U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
                            
                               
                               
                               
                                
                 AUDIT OF BUS SERVICE SUBSIDIES
                                
          AT THE IDAHO NATIONAL ENGINEERING LABORATORY
                   
                                
                                
                                
                                
The Office of Inspector General wants to make the distribution of
its reports as customer friendly and cost-effective as possible.
Therefore, this report will be available electronically through
the Internet five to seven days after publication at the
following alternative addresses:
 
            Department of Energy Headquarters Gopher
                        gopher.hr.doe.gov
 
         Department of Energy Headquarters Anonymous FTP
                       vm1.hqadmin.doe.gov
                                
Department of Energy Human Resources and Administration Home Page
               http://www.hr.doe.gov/refshelf.html
 
Your comments would be appreciated and can be provided on the
Customer Response form attached to the report.
 
              This report can be obtained from the
                    U.S. Department of Energy
         Office of Scientific and Technical Information
                           P.O. Box 62
                   Oak Ridge, Tennessee  37831
                                
 
 
Report Number:  WR-B-97-02                        
Western Regional Audit Office
Albuquerque, New Mexico  87185
 
Date of Issue:
November 7, 1996
 
                 AUDIT OF BUS SERVICE SUBSIDIES
          AT THE IDAHO NATIONAL ENGINEERING LABORATORY
                                
                                
                             
                                
                       TABLE OF CONTENTS    
                                                           
                                                            
                                                            Page
                                                              
          SUMMARY . . . . . . . . . . . . . . . . . . . .     1
                                                         
PART I    APPROACH AND OVERVIEW . . . . . . . . . . . . .     2
-
                                                              
          Introduction  . . . . . . . . . . . . . . . . .     2
           
                                                              
          Scope and Methodology . . . . . . . . . . . . .     2
          
                                                              
          Background . . . . . . . . . . . . . . . . . . .    3
          
                                                              
          Observations and Conclusions . . . . . . . . . .    3
          
                                                              
PART II   FINDING AND RECOMMENDATIONS  . . . . . . . . . .    5
-
                                                              
          Subsidized Busing at the Idaho National             5
          Engineering Laboratory
                                                            
PART III  MANAGEMENT AND AUDITOR COMMENTS  . . . . . . .      9
-
 
                    U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
                    OFFICE OF AUDIT SERVICES
                  WESTERN REGIONAL AUDIT OFFICE
 
                 AUDIT OF BUS SERVICE SUBSIDIES
          AT THE IDAHO NATIONAL ENGINEERING LABORATORY
 
Audit Report Number:  WR-B-97-02
November 7, 1996
 
                             SUMMARY
 
     The National Performance Review report, Making Government
Work Better and Cost Less (September 1993), and the Secretary of
Energy's strategic alignment plan recommended reducing subsidies
for services that could be more fully paid for by their users.
Therefore, the purpose of this audit was to assess whether bus
service subsidies at the Idaho National Engineering Laboratory
(Laboratory) were still necessary or reasonable.  The specific
audit objectives were to determine if the level of provided bus
services was still needed, if operating costs could be reduced,
and if users should bear a greater share of bus operations costs.
 
     Since May 1992, the Idaho Operations Office (Idaho) and the
Laboratoryms contractors  have issued a series of bus operations
reports.  These reports included several recommendations to make
the Laboratory's bus service smaller and less costly to operate.
Despite these reports and recommendations, the Laboratory's bus
service was neither cost-effective nor efficient, ridership was
less than a desired rate per bus, and ticket fares were
significantly lower than the costs to provide this service.  This
occurred because the Laboratory's contractors did not implement
Idaho's recommendations to reduce the size of the fleet and the
level of provided services, adopt a centralized park and ride
system, eliminate overtime, and increase the price of a round-
trip bus ticket.  As a result, Department of Energy (Department)
subsidies averaged more than $14.6 million per year for the
Laboratory's bus service since Fiscal Year 1993.
 
     We recommended that the Manager, Idaