepared statement of John P. McTague follows:]

PREPARED STATEMENT OF JOHN P. MCTAGUE, FORMER VICE PRESIDENT FOR

LABORATORY MANAGEMENT, UNIVERSITY OF CALIFORNIA

Mr. Chairman, Mr. Deutsch, and members of the Committee: My name is John

McTague, and from June 1, 2001, through January 6, 2003, I served as the Vice

President for Laboratory Management for the University of California.

I am grateful for the opportunity to appear today and address your concerns about

the property procurement and management systems at Los Alamos National Laboratory. I greatly appreciate the diligence and dedication this Committee has shown

in exposing problems at the Laboratory. Let me be clear: I was the University official directly responsible for overseeing Los Alamos National Laboratory when the

events you are investigating occurred; they happened on my watch; I accept responsibility. Like you, and like the University, I consider the allegations of mismanagement and theft disturbing and inexcusable.

PROFESSIONAL BACKGROUND

I come before you today having devoted much of my life to science and our national laboratories. In the academic, public, and private sectors, I have overseen,

managed, and evaluated large-scale technology facilities, projects, and organizations

requiring a high level of scientific and technical expertise. I believe that our national laboratories can and must realize scientific excellence while simultaneously

achieving management accountability, cost effectiveness, and efficiency.

After graduating from Georgetown University and receiving a PhD from Brown

University, I began my career as a member of the technical staff at the North American Rockwell Science Center in California. I then joined the faculty of the University of California, Los Angeles as a professor of Chemistry and a member of the Institute of Geophysics and Planetary Physics. During my twelve years at UCLA, I

also served as a consultant to the Physics Division at Los Alamos and received fellowships from NATO, the Alfred P. Sloan Foundation, and the John Simon

Guggenheim Foundation. During the course of my academic career, I have authored

or coauthored over eighty scientific publications.

In 1982, I left UCLA to become chairman of the National Synchrotron Light

Source Department at Brookhaven National Laboratory. When I arrived at the department, construction was underway on what was planned to be the most powerful

x-ray ring in the world. The project, however, suffered from poor management, cost

overruns, and schedule delays. By the time I left Brookhaven, the project was back

on line.

From 1983 to 1986, I served as Deputy Director of the White House’s Office of

Science and Technology Policy, and in 1986, I was Acting Science Advisor to President Reagan. Following my service in the White House, I spent twelve years with

the Ford Motor Company, serving first as Vice President for Research and then as

Vice President for Technical Affairs. In both these positions, I came to appreciate

even more the importance of managing scientific research while balancing cost, efficiency, and environmental concerns.

While at Ford, I continued to play an active role in the nation’s science policy and

national laboratories. In 1990, the first President Bush appointed me to the President’s Council of Advisors on Science and Technology. From 1990 through 2000—

under four different Secretaries of Energy and two different administrations—I

served as a member of the Secretary of Energy Advisory Board, an organization that

enjoys broad input into various energy-related matters, including weapons policy.

During this same ten-year period, I served as the very first cochairman of the Department of Energy Laboratory Operations Board. This position, as you might imagine, gave me insight into both the strengths and weaknesses in the management

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of our national laboratories. During the mid-1990s, I also chaired the Board of Overseers for Fermi National Laboratory and was a charter member of the University

of California’s President’s Council on the National Laboratories.

APPOINTMENT AS VICE PRESIDENT FOR LABORATORY MANAGEMENT

It was, I believe, because of my varied work experiences and longstanding interest

in the management of our national laboratories that University of California President Richard Atkinson named me the University’s first Vice President for Laboratory Management.

In July 2000, as a cochairman of the Department of Energy Laboratory Operations Board, I learned of then Energy Secretary Bill Richardson’s uncertainties

about the University’s oversight of Los Alamos and Lawrence Livermore National

Laboratories. The Secretary’s reservations came at a critical time; he was in the

process of deciding whether to renew the University’s contract to manage both laboratories. Consequently, I sent Secretary Richardson a letter describing the University’s great strengths and weaknesses as a manager.

I reminded the Secretary—as I remind all of you today— that the two laboratories

have for ‘‘over a half century given this nation a vastly unmatched superiority in

nuclear weapons and nonproliferation technology.’’ ‘‘There is,’’ I told him and tell

you, ‘‘no remotely close second place contender, either among our allies or our potential adversaries.’’ Part of the labs’ dominance was—and is—directly attributable to

the University of California’s management. I explained that UC ‘‘is exceptionally

strong in two critical areas: personnel systems and technical quality control.’’ Both

factors, I emphasized to the Secretary and reemphasize today, ‘‘are at the heart of

the superiority we have sustained.’’

Yet for the many positives in the University’s management, I noted problems also

existed. My criticisms of the University were direct and blunt. I informed the Secretary that ‘‘unacceptable weaknesses in project and security management’’ existed

at Los Alamos and Lawrence Livermore. To remedy these shortcomings, I argued

for the establishment of a ‘‘single, unambiguous line of authority and accountability.’’ I recommended that the University create ‘‘a strong vice presidential position devoted full time’’ to overseeing and working with the laboratories. The person

holding this office, I told the Secretary, ‘‘should have the resources and expertise

to make the laboratories act as a system, to assess and assure the performance of

the laboratory directors, as well as technical excellence of programs, major project

management, personnel systems, safety, security, and business practices.’’

Secretary Richardson subsequently renewed the University’s contract, but he conditioned renewal on the University making specific improvements in its oversight

system. One of these conditions—which are identified in Appendix O of the renewed

contract—mandated that the University establish the office of Vice President for

Laboratory Management.

Sometime after sending my letter to Secretary Richardson, I received a call from

President Atkinson, whom I had known for twenty years. He asked if I would consider interviewing for the new position. I had not sought the job; I was just beginning to enjoy my new retired life in Santa Barbara. Nonetheless, I told President

Atkinson that I would interview for the post, but that he must understand that, if

selected, I would only serve for a limited time. I intended, I told him, to stay in

the position long enough to oversee the establishment of the office and regularization of the relationship with the Department of Energy, and the successful completion of the Appendix O requirements.

On June 1, 2001, I became the first University of California Vice President for

Laboratory Management.

TENURE AS VICE PRESIDENT

I assumed my new responsibilities with several systemic goals in mind for both

Los Alamos and Lawrence Livermore. First, I was determined to see the University

and the laboratories meet the milestones set forth in Appendix O. Second, and from

a more programmatic perspective, I wanted the two labs to strike a healthy balance

between competition and cooperation. The labs, I felt, must continuously push one

another toward excellence. However, the competitive frenzy should not obscure the

larger point: Both labs play a vital role in developing and maintaining our country’s

nuclear weapons arsenal. Therefore, where appropriate, I aimed to have the labs

share their facilities, balance workloads, and work together toward creating unified

definitions and safety standards. In essence, I hoped that the labs would operate

as a system in carrying out their day-to-day activities. Third, I wanted the laboratories to make proper project management and best business practices an integral

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part of their operations. Budget and time constraints, I wanted the laboratories to

understand, could not be ignored.

These more overarching concerns were by no means my only priorities. The laboratories needed to take preventive measures against possible cyber attacks and

physical assaults. Lab-specific issues also concerned me. For example, I was determined to prevent a recurrence of cost overruns and missed deadlines at the National

Ignition Facility being constructed at Lawrence Livermore. On a less scientific level,

both labs—but particularly Los Alamos—faced exploding healthcare costs that had

to be reined in.

Looking back, I believe the University and the laboratories made good strides toward achieving these goals during my nineteen-month tenure. On the security front,

the University retained Aegis, a Washington, D.C. based consulting company, to review and critique the labs’ security systems. I subsequently ordered the laboratories

to implement Aegis’s recommendations. I note that in the most recent simulation

of a physical attack, Los Alamos performed extremely well. Improvements were also

made in project management. When I stepped down, the major construction projects

at the laboratories—including Lawrence Livermore’s National Ignition Facility—

were meeting the Department of Energy’s milestones for cost and performance.

Some construction projects were actually running ahead of schedule and below cost.

Indeed, I was so pleased with progress being made by the laboratories and the

University that in February 2002, I informed President Atkinson that I intended to

resume my retirement by the end of the year. In October 2002, a month before I

formally announced my resignation, the National Nuclear Security Administration

completed a two-year review of Los Alamos and Lawrence Livermore, during which

the agency evaluated the laboratories for management accountability, safety and security, facilities safety, and project management. The two laboratories received the

highest possible scores in all categories. Therefore, as I prepared to return to Santa

Barbara, I believed that the University and the labs were well on their way toward

fulfilling the Appendix O obligations and improving their management operations.

RECENT PROBLEMS AT LOS ALAMOS

Sadly, as my tenure drew to a close, I suddenly learned of the deficiencies in Los

Alamos’s property management and procurement systems. I must confess, given the

high marks received by the Lab’s property audits in recent years, these discoveries

came as a surprise. In hindsight, I should have devoted more time and energy to

investigating the handling of property at Los Alamos.

Purchase Card

In early August 2002, Joe Salgado, then the Lab’s Principal Deputy Director, telephoned and informed me that one laboratory employee had attempted to purchase

a Ford Mustang using her lab-issued purchase card, and that another employee had

used her card to obtain a cash advance at a local casino. Needless to say, I was appalled to hear of these incidents. More troubling, however, was Mr. Salgado’s warning that the Lab’s automatic reconciliation process had not detected the illicit transactions.

I took immediate action after receiving Mr. Salgado’s report. On August 16, 2002,

I sent a letter to Director John Browne instructing him to establish the External

Review Team to evaluate the Lab’s purchase card system. The Review Team would

be headed by two former inspectors generals and assisted by the accounting firm

of PricewaterhouseCoopers. In addition, I instructed Mr. Salgado to give me weekly

updates on the Lab’s progress in resolving the purchase card issues. Finally, I ordered the other two national laboratories managed by the University, Lawrence

Berkley and Lawrence Livermore, to investigate their purchase card systems and

determine whether they suffered from problems similar to those afflicting Los Alamos. Fortunately, the reports I received indicated they did not.

TA-33

In the same conversation that Mr. Salgado first informed me of the problems with

the Lab’s purchase card system, he also told me that some Los Alamos employees

had purchased goods for their personal use using a Lab purchase order contract. Mr.

Salgado explained that because the FBI was currently investigating the matter, he

had limited information and the Lab’s ability to undertake its own investigations

was restricted. Mr. Salgado did say, however, that the suspected thieves worked in

one of the Laboratory’s sensitive areas.

In later conversations with Mr. Salgado, I was told that officials in the Lab’s Security and Safeguards Division were informed of the thefts in September 2001 and

had notified the FBI, which did not take action for some time. Yet these same officials failed to report the matter to the Inspector General or senior managers at Los

189

Alamos. As I told Mr. Salgado at the time, I believe the security officials made a

mistake by not immediately passing the information up to their superiors or taking

steps to notify the Inspector General.

Mr. Salgado also subsequently told me that he and Frank Dickson, the Lab’s Laboratory Counsel, felt that the FBI needed to conclude its investigation more rapidly.

Allowing suspected thieves to continue working in a highly sensitive area of the

Lab, he explained, posed an unacceptable security risk.

Walp and Doran Terminations

No discussion of the recent troubles engulfing Los Alamos could possibly be complete without mentioning Glenn Walp and Steven Doran. Like many of my University of California colleagues, I appreciate that Mr. Walp and Mr. Doran did the nation, the Lab, and the University a service in publicizing their concerns over the

Lab’s property management system.

I first heard the names Glenn Walp and Steven Doran on November 5, 2002,

while meeting in Santa Fe, New Mexico, with project managers from Los Alamos,

Lawrence Livermore, and Lawrence Berkley National Laboratories. While in Santa

Fe, I was told of an article in the Energy Daily newspaper alleging that senior Los

Alamos managers were concealing property mismanagement at the Lab and interfering with ongoing investigations. I found that assertion very troubling, and drove

that same day to Los Alamos to look into the matter further. Once at the Lab, I

met individually with Mr. Salgado and Jo Ann Milam. Later in the day, I held a

much larger meeting involving Mr. Salgado, Frank Dickson, James Holt, Stanley

Busboom, Gene Tucker, and Scott Gibbs. The general discussion of the meeting confirmed many of the details in the article. During this meeting, Mr. Dickson stated

that he had previously lost confidence in Mr. Walp and Mr. Doran and that he did

not trust either man. As best I could tell, all the other participants agreed with Mr.

Dickson’s assessment.

The week before Thanksgiving, Mr. Salgado called to give me his weekly update

on the purchase card system. During the conversation, he said that the Lab lacked

confidence in Mr. Walp and Mr. Doran, and he reported that the Lab had to act

at once because both men were approaching the end of their probationary periods

and about to go on vacation. Based on what Mr. Salgado said, I thought the probationary periods would expire while Mr. Doran and Mr. Walp were away from the

Lab. Mr. Salgado pointed out that Mr. Walp had incorrectly accused an employee

in the Lab’s Human Resources Department of obstruction of justice, and other reasons offered as justifications for the terminations included Mr. Walp’s refusal to cooperate with the External Review Team and the unreliability of reports submitted

by Mr. Doran. After listening to Mr. Salgado, I asked whether he had spoken with

Director John Browne about the terminations. He responded that the Director was

out of town, but that he would consult him over the weekend. I then told Mr.

Salgado to do what he felt was right.

Based on the apparent unity of Laboratory managers, I did not doubt Mr.

Salgado’s actions or motivations when he notified me of his intention to recommend

termination to Director Browne. Now, however, I have serious doubts about the actions. I subsequently learned, for instance, that neither Mr. Walp nor Mr. Doran

were approaching the end of their probationary status. In fact, the probationary periods for both men ran into 2003, and both periods could have been extended by

Laboratory managers.

Secretary Abraham played an instrumental role in triggering my reassessment of

the terminations. During the Secretary’s December 12, 2002 visit to Santa Fe, Director Browne explained the Laboratory’s reasoning for terminating Mr. Walp and Mr.

Doran. It was a case I had heard before, and a case, frankly, that I had accepted

as plausible and defensible. Secretary Abraham offered a new, fresh perspective. As

his probing questions demonstrated, an outsider objectively reviewing the situation

might wonder if the terminations were warranted. The Secretary, as well as this

Committee, helped shed new light onto the firings.

CONCLUDING THOUGHTS

Our national laboratories are extraordinary institutions that provide an invaluable service to this country. They have no peer in the realm of scientific research

and technical expertise. There is always room for improvement, however. I have devoted much of my life to bettering the project management of our national laboratories so as to ensure that their business practices match their scientific excellence.

During my tenure as Vice President for Laboratory Management, I believe the University and Los Alamos made real and substantial progress toward improving management, oversight, and programmatic performance.

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Yet the failings at Los Alamos demonstrate that we must do much better. The

events being investigated by this Committee are inexcusable. Theft and mismanagement of government property—regardless of size—cannot be tolerated. When I proposed creating the position of Vice President for Laboratory Management, I emphasized the importance of accountability. Ultimately, I was the University official in

charge of overseeing Los Alamos, and I regret what occurred at the Lab. But I am

also grateful to this Committee, to Secretary Abraham, to Mr. Walp and Mr. Doran,

and to the Inspector General for investigating, identifying, and publicizing the

weaknesses at the Lab. I am convinced that the University and Los Alamos are becoming stronger and improved institutions because of these revelations.

Thank you again for your efforts and for the opportunity to appear today. I would

be happy to answer your questions.

Mr. GREENWOOD. Thank you, sir.

Mr. Erickson.

TESTIMONY OF RALPH E. ERICKSON

Mr. ERICKSON. Good afternoon, Mr. Chairman, members of the

subcommittee. My name is Ralph Erickson. I am the current Manager of the National Nuclear Security Administration’s Los Alamos

Site Office. I was assigned to the Los Alamos Site Office in July

2002 as Director, reporting to the Manager of the Albuquerque Operation Office.

During the middle of December 2002, as a part of National Nuclear Security Administration’s restructuring, the Albuquerque Operation Office was disestablished and the Los Alamos Site Office

began reporting directly to the National Nuclear Security Administration’s Administrator Office in Washington, DC. At that time, I

became the Manager of the Los Alamos Site Office.

I am now responsible and accountable, to the Administrator, for

the oversight and contract management for the contract with the

University of California, related to the Los Alamos National Laboratory. My new responsibilities include functions that were previously the responsibility of the Manager, Albuquerque Operations

Office, such as Business Management oversight and evaluation.

Given the events of the past 8 months, which includes the Department of Energy’s Office of Inspector General Special Inquiry,

ongoing Federal Bureau of Investigation and other related activities, I have taken a number of actions to begin to address the findings and recommendation which have come from these events:

I have directed that the Los Alamos National Laboratory take

appropriate salary action for those individuals reassigned to lowerlevel positions.

I have directed the Los Alamos National Laboratory to take five

specific actions related to the recently issued Office of Inspector

General report on fire arms inventory and report back to me in

person on a monthly basis as to the status of the corrective actions

taken by them.

These corrective actions will be validated by the National Nuclear Security Administration.

I have directed that Los Alamos National Laboratory establish

an internal tracking system, to capture all findings, observations,

lessons learned, and recommendations related to these and other

assessment activities. This tracking system will include corrective

actions, and a schedule for implementing the corrective actions. Los

Alamos National Laboratory will identify a point of contact for each

191

action. The National Nuclear Security Administration will review

each action for adequacy and validate closure.

I have taken actions to reengineer the Business Management

Oversight Process, which is conducted by National Nuclear Security Personnel. Formerly, this process was focused on performance

improvement (efficiency, and economy), and the process was functionally aligned.

Assessments were conducted vertically within functional areas

such as property, procurement, and finance. I have added steps to

assure that transactions will be evaluated in a cradle-to-grave fashion horizontally across all functional areas.

Thus, transactions involving the acquisition of personal property

for example, will be assessed from inception to completion assuring

that approved procedures are properly implemented across the Los

Alamos National Laboratory business management activity. This

methodology will insert an element of internal control review into

the performance assessment process.

Finally, as corrective actions are implemented, and validated for

closure, I will also review each action and take appropriate actions,

such as a contracting officers determination of allowable costs in

order to assure that the Government’s and the taxpayers funds are

recovered as appropriate.

Thank you for the opportunity to appear before this committee.

This concludes my statement; I would be pleased to answer any

questions. Thank you.

[The prepared statement of Ralph E. Erickson follows:]

PREPARED STATEMENT OF RALPH E. ERICKSON, MANAGER, LOS ALAMOS SITE OFFICE, NATIONAL NUCLEAR SECURITY ADMINISTRATION, U.S. DEPARTMENT OF ENERGY

INTRODUCTION

Good morning Mr. Chairman and Members of the Subcommittee: My name is

Ralph Erickson, and I am the current Manager of the National Nuclear Security Administration’s Los Alamos Site Office. I was assigned to the Los Alamos Site Office

in July 2002 as Director, reporting to the Manager of the Albuquerque Operation

Office. During the middle of December 2002, as a part of National Nuclear Security

Administration’s restructuring, the Albuquerque Operation Office was disestablished and the Los Alamos Site Office began reporting directly to the National Nuclear Security Administration’s Administrator Office in Washington, D.C. At that

time, I became the Manager of the Los Alamos Site Office.

I am now responsible and accountable, to the Administrator, for the oversight and

contract management for the contract with the University of California, related to

the Los Alamos National Laboratory. My new responsibilities include functions that

were previously the responsibility of the Manager, Albuquerque Operations Office,

such as Business Management oversight and evaluation.

Given the events of the past eight months, which includes the Department of Energy’s Office of Inspector General Special Inquiry, ongoing Federal Bureau of Investigation and other related activities, I have taken a number of actions to begin to

address the findings and recommendation which have come from these events:

• I have directed that the Los Alamos National Laboratory take appropriate salary

action for those individuals reassigned to lower level positions. • I have directed the Los Alamos National Laboratory to take five specific actions

related to the recently issued Office of Inspector General report on fire arms inventory and report back to me in person on a monthly basis as to the status

of the corrective actions taken by them. These corrective actions will be validated by the National Nuclear Security Administration.

• I have directed that Los Alamos National Laboratory establish an internal tracking system, to capture all findings, observations, lessons learned, and recommendations related to these and other assessment activities. This tracking

system will include corrective actions, and a schedule for implementing the corrective actions. Los Alamos National Laboratory will identify a point of contact

192

for each action. The National Nuclear Security Administration will review each

action for adequacy and validate closure. • I have taken actions to reengineer the Business Management Oversight Process,

which is conducted by National Nuclear Security Personnel. Formerly, this process was focused on performance improvement (efficiency, and economy), and the

process was functionally aligned. Assessments were conducted vertically within

functional areas such as property, procurement, and finance. I have added steps

to assure that transactions will be evaluated in a cradle to grave fashion horizontally across all functional areas. Thus, transactions involving the acquisition

of personal property for example, will be assessed from inception to completion

assuring that approved procedures are properly implemented across the Los Alamos National Laboratory business management activity. This methodology will

insert an element of internal control review into the performance assessment

process.

Finally, as corrective actions are implemented, and validated for closure, I will

also review each action and take appropriate actions, such as a contracting officers

determination of allowable costs in order to assure that the Government’s and the

taxpayers funds are recovered as appropriate.

Thank you for the opportunity to appear before this committee. This concludes my

statement; I would be pleased to answer any questions.

Mr. GREENWOOD. Thank you, Mr. Erickson.

The Chair recognizes himself for 10 minutes.

Mr. Marquez, the committee obtained a report that was generated in last December. It was requested by BUS-5 team leader

that shows items that were deemed sensitive that were not property tagged as they should be. Now, that report says there were over $600,000 in desktop com- puters untagged, $150,000 plus in pocket PCs, $188,000 in printers, $20,000 plus in scanners, $193,000 plus in work stations,

$7,400 in network servers, $751,000 in lap tops. How can anyone

sit here with a straight face and say that this property management system is not severely flawed given these numbers?

Mr. MARQUEZ. I am not familiar with the particular list. I do

have a list that the University of California provided me. I suspect

it is probably the same list. The list I have seen has roughly 500

individual transactions and it is roughly computers and computer

peripheral equipment.

As we speak, I have my staff inventorying that to try to track

it back to serial numbers and purchases. So far, sir, with 65 percent of that complete, we have all of those showed up as bar coded

and in the inventory. I would like to finish that and I would like

to provide this committee with that report.

Mr. GREENWOOD. All right. Which among you had direct responsibility for the purchase card program?

Mr. HETTICH. As the procurement manager I would say I had direct responsibility.

Mr. GREENWOOD. Okay. Reference was made, and I forget which

one of you testified, to, I think, with regard to the Mustang case

that the individual in charge had self-approved status.

Mr. HETTICH. Correct.

Mr. GREENWOOD. Now, it seems to me so obvious that a system

in which employees self-approve their expenses is obviously flawed.

I can’t imagine. That is not the way it works in the Congress. I can

tell you that.

I can tell you that if I buy a train ticket and put it on my Federal

credit card, I better bring that stub in and I better give it to the

woman who puts this report together and she sends it off to somebody else who matches it against the dates and so forth and apVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00200 Fmt 6601 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
193

proves. If I make a mistake anywhere in my reporting, I have got

a problem. It seems so self-evident that any system that has selfapproval is automatically flawed. How could you have a system like

that?

Mr. HETTICH. I can give you the historic on it. It was actually

set up that way in 1996 when the credit card system was first set

up.

Mr. GREENWOOD. What were they thinking then?

Mr. HETTICH. The logic at that time was if, in fact, you are giving

a buyer a warrant to make a purchase under a PO system, then

you don’t—they effectively self-approve that. They release that contract action so in the case of a P-card it is an equal type of concept.

I personally disagree with that idea. I agree with you.

Mr. GREENWOOD. How long have you personally disagreed with

that?

Mr. HETTICH. Well, I became the procurement manager in January of last year. Just so you have a context, I am the third procurement manager the Laboratory has had in 3 years and during a period where our growth in procurement actions was going up tremendously.

The problem was, quite honestly, I have to admit and, again, you

have others say this and I won’t use that as an excuse, but I didn’t

realize that actually that is how the structure was at that time.

When I found out, I was outraged. I mean, it just struck me——

Mr. GREENWOOD. You know, there was a lot in the news, I think

somebody mentioned it today, about these kinds of problems in

other departments, the Department of Defense.

Mr. HETTICH. That is correct.

Mr. GREENWOOD. There were stories about somebody in the Department of Defense who paid for his girlfriend’s breast enlargements or something using a credit card. There were all kinds of ridiculous abuses of the credit card system.

Mr. HETTICH. I had actually asked for a review of the credit card

system in January when I first became the procurement manager

and got a status from the then team leader over the small purchasing operation and the purchase card administrator on what is

the status of our system. At that time that was not one of the

issues that was raised unfortunately.

Mr. MARQUEZ. Mr. Chairman, let me just interject. We can look

backward, and I agree, but it is not defensible. When we looked at

it, and I had a small committee formed to look at this, the first

place they looked, as Dr. Browne testified, was DOD OIG reports.

They were rampant at the time.

If you will notice in the August 26 revision of the procedures,

which I issued, there is no continued self-approval. You have to

have separate approvals. I mean, we all recognized at the time

when we looked at it that it wasn’t acceptable. I still believe it’s

not acceptable and we changed it.

Mr. GREENWOOD. Okay. Let me stay with you, Mr. Marquez.

Past procurement card audits dating back to 1998 identified the

same systemic issues with the program time and time again.

Checklist to ensure cards were closed out properly when employees

leave the lab do not exist. Regular audits of programs not occurring. Property controlled items not properly accounted for.

194

As I mentioned in my opening statement, I would like to know

now what about your new procedural changes leads you to believe

they will assist in solving the problems where none of the other audits and suggestions worked?

Mr. MARQUEZ. If you look at my written testimony, sir, you will

see that when I started the job, I indicated in my written testimony

that you had mixed signals. Yes, you had audit reports, but you

also had corrective actions that were recorded that indicated that

management had addressed the issues.

You had ratings from the customer that were outstanding. There

were mixed signals in this process. Notwithstanding that, your

challenge is well taken. I believe that the answers are really pretty

straight forward. First of all, I think you have to have sanctions.

You have to have sanctions for the card holders and the review and

approval officials that do not do their job. You have to have sanctions for people that abuse purchase cards. Our disciplinary

procedures——

Mr. GREENWOOD. As my daughter would say, ‘‘duh.’’

Mr. MARQUEZ. But my point is we have disciplinary procedures

that cover that but our practices don’t evidence that we rigidly enforce and follow up. That is a single difference. In January we suspended close to 200 cards for people who did not do the requisite

training. We have not done that in the past. The scope of the cards.

You know, we let this thing grow to where we had too many card

holders.

We have dropped it from something like 1,100 down to 585. We

have got problems with our automated system. Every time we invent a system, we find ways to manually override it so that the internal control checks don’t occur. We are going to fix that. And

then, frankly, two other things that I think are just as important.

We have, in my opinion, an over reliance on audits to do internal

control’s work. I think the answer is that the business organizations, whether they be the accounting people, the property people,

the procurement, they have to do their own internal control desktop audits. They have to routinely check.

As I indicated in my written testimony, experience and industry

practice tells you that if management is paying attention, a lot of

the internal control issues should go away. And, finally, and this

is probably the most important, I really insist and maintain in my

testimony, and I believe this with all of my heart, your best internal control is the very people who have the cards who observe others. If we create an environment of openness where they can bring

forward issues, then that is another way to catch——

Mr. GREENWOOD. I certainly agree with that. It has been testified

here that now there is this new spirit of rejoicing about bringing

information forward. My question is did the opposite exist before?

Was it your sense that prior to these changes that there was—that

individuals who felt they were aware of wrongdoing going on by

their coworkers were discouraged from bringing that forward?

Mr. MARQUEZ. I think you are going to find different views by

different managers at the Laboratory. I will just share my own personal view. I believe that I have seen enough one-on-one conversations with people that they do believe that there would be retaliaVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00202 Fmt 6601 Sfmt 6602 86048.TXT HCOM1 PsN: HCOM1
195

tion if they brought forth issues. I have heard that on more than

one occasion.

Mr. GREENWOOD. What do you think led them to believe that?

Can you think of cases where there has been retaliation?

Mr. MARQUEZ. I have had to review cases that claim retaliation

in my capacity as the Associate Lab Director.

Mr. GREENWOOD. Retaliation by whom?

Mr. MARQUEZ. By supervisors and managers. I have had people

come to me and share who, in fact, have been past whistleblowers

who to this day still claim that they are being retaliated against.

Mr. GREENWOOD. And you have investigated those claims?

Mr. MARQUEZ. Yes, I have. Yes, sir.

Mr. GREENWOOD. And have you found they have veracity?

Mr. MARQUEZ. I have found that in most cases a lot of these

issues don’t go away. People go through the process and they don’t

feel like justice was served at the end of that process. I am being

candid with you. That’s frankly my own assessment.

Mr. GREENWOOD. You are under oath. You had better be candid.

Mr. MARQUEZ. But I have to tell you, those issues don’t go away

and I think, frankly, part of our problem is that we don’t cultivate

relationships. We don’t have relationships amongst subordinates.

We don’t have vertical relationships. We don’t have relationships

even in the business community. We don’t spend a lot of time on

that and I think we need to spend more time on that.

Mr. GREENWOOD. Mr. McTague, did you want to comment on

that?

Mr. MCTAGUE. Yes. With respect to the issue of whether there

is hope that things will be better now with the new system, the

University of California has a purchase card system, a single system at its 10 university campuses and the two other national laboratories that it manages. There have not been the systemic problems on the campuses or at the other laboratories with this new

system which is now the one that has essentially been put into

place at Los Alamos so hope springs eternal.

Mr. BROWNE. Mr. Chairman, could I make a quick comment?

Mr. GREENWOOD. Please.

Mr. BROWNE. This whole subject really consumed a lot of my energy for a couple of years, this whole question of fear in the work

place. The way I tried to address this was by a lot of employee

focus groups. Going out in the laboratory and sitting down with

employees without their supervisors there. I heard the same thing

that Mr. Marquez just testified to.

What I tried to do to address it was to give the employees more

avenues to come forward, an ombuds office. I put in place at the

time I became director something called Ask The Director where

you could ask me anonymously or tell me what you thought was

the problem and I would answer that publicly in our news bulletin.

We had a series of these things. I think there is still some fundamental barriers in our institution that I have struggled with that

have caused this fear to still exist and it goes back a long time. I

know 10 years ago when I was in a different position at the Laboratory I dealt with the same fundamental problem and I talked

to employees about what drives this fear in the work place.

196

I think we have to just continue to do what Dr. Marquez says.

The Lab Director has to stand up and say that it is okay. I have

done that. I have done that on many occasions. I actually had a

policy which I called my zero policy and that stood for zero people

mistreatment at our Laboratory, zero safety incidents, zero security

incidents.

Ironically I got some pushback from our employees because technically they said you can never achieve zero. My answer to the employees was, ‘‘What number is okay?’’ In my opinion, there is no

other number. You may not ever get there but the fact is that

should be your goal as a leader of an institution.

Mr. GREENWOOD. Thank you.

The gentleman from Florida.

Mr. DAVIS. Thank you. I have a series of questions that, if counsel is prepared, I would like to run through.

Mr. Hettich, I want to start with you and the Mustang investigation. Why did you not report this to OSI as soon as you found out

about it?

Mr. HETTICH. Sir, I have to disagree with the statement that was

made that I did not. I got to Mr. Marquez as quickly as I could.

After I talked to Mr. Marquez as the head of AD that we ultimately

responded to, first of all, he asked me to make sure that I informed

both AA-4, which was the Waste, Fraud, and Abuse Unit, and OSI.

Historically, just so you have——

Mr. DAVIS. I am short on time and I know you will correct me

if I am not putting this in the appropriate context. He did direct

you to report this to OSI?

Mr. HETTICH. To both.

Mr. DAVIS. And you did so?

Mr. HETTICH. Yes, sir.

Mr. DAVIS. And how timely did you do so?

Mr. HETTICH. I called Mr. Walp the next day. We arranged——

Mr. DAVIS. Can you be specific on the date, if you can recall?

Mr. HETTICH. I would say—well, interestingly enough, I had

found one of the call backs on it. The call back from Steve Doran

was on the 25th but I had talked to Mr. Walp before that. There

was also an allegation made that it was only because of John Topia

which is not correct.

Mr. DAVIS. Let me just understand this specific point. My information is the problem was discovered on the 18th. Does that message help you recall what date you would have talked to him?

Mr. HETTICH. It was discovered on the 18th. I was informed of

it on the Wednesday of the week before the 25th. I talked to Mr.

Marquez, called Mr. Walp on the Friday. Met with my people on

the Tuesday for more information on it. Met with Mr. Doran actually, I think, the next day. Then with Mr. Walp and Mr. Doran on

Thursday.

Mr. DAVIS. Mr. Dickson’s office knew about it in a couple of days.

Did his office tell you to start your own investigation by calling the

suspect employee and the suspect vendor?

Mr. HETTICH. No. Not me, but I am not sure if they had a conversation with either Mr. Holder, who is the team leader, or the

purchase card administrator.

197

Mr. DAVIS. Are you aware that Mr. Holder gave those instructions to the purchase card administrator and, if so, why did he do

that?

Mr. HETTICH. I am not sure why he gave those instructions to

the purchase card administrator. I think what he was trying to do

was establish the facts so that he understood what was happening

in this. As has been pointed out, she had immediately disputed it

when the statement came out. Statements are like your own. They

come out the month after. A May statement would have come out

in June.

Mr. DAVIS. Were you planning to have your people go out and get

phone records and check on delivery methods? Were you planning

to call the FBI yourself or were you going to let Bank America handle the problem since they had already reimbursed the vendor?

Mr. HETTICH. Actually, the first thing I wanted to do was talk

to senior management as soon as I found out about it what they

would like me to do with it. I would have automatically called AA4 the same day that I found out about it but I wanted to make sure

that Mr. Marquez was aware of it. I knew that OSI was taking a

different role than they had historically taken on it. We discussed

it and he said that he wanted to make sure that we were informing

both avenues simultaneously and I did that.

Mr. DAVIS. Mr. Marquez, do you agree with the description of the

events?

Mr. MARQUEZ. I agree with the description relative to Mr.

Hettich’s and my conversation. I have really no knowledge of Mr.

Holder’s actions.

Mr. DAVIS. In your capacity as the person in charge of all kinds

of procurement, can you explain to us how the blanket purchase

order like the Mesa agreement could have gotten out of hand without somebody monitoring it? Different people have told us this particular type of method was ripe for abuse.

Mr. MARQUEZ. As I have said to the staff members, there is really no excuse for the Mesa contract. The structure of it by its nature

was more open than any blanket we had ever put together that I

could find. It started out as a very small contract with a limited

scope. It was expanded.

While there was some review, the oversight was clearly not

enough. Even though it had been in existence for quite a period of

time by the time that I became the procurement manager, honestly

the procurement manager in general should have known about it.

I should have known about it. I can’t defend that piece. I mean, I

can’t defend why that contract was structured as open as it was.

Mr. DAVIS. I believe you may have said to Mr. Walp at some

point that the system had become too customer oriented meaning

the customer got what they wanted. Do you think that explains

why the system was failing?

Mr. HETTICH. Actually, just so you understand, there was another aspect of what I told Mr. Walp and Mr. Doran. There were

actually three things I said to explain the system differences. One

was that in the mid-1990’s there was a decision that the procurement and property personnel that were distributed, that were in

the field, instead of reporting directly to the property management

and procurement management, actually reported to a different

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BUS group. So the person that was overseeing their salary raises

and everything else was not necessarily the procurement manager

or the property manager.

That was changed in February 2002. By the way, the other thing

that I raised with them was the G&G Industries as the same time

when they came over, at the same time I mentioned Mustang.

Mr. DAVIS. In your opinion, do contract administrators have

enough time to monitor the purchases to make sure they are legitimate?

Mr. HETTICH. No.

Mr. DAVIS. So it’s really a matter of personal accountability for

each of the administrators. If the administrator is honest and does

their job appropriate, everything will work out fine. If they don’t,

there are opportunities for misuse.

Mr. HETTICH. I think one of the things that Mr. Marquez said

that is probably the most important is the level of oversight. Just

to give you a comparison, for instance, at Lawrence Livermore the

BUS organization has four people that look specifically at that.

That is an independent organization. That is what Mr. Marquez

has set up for us now also within our BUS organization.

Mr. DAVIS. Mr. Hernandez, I would like to ask you to comment

on the same point in terms of the oversight.

Mr. HERNANDEZ. I think the problem with this blanket, how it

got out of hand, is due to, one, understaffing within procurement.

The administrator of this contract is an honest person. She does a

good job. Spends an abnormal amount of hours at work. We are

overwhelmed with new requirements from requestors. Once you

have a full plate of new requests you are being pushed to get these

things out. Usually you have last minute requests. The administration and oversight of the contracts end up suffering.

Mr. DAVIS. Mr. Marquez, what plans do you intend to undertake

to deal with this problem that everyone seems to agree?

Mr. MARQUEZ. The staffing issue?

Mr. DAVIS. Yes, sir.

Mr. MARQUEZ. Actually, we have done some things. Our organization in procurement is funded out of our G&A, general and administrative account. In fiscal year 2002 shortly after I got there

I mentioned that we formed this procurement excellence plan. A

tab of that, a section of that has to do with staffing.

In between Stan Hettich and I and his team we laid out a 3-year

plan. It is obvious now looking back it’s not aggressive enough so

with the help of the University of California we were going to go

out actively and vigorously and recruit MBA level, whatever it

takes to fix the staffing shortages.

Mr. DAVIS. So this was a 3-year plan because you did not think

it was an immediate problem but a problem with a long-term solution?

Mr. MARQUEZ. No. It was a 3-year plan because historically at

the Laboratory what I saw in terms of procurement profile is that

since 1996, as I mentioned in my written testimony, they had pretty static staffing and I felt like it was going to be an uphill battle

to try to address the procurement and other administrative staffing

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sive enough. We actually funded some positions both in 2002 and

2003 largely because of my intervention relative to the budget.

Mr. DAVIS. I think my time is about up so let me close with this

question. Dr. Browne, Mr. Salgado apparently has told us that people at the Los Alamos Lab treated the taxpayer’s money as ‘‘Monopoly money.’’ He told us expensive furniture and food were

bought as were thousands of dollars for shirts congratulating people. Do you agree with Mr. Salgado and what has been done or

what will be done about this?

Mr. BROWNE. I don’t think I would have chosen the term Monopoly money.

Mr. DAVIS. What term would you have chosen?

Mr. BROWNE. I think it goes back to this question of formality

of operations. What I mean by that is whenever you have resources

to work a problem for the Government, you really need to have a

system in place that allows you to plan your program, to budget

what you are going to spend it on, telling your customer what you

need to carry it out, and you need a good evaluation system that

says how well you are doing it.

It’s more formality and project management and yet allowing

enough flexibility for local managers to make some good judgment

decision, not so rigid. What I think Mr. Salgado was saying was

that the system, unfortunately, maybe had too much flexibility in

the sense that some poor judgment by a few people in terms of how

they use their resources that were at their disposal to carry out

programs was maybe not with the best judgment that they could

exhibit.

For example, we have a program with the Department of Energy

for morale funds. That is a program that is approved by the Department of Energy up to a certain limit. If someone chooses to try

and go around that system to augment that fund, that is an unallowable cost. Mr. Erickson, I know, would tell me it is an unallowable cost and we would have to figure out another way to cover

those expenses.

Those were Joe Salgado’s words. I never would have said Monopoly money. It conveys a little different context than I would which

is more of this you have got to have rigorous formality when you

are dealing with taxpayer’s money.

Mr. MARQUEZ. Mr. Davis, may I comment?

Mr. DAVIS. Please.

Mr. MARQUEZ. The Congressman from California this morning

made a point about, ‘‘What are you doing about it? You have got

these cultural issues.’’ I would like to tell you that we are doing

something about it. I have formed a Business of Procedures Practices Council. PP3 we call it. What it is is a cross-section of the

technical side of the house, all of the division leaders.

As we make the corrective changes that we are proceeding with

now, they sit on a steering committee and if they have objections,

they needed to voice them then. If there are going to be programmatic impact, they need to let us know.

What we do by this is get their buy-in each step of the way as

we change and forge this new culture. To sit and say we have got

this culture of accommodation, or whatever the term was that was

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used, I wanted to let you know we are doing something about addressing that cultural issue.

Mr. WALDEN. All right. Where to start? I want to make a couple

of comments. Dr. Browne, you triggered something that I think is

important. I fully understand—well, I don’t. Nobody understands

what you have been through because it has probably been very difficult.

You talked about size and scale of the operation. Even given

that, you are still responsible. I appreciate that, you taking responsibility. It seems to me, though, that big organizations hire people

and pay them pretty significant salaries to deal with the scope of

the problems that may exist. I hear size and scale. We face it all

across the Federal Government. I don’t care how big or small your

business is, you are going to have bad apples but, dog gone it, at

some point.

I appreciate your comments about Mr. McDonald being a standup guy. The great irony is, though, that he went with Bill Sprouse

at OSI apparently. He told us he did at least once, if not more than

that, to say there’s a problem. He felt like he had been ignored.

How ironic if, indeed, all of that is true. If Mr. Sprouse had actually done something about it, who knows what would have happened, how all of the lives would have been different.

That’s what troubles me is that my understanding is both the

University system has basically hired back Mr. Walp and is working with Mr. Doran. Obviously we have heard today and before

that there wasn’t necessarily just cause to fire them, so that leads

me to believe they didn’t do anything wrong. They were the whistleblowers. They identified the problems.

They were fired inappropriately and, in fact, the people who fired

them have been dismissed with a nice severance parachute. Two

weeks ago, I think it was, they sat here, Mr. Walp and Mr. Doran,

and said the people they hired who were still there, the investigators or investigator, reported to them basically they are just as

frustrated as ever, that nothing has changed.

Now, I hear things are changing. We also hear, though, that certain LANL managers have suggested that the University of California’s actions to rehire Walp and Doran are ‘‘only so much window

dressing’’ and it is just a passing storm.

Mr. Marquez, do you care to comment on that? That is the heart

of the issue here. Is there real change or is this just wait it out

until the storm passes?

Mr. MARQUEZ. I believe it’s real change. I don’t believe that——

Mr. WALDEN. You don’t think it is window dressing?

Mr. MARQUEZ. No, sir. I believe that the University of California

has demonstrated, at least to me, in the areas that I have to administer that they are sincere about the effort to make change.

They are bringing resources to the table. They are bringing support

on a daily basis. I have no doubt this is a sincere change.

Mr. WALDEN. Okay. Mr. McTague and Mr. Marquez, are you familiar with the settlement/retirement agreements with Busboom,

Tucker, and Brittin?

Mr. MCTAGUE. That all occurred after my time.

Mr. MARQUEZ. That’s a University of California action and I am

not aware of it.

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Mr. WALDEN. So you don’t know whether they included any indemnification?

Mr. MARQUEZ. I have no idea.

Mr. WALDEN. Anybody know at the table? No one is in a position? Okay.

Mr. MCTAGUE. Might I make a comment on your discussion earlier in the questions about that this time around are things really

going to get fixed. From my perspective, retrospectively now, two

things that are very important to making the system really work

are, one, a very good audit line of authority. Ultimately the responsibility for running the Laboratory goes to the Regents of the University of California.

The system that was in place for audit up until December, I

guess, was that the local audit operation at Los Alamos in effect

reported indirectly to the director and only very weakly up through

the Office of the President to the Regents where there is an important audit office headed by Pat Reed. The connection now is that

audit function reports directly to Mr. Reed so that it is independent

of the system at the Laboratory.

Mr. WALDEN. That’s good.

Mr. MCTAGUE. I think that is extremely important. The other

important thing is the robustness of management systems. We

have enough testimony that the management systems were not robust, antiquated, etc. Bringing in the Ernst & Young group to take

a look at the total of the financial and other management systems

at the Laboratory, I think, is an opportunity that would not have

come about unless this committee had started the investigation.

Mr. WALDEN. I appreciate that. Mr. Erickson, the NNSA fiscal

year 2002 appraisal of the LANL rated the Lab’s procurement and

personal property management areas as ‘‘excellent’’ despite all the

problems that had arisen at that time. Can you explain what that

rating is based on and how it is that a system rated as excellent

could allegedly allow two employees to walk off with lab property

of over $150,000 Government purchased property?

Mr. ERICKSON. The actual BMOR report, you may have heard it

called that, Business Management Operations Report, was basically completed in about the August, early September timeframe by

the portion of the Albuquerque Operations Office that at that time

had responsibility for reviewing those business, procurement, and

property activities.

Based on the information that was available to them at that

time, none, or very few, of the activities that had come to light as

a result of the investigations in this hearing process were known.

The FBI was investigating a number of issues, the Mustang case

and others, as well as the TA-33 case. Those were under investigation.

Given the fact that they were under investigation by the FBI, we

weren’t aware of all the details at that particular time and the people who did that report were not aware. That report was then

issued at the very beginning of October of last year.

The appraisal was put together in the latter part of October. At

that point in time a few more of these details had come out. I made

the decision to lower their rating by one grade and that is the rating that was made a part of the actual appraisal.

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Mr. WALDEN. Just one grade?

Mr. ERICKSON. Again, because we didn’t have the information.

We did not have the data. This was prior to the firings of the two

gentlemen. This was before we knew what was going to come out

of the FBI investigation.

Mr. WALDEN. You know, Mr. Erickson, it is probably frustrating

for you to have me sit here and question all the work you are doing

but I spent 5 years on a community bank board and served on the

audit committee.

We had the regulators in periodically. They were amazing at

what they could find down to the gnat’s eyelash practically. They

were very rigorous. We welcomed it as a board because it kept our

tails out of trouble. How do we get that into these systems? We had

our own internal auditor. We had an external auditor. Then they

would come in.

Mr. ERICKSON. And that is one of the things that we are endeavoring to correct as we have moved beyond this. The metrics that

were used by the BMOR people tended to be very vertical in an organization. They didn’t take a transactional look at how things

really crossed the line between procurement and property and

things like that. This year based on what we found and what we

learned we are changing that process.

Mr. WALDEN. Are you changing auditors?

Mr. ERICKSON. We’re not changing auditors because we rely on

two things. One, the Federal employees whom we used before. We

also use the IG on an annual basis to look at our books.

Mr. WALDEN. You don’t use an outside Government auditor?

Mr. ERICKSON. It’s all within house, if you will. The internal is

our own organization, the NNSA. We also rely on the IG as, if you

will, the external organization. We don’t go to Arthur Anderson.

Mr. WALDEN. Nobody does that anymore, Mr. Erickson. In part

as a result of this committee, I might add.

Mr. ERICKSON. I recognize that.

Mr. WALDEN. We are trying to avoid all those issues. When did

you find out about the Bussolini-Alexander case?

Mr. ERICKSON. I was informed of that toward the latter part of

August. I had heard about the Mustang and the P-card, as it is

sometimes is called, issue.

Mr. WALDEN. Who told you about it, Bussolini-Alexander?

Mr. ERICKSON. That was Joe Salgado.

Mr. WALDEN. And what was your response?

Mr. ERICKSON. I was astounded, amazed, disappointed, and very

upset.

Mr. WALDEN. Did you notify anybody at NNA or DOE about the

problem?

Mr. ERICKSON. Yes. I immediately notified at that time my immediate boss which was John Arthur who was the manager at Albuquerque and also——

Mr. WALDEN. No relation to Arthur Anderson?

Mr. ERICKSON. No relation, sir. Then also the administrator’s office, Linton Brooks’ office, within headquarters.

Mr. WALDEN. So that is the action you took and then out of your

hands from there?

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Mr. ERICKSON. In a sense out of my hands because those are ongoing investigations by the FBI. We stand away from that and let

the FBI do their job until they are complete.

Mr. WALDEN. I just want to close my part and turn it over to my

colleague here. The fact is it still troubles me that Walp and Doran

were here 2 weeks ago reporting to us that in their opinion and

what they are hearing the same problems are still going on. I just

leave you with that. Whether it is accurate or not I don’t know. I

hope you take that to heart.

Mr. Deutsch.

Mr. DEUTSCH. Thank you. Mr. Marquez, I am going to refer to

an e-mail dated January 23, 2002, from Robert Holder to Dennis

Roybal. If you want to take a look at it, it is at Tab 107 in the

book. Who are Mr. Roybal and Mr. Holder?

Mr. MARQUEZ. I can’t find the tab but Mr. Roybal was—what was

the date?

Mr. DEUTSCH. January 23, 2002.

Mr. MARQUEZ. Until recently Mr. Roybal was the Deputy Division Director in the Business Operation Division. Mr. Holder until

recently was a team leader for the accelerated purchasing team in

the procurement group of the Business Operations Division.

Mr. DEUTSCH. Their titles now are?

Mr. MARQUEZ. Mr. Roybal is a special assistant to my office and

Mr. Holder, I believe, has been reassigned as a senior procurement

staff in the procurement group.

Mr. DEUTSCH. Do they both work for you?

Mr. MARQUEZ. They both report to me but they work in the Business Operations Division. Mr. Roybal reports directly to me now.

Mr. DEUTSCH. There is a concern about an IG order, the purchase case program. Is that correct?

Mr. MARQUEZ. I am sorry?

Mr. DEUTSCH. There is a concern, or is there a concern about an

IG order of—in the e-mail itself it talks about that, concern about

the IG order of the purchase case program. I have it right here.

Mr. MARQUEZ. ‘‘DOE IG just announced they are going to initiate

a DOE wide audit of contractor purchase card use.’’ I think this email is a forwarded e-mail that originated within NNSA. I think

what they are doing is he is forwarding an e-mail to give notice

that they are doing a—DOE apparently is going to do a purchase

wide——

Mr. DEUTSCH. In this e-mail Mr. Holder tells Mr. Roybal that the

purchase card system allows the purchase of attractive items and

cannot demonstrate that they are being properly controlled. Could

you tell us what attractive property is?

Mr. MARQUEZ. Sensitive or attractive, if that is what he is referring to, is a property control term which means items that are

under $5,000 which is the normal tracking threshold but would be

sensitive or attractive in the sense that someone might be inclined

to steal it, walk off with it. Those would be things like, for example,

an lap top, cameras, phones, things of that nature.

Mr. DEUTSCH. And why aren’t they being controlled?

Mr. MARQUEZ. They are being controlled. I am not sure what this

e-mail is all about. I would have to go through and read it. The

purchase card regulations that I changed in August would exclude

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purchases of this nature. It would prohibit these kinds of purchases. That was one of the key changes in that set of requirements that I issued in August.

Mr. DEUTSCH. Right. I mean, the words from the e-mail, ‘‘The reviews are not current and have likely never been current.’’

Mr. MARQUEZ. Well, this is Mr. Holder’s view of the world, but

I can tell you that as of the end of February when we closed our

P-card accounts, we dropped our reconciliations and our P-card accounts to a point where we are now within $8,000 on reconciliation

so I am not really familiar——

Mr. DEUTSCH. Is that February of this year?

Mr. MARQUEZ. Yes. February of this year. Yes, sir.

Mr. DEUTSCH. So this memo is of January of last year.

Mr. MARQUEZ. January 2002. Keep in mind that (a) this was before my time so you are catching me with an e-mail that I have

not seen, but (b) in August 2002 we instituted lab wide purchase

card changes.

Mr. DEUTSCH. Right. I guess the question is what happened between January and August? Why did it take 8 months to do that?

Mr. MARQUEZ. Well, first of all, to be really honest with you, I

wasn’t aware that we were buying controlled property with our Pcard process. I wasn’t aware of that until I found out after we had

our purchase incidents in the summer. Obviously I didn’t agree

with that policy and I changed it.

Mr. DEUTSCH. We were provided this week with a list of all the

computers bought on the purchase card system. In January Mr.

Holder recommended not allowing this type of purchase. January

2002 he noted that Sandia didn’t allow it nor did any other private

companies.

Mr. MARQUEZ. Most companies don’t allow it, sir. Most Government institutions don’t allow it.

Mr. DEUTSCH. Right. I guess my question again is this is January when he was saying this. Why did it take until August to

change the system?

Mr. MARQUEZ. Well, I came on board February 4 and was not

aware of this issue until the summer of 2002. When I became

aware of it, within a month we instituted a change procedure.

Mr. DEUTSCH. Why would you not be aware of it?

Mr. MARQUEZ. Because we do $1.3 billion of acquisitions every

year. It is not that it is insignificant but through the chain of command you have to understand that Business Operations Division is

one or eight or nine divisions that I manage on a daily basis. Some

of these issues get to my attention and when they do, I try to take

care of them.

Mr. DEUTSCH. All right. It’s a control issue. Obviously I don’t

want you to sign off on every purchase. Let me just follow up. On

July 29 Vernon Brown did another purchase card assessment. This

is after the Mustang case. It’s Tab 138 if you want to take a look

at it, page 8. He said, ‘‘There is no mechanism to ensure that property rules are adhered to and it is very easy to bypass or simply

ignore the rules.’’

Mr. MARQUEZ. Actually, this copy is a copy, I think, I provided.

This is my handwriting. These are my notes. What this was is this

was the briefing that I asked Vern Brown to give to Joseph Salgado

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and I in Joe Salgado’s office on July 29 because both of us became

concerned. On July 25 we became notified of the P-card incident,

I believe, with the Mustang case. That was the first one.

By the following Monday—I think we were notified on a Thursday. By the following Monday Vern Brown had worked all weekend

and put together a very comprehensive report for us by way of this

briefing so that we could understand the magnitude and scope of

the problem.

Mr. DEUTSCH. Okay. Did the Inspector General miss all the problems with the purchase card programs that have been uncovered

since? Did he miss the suspicious purchases of sporting goods, global positioning systems, digital cameras, binoculars, slippers, bicycle

helmets, and the clothes that we uncovered?

Mr. MARQUEZ. When you say Inspector General, are you talking

about the former Inspector General John Layton?

Mr. DEUTSCH. No, the Inspector General who investigated this at

the time.

Mr. MARQUEZ. Actually, what they did in July—a lot of these—

this was like the confluence of great rivers. The IG had, in fact,

launched their review and that came together with amazing coincidence at the same time that we discovered the Mustang case. The

IG did more of a—as I recall, they actually pulled up 90 cases on

a random basis and they asked us to give them all the information

that we possibly could. We did that.

I believe out of that review that the IG did independently, some

of those cases were referred to the Inspector General. I have to tell

you then that in August, August 26, I believe, John Layton’s team

began their exhaustive review and they covered a 45-month period

going backwards from June 30, I believe, of 2002. That would have

been clear back to 1998.

They looked through every single purchase card transaction. You

have to be careful. Some of these items, for example, the TA-33,

were purchased under a blanket purchase agreement, the Mesa

contract. John Layton’s team did not look at that and neither did

the Inspector General.

Mr. DEUTSCH. We have gone through this but can you just quickly explain the local vendor agreements and how they work?

Mr. MARQUEZ. I may have to rely on Mr. Hettich but I can tell

you what I do know. At one time we had 35 local vendor agreements. These are vendors in the Northern New Mexico community.

The idea is to provide commodities below a certain dollar amount

supposedly on an exigent basis. How it operates is that by your

badge, which the Laboratory issues you, you walk into a vendor

and you can order supplies.

In simple terms, that is the local vendor agreement process. As

Bruce Darling indicated, we have looked at that and we believe

that has got vulnerabilities and we are in the process of trying to

increase the internal controls on that program.

Mr. DEUTSCH. We found knives, cameras, binoculars, Nike shoes,

and a variety of other questionable purchases on local vendor

spreadsheets. Has an audit ever been done?

Mr. MARQUEZ. I can’t tell you if an audit has been done on local

vendor agreements. I can tell you that I, too, have found invoices

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cent case. I looked at that. That is KSL subcontractor, two individuals that drive taxis for them. They tried to characterize those as

safety shoes. That is not within the normal bound of the Frank’s

Supply vendor list. We have actually challenged that and either

KSL will reimburse us or we will go back to Frank’s Supply and

get reimbursement from them.

Mr. DEUTSCH. Right. And can you provide a direct answer whether or not it has been audited or not?

Mr. MARQUEZ. I am sorry?

Mr. DEUTSCH. Can you supply us with the information if an

audit has been done.

Mr. MARQUEZ. I will find that out for you, sir.

Mr. DEUTSCH. You are also promising us that

PricewaterhouseCoopers is going to do an extended review of data

mining for a 2-year period. We have not been particularly impressed by their work at this point. One can data mine for suspicious vendors of purchase names.

It has some value but you need to get out into the field and see

if the equipment is really there at this point. There are many items

that Mr. Bussolini and Alexander converted to personal use that

are not obvious on their face. Are you planning at this point to actually do field level investigations to deal with this?

Mr. MARQUEZ. Yes, sir. With respect to the particular slides that

I got to see at the last testimony, I had a team spend this last

weekend inventorying those bunkers at TA-33 and I believe that

within the week I’ll know the contents of those bunkers and I’ll

have some cost estimate of the items that were acquired.

Mr. DEUTSCH. And my final question. You have said that you

have only accounted for 70 percent of your controlled inventory. Is

the claim that you accounted for 99.5 percent?

Mr. MARQUEZ. By DOE performance measure under our prime

contract, in our controlled inventory we accounted for the past several years at above 99.5 which is the outstanding level. The 70 percent number I am not familiar with.

Mr. DEUTSCH. Apparently that is in your testimony.

Mr. MARQUEZ. Well, I mean, you have to give me—in what context?

Mr. DEUTSCH. In the wall-to-wall inventory.

Mr. MARQUEZ. Oh, the wall-to-wall inventory. That was started

February 3 and as of Friday when I left the office, we had hit 70

percent of the items that are in our inventory.

Mr. DEUTSCH. So it is an ongoing inventory.

Mr. MARQUEZ. It is ongoing. It is not scheduled to be completed

until September 30. I am happy to report that we are well ahead

of the progress chart on that.

Mr. DEUTSCH. Thank you.

Mr. WALDEN. We are going to do one more round and I think cut

it to 5 minutes if that is all right with you.

Mr. Marquez, I want to go back to one point because I think I

heard you say that the external team audit looked at every P-card

purchase. My understanding is that it was actually mine data

using key word. It wasn’t absolutely every purchase. Do you know

that to be different?

207

Mr. MARQUEZ. You know, I probably shouldn’t venture into it. I

am not an auditor. The methodology they use I really can’t get into

the details of that. The scope was clearly 45 months of transactions, 170,000 transactions and roughly $120 million.

Mr. WALDEN. Right. We were just trying to clarify.

Mr. MARQUEZ. They did do data mining. They did it based on our

automated system. It has data fields that indicate what type of

commodity was purchased. A lot of times the signal in that data

field that you enter in our automated system would really leave

open to question who in God’s name would buy those kinds of

things.

Our team that I formed, I believe on December 6, worked

through January 31 and our challenge was to take the list that

PricewaterhouseCoopers left us and walk through each of those

and justify them in advance of a UC audit report.

Mr. WALDEN. Another question for you. One of the issues that

came up were how the P-card accounts have not been reconciled.

I think there was a major effort to get them all reconciled, some

$3.8 million worth prior to June 30 or something.

Mr. MARQUEZ. That is correct, sir.

Mr. WALDEN. I have a printout here from July 2002 through November 2002. It is fiscal year 2003. This shows data that has not

been reconciled to the tune of $677,200.47.

Mr. MARQUEZ. At that time that was correct. Our plan was always to catch up because we were woefully behind. The same resources that I had to use to catch up and then we went and started

with fiscal year 2003. I am happy to report that as of the end of

February we are caught up and the discrepancy was at around

$8,000 which is a significant improvement. It used to be in the

$300,000 to $400,000 area.

Mr. WALDEN. That’s good to know.

Dr. Browne, on December 16, 2002 you were still Director at the

Lab?

Mr. BROWNE. That is correct.

Mr. WALDEN. You sent an e-mail to all LANL employees declaring that Walp and Doran were ‘‘simply wrong’’ and there were reports of widespread theft, coverup, and interference with law enforcement authorities at LANL. It is Tab 33 if you need to——

Mr. BROWNE. I remember the e-mail.

Mr. WALDEN. Do you still hold to that opinion?

Mr. BROWNE. The thing I was trying to convey to our employees

was that I did not believe that there was this culture of theft that

Mr. Walp and Mr. Doran were reporting in the press. I had not

gone to the press and I felt that somehow I had to convey to our

employees that I did not share this view that we had a work force

full of thieves. That is what the intent of the e-mail was.

Mr. WALDEN. Do you think—I guess I am trying to sort out here.

I hear about Mustang. I hear about Mesa. I think it was Mr. Walp

or maybe it was Mr. Doran who talked about a case that is out

there of $800,000 purchase of hand tools from a single source. Is

all that stuff legitimate?

Mr. BROWNE. I think Mr. Marquez can answer the hand tools.

My understanding was that was also reconciled.

Is that correct?

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Mr. MARQUEZ. Yes. There were issues and I am not going to say

they were all hand tools. They were different types of tools for machining purposes. We have a large engineering and sciences application division.

Mr. WALDEN. This guy went to—my understanding is——

Mr. MARQUEZ. G&G Industry in Rio Rancho, New Mexico. It was

basically a storefront operation.

Mr. WALDEN. Part of what we were told is he would go to K-Mart

and buy the tools.

Mr. MARQUEZ. It turns out he was somewhat of a pass through

but I will tell you that the auditors that looked at this found that

his prices were competitive with what we would have normally

bought under the Just In Time program. That wasn’t my concern.

My concern was they should never have been bought under purchase cards in the first place.

That was actually in place as a procedure and policy at the time

and they were done under a so-called exception. If you pull the

string on the exception, most of the requirements of the exception—I think people read the first sentence which says, ‘‘You have

an exception under the following conditions.’’ They stopped before

the word ‘‘under’’ and they characterized that as a blanket exception. They went off and purchased tools for a couple of years.

Mr. WALDEN. You have changed that so that cannot ever happen—well, that should never happen again. You have done that

through some sort of independent cross-approval?

Mr. MARQUEZ. Actually, we changed the purchase card requirements. You cannot buy those. We made it very clear.

Mr. WALDEN. Are there limits on how much—if I had a P-card

at Los Alamos, is there a dollar limit amount on my P-card?

Mr. MARQUEZ. Yes, now there is. $2,500 per transaction. I think

it is $25,000 a month.

Mr. WALDEN. How do you prevent them from exceeding that?

Mr. HETTICH. The thing you have to do is what you keep on saying and what we are saying also, and that is the only way you do

it is to audit it correctly, honestly. I mean, you have to have an

independent assessment taking place on a regular basis. If you find

that somebody violates the instructions, the regulations that are

out there, then you take appropriate remedial action against the

person.

Mr. WALDEN. Is it not better to go to a purchase order system

where somebody up the chain sings off on it?

Mr. HETTICH. The difference between the two methodologies and

the reason that the Federal Government quite honestly pushed

people toward P-cards is the difference in the cost of the two methodologies. If you really look at the cost of doing a P-card transaction against doing a PO transaction, there is a significant cost

difference. The question is is the risk factor——

Mr. WALDEN. Fraud, waste, abuse.

Mr. HETTICH. That’s right. So that is one of the decision pieces.

In the case of Livermore what they did was establish four independent auditors to keep up with this and go out to the desk tops,

as you point out, do different things like that. Put an insurance to

their own management that the risk factor was prudent.

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Mr. WALDEN. What an internal auditor would do. Do the random

checks.

Mr. HETTICH. Correct.

Mr. WALDEN. Is that in place now at Los Alamos?

Mr. HETTICH. Yes.

Mr. WALDEN. I have way overshot my 5 minutes.

You don’t have any other questions? Mr. Chairman, do you? If

not, the chairman asks unanimous consent to enter the binder into

the record. Without objection that is so ordered. Opening statements are already approved for entry into the record with unanimous consent.

Gentlemen, thank you for your patience today, your forthright

comments. We very much appreciate you testifying before the committee. With that, we stand adjourned.

[Whereupon, at 7:02 p.m. the subcommittee adjourned.]

[Additional material submitted for the record follows:]

April 10, 2003

The Honorable JIM GREENWOOD

Chairman

Subcommittee on Oversight and Investigations

Committee on Energy and Commerce

House of Representatives

2125 Rayburn House Office Building

Washington, D.C.

DEAR MR. CHAIRMAN: At the Subcommittee’s hearing on March 12, 2003, I committed to provide information on my actions and accomplishments to change the historical culture at Los Alamos National Laboratory by reducing an entrenched ‘‘management by accommodation’’ and achieving a heightened sense of fiduciary responsibility to the American taxpayer. This letter fulfills that commitment, and I request

that it be included in the official record of the Subcommittee’s hearings on Property

and Procurement Mismanagement at Los Alamos National Laboratory.

The efforts Director Browne and I made to drive change and address management

problems at the Laboratory were noted by NNSA in its FY 02 Appraisal, dated December 13, 2002:

‘‘NNSA is encouraged by the aggressive leadership demonstrated by the Laboratory Director and Deputy Director—NNSA recognizes the outstanding effort on

the part of Laboratory senior management to organize, drive improvement, and

accelerate change in overall Laboratory culture. NNSA recognizes as well that

LANL faces challenges such as the alarming trend in Price Anderson Amendment Act violations and the current investigations into irregularities in its purchasing activities. Nonetheless, NNSA is encouraged that LANL senior management has moved swiftly and demonstrated an understanding of the urgency and

need for outside assistance as a mechanism to add credibility to the investigation process.’’

The following actions and accomplishments are a representative, not exhaustive,

sample of my actions and accomplishments, and they are consistent with NNSA’s

evaluation as noted above. The list begins in the fall of 1999 when I joined the Laboratory:

• Based on findings by the Office of Audits and Assessments (AA), I directed that

reconciliations of bank accounts be brought current and that monthly reconciliation of bank accounts be completed thereafter.

AA reports for several consecutive years, all of which had been filed with the

University’s Office of the President (UCOP), noted failure by the BUS Division

to complete monthly reconciliations for three accounts—payroll, accounts payable, and travel—for fiscal years 1995 thru 1999. Total activity in the subject

accounts over 5 fiscal years was over $7 billion. I provided periodic progress reports to UCOP (Van Ness and Kennedy) and the Regents (Leach) until the reconciliations were completed in August, 2000.

• Upon joining the Laboratory, I directed that each division and office that reported

to me (BUS, HR, Audits and Assessments, Industrial Business Development,

and others) complete a Vulnerability Analysis within 60 days. The effort resulted in over 200 findings, of which 134 were in the BUS Division. I required

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that Divisions implement specific corrective action plans for addressing identified vulnerabilities, and I tracked progress in weekly meetings with Division

leaders. All Divisions except BUS had completed corrective action plans at the

end of one year. • In 1999 I directed a comprehensive review of the Laboratory’s procurement program and procedures, using Laboratory employees and external procurement

experts. UCOP directly participated in the review. I was led to believe that the

review team’s commitment to consensus may have led to a document written,

in part, to accommodate the UC representative’s preference for a ‘‘softer’’ report

than some of the LANL representatives would otherwise have produced. I implemented a number of reforms and improvements as a result of the team’s report. • Directed the reorganization of the BUS Division and the addition of two Deputy

Division Leaders to strengthen overall division management. • Implemented a corrective action plan to eliminate over a period of about 6 months

a multi-year backlog of about 900 contract closeouts. Reviewed progress weekly

with Division management. • Elevated the Small Business Procurement Office to report directly to the BUS Division leader to strengthen management of small business contracts and procurement actions. • Established a small business point of contact in the Laboratory Ombudsman Office

to assure that any small business perceptions of favoritism, procurement irregularities, or inadequate contract administration could be reported without fear

of reprisal. I took this action in response to indications from the small business

community that the Laboratory was not viewed as a good business partner by

some vendors. • Streamlined the process to assure prompt payments to vendors, subject to appropriate checking and approval by Laboratory users of vendor-supplied equipment, materials and services. • Engaged The Gartner Group to advise the Laboratory on its business information

management and related information technology activities. Implemented The

Gartner Group’s recommendations, thus avoiding significant expenses that

would have resulted in inadequate systems. • Cancelled the Laboratory’s PeopleSoft project on the basis of cost/benefit analysis

and ill-conceived scope; avoided planned project expenses. • Initiated an Enterprise Resource Planning project (ERP) to modernize and streamline the Laboratory’s business information management function and to adopt

best business practices embedded in related commercial software. This is a

multi-year project that is continuing and has been identified by the Interim Director as one of the Laboratory’s highest priorities. • Continued implementation of the ‘‘Sunflower’’ system, used by UC at Lawrence

Livermore and Berkeley Labs and by other contractors in the DOE system to

support property management.

• Continued implementation of the ‘‘TIPS’’ system to support the procurement function.

• Established a Laboratory-wide system for IT (Information Technology) governance

to provide a central authority and Lab-wide coordinating point for policy and

procedures and to assure that investments in IT were cost effective and reviewed by the Laboratory Senior Executive Team prior to commitments.

• Initiated three studies of the Laboratory’s computer inventory:

• A review of the number of personal computers reported as being used at the

homes of employees; a number of computers were returned to Laboratory

property as a result of this study;

• An analysis of the number and costs of computer purchases over recent fiscal

years; the analysis was intended to guide future decision-making regarding

methods and standards for computer purchases;

• A review of classified computers, as mentioned in my written testimony, to assure that none of the computers reported as lost or stolen contained classified

information and to assure that all classified computers could be located.

• Required sound business case analysis for a number of ongoing Laboratory investment and acquisition activities, resulting in:

• Cancellation of the Laboratory’s agreement with a local developer to guarantee

rentals of new luxury townhouses and high quality apartments for use as student housing. Laboratory staff had entered into the agreement without having done a sound business case analysis and without having provided full information to the Laboratory Director.

• Personal assumption of oversight for completion and occupancy of the Laboratory’s space at the Los Alamos Research Park to assure compliance with

211

NNSA’s conditions of approval and cost beneficial project management. Required weekly status reports. Like student housing, commitments to the Research Park had been made by Laboratory staff without adherence to NNSA

requirements, without adequate financial and legal analysis, and without full

information to and approval by the Director.

• Established a Blue Ribbon Task Force and related Technical Panels to provide external management and technical expertise to the Laboratory’s pit production

and manufacturing program. Laboratory and NNSA program managers have

acknowledged that the Task Force and technical panels have been instrumental

in putting the Laboratory in a position to meet the NNSA-determined schedules

for this high priority national security program. The Interim Laboratory Director recently converted the Task Force to a comprehensive Program Management

Review Committee.

• Strengthened procurement support and service to high priority NNSA and DOE

projects, including pit manufacturing, Spallation Neutron Source (SNS—a

multi-laboratory project led by Oak Ridge), and the Accelerated Strategic Computing Initiative (ASCI) through which the Laboratory has developed its ‘‘Q’’

machine.

• Achieved 10% reduction in overhead ratio from FY 00 to FY 02 as a result of having instituted a ‘‘bottoms up’’ approach to the annual indirect budget planning

process.

• Oversaw implementation of legislatively mandated travel regulations for contractors that resulted in reductions in allowable expenses for official travel; personally reviewed travel expense claims of all Associate Directors.

• Established an internal Advisory Committee on Administrative Policies and Practices to assure input and buy-in from all Directorates in the Laboratory for

adoption and implementation of new or modified procedures and practices

aimed at making the Laboratory’s business systems more accountable.

• Established mandatory management training for all Group Leaders to strengthen

management capabilities in the Laboratory. Required each member of the Senior Executive Team (SET) to lead off one of the sessions by clearly articulating

SET expectations. The process to design and implement the training took over

one year, due in part to resistance by Division and Group Leaders, as well as

the Human Resources Division, to ‘‘mandatory’’ requirements.

• With Director Browne, designed and implemented a significant reorganization of

the weapons program to strengthen line management accountability. NNSA

noted in its FY 02 appraisal, ‘‘The reorganization represents a paradigm shift

in that line management now owns programs and is central to, accountable and

responsible for program success. Planning is now the basis for program execution.’’

• Realigned the Laboratory’s internal budget planning process to assure that the Director’s strategic vision drove program planning and to strengthen the Director’s ‘‘ownership’’ of the budget.

• Authorized total outsourcing of the Laboratory’s supplement secretarial pool and

established procedures to assure the pool was used as an avenue to Laboratory

employment for local residents.

• Requested NNSA approval and subsequently implemented ‘‘hot skills’’ pay to assure that the Laboratory would continue to be competitive in terms of recruiting

and retention of staff in specific, critically important scientific and technical

areas.

• Implemented salary surveys by external experts in compensation equity to assure

equitable pay for ethnic and racial minorities and women. These surveys and

related appropriate pay adjustments enabled the Laboratory to avoid litigation,

particularly regarding the issue of pay for Asians and Pacific Islanders that

arose in the aftermath of the Wen Ho Lee case. Salary surveys were completed

for API and Hispanic minorities prior to my leaving the Laboratory; a third survey covering women employees was in planning at the time of my departure.

• Implemented a realignment of facilities management to consolidate approximately

15 separate facility management units and thereby improve accountability and

cost effectiveness in facility management operations.

• With Director Browne, established an internal Strategic Security Working Group

to review long-term security planning and operations in the aftermath of 9/11.

• Assumed personal oversight of Laboratory activities to satisfy requirements of Appendix O to the University’s contract for Los Alamos operations, including:

• Completion of Authorization Basis (AB) documents for 5 critical facilities and for

the packaging and transportation function. As a result of this effort, NNSA

noted ‘‘. . . LANL’s increased emphasis and effort to support safety authorizaVerDate 11-MAY-2000 11:42 Aug 11, 2003 Jkt 000000 PO 00000 Frm 00219 Fmt 6601 Sfmt 6621 86048.TXT HCOM1 PsN: HCOM1
212

tion basis preparation (It appears that LANL may be the only NNSA site that

is 10 CFR 830 compliant by the April 2003 due date).’’

• Completion of inventory and gap analysis related to maintenance of critical

skills to support mission requirements.

• Implemented procedures to assure that the Laboratory was in full compliance with

10CFR requirements for quality certification of vendors of certain types of equipment, services and materials.

• Established a pilot effort to implement a Programming Planning Budgeting and

Evaluation System (PPBES) aligned with NNSA’s legislatively mandated

PPBES system.

• Initiated review of meal expenses in all Divisions and Directorates and subsequently established more rigorous standards for Laboratory purchase of meals

in connection with meetings. Standards were later converted to ‘‘guidance’’ to

accommodate objections from some Divisions. Required Division or Group Leader certification of working meal expenses and justification/approval of exceptions to standards.

• Based on AA findings during an audit of the former Site Support Services contract, withheld current fee payments and recovered fee previously paid.

• Required recompetition of the site support services contract and acted as Source

Selection Official to select a new contractor with emphasis on cost effectiveness

and partnering with the Laboratory to improve operational performance.

In addition to the above, I met weekly—and sometimes more frequently—to track

progress and monitor performance of all of my direct reports on issues ranging from

resource management to safety performance to delivery on program commitments.

In all of these sessions, I consistently emphasized fiduciary responsibility, formality

of operations, and disciplined management. Almost without exception and not surprisingly, I found the Laboratory’s staff and managers willing and eager to respond

and to meet expectations. Nonetheless, an ingrained culture that had historically

under-valued effective management, meant that change came more slowly than I

would have preferred.

I appreciate the opportunity to supplement my testimony before the subcommittee.

Sincerely yours,

JOSEPH F. SALGADO

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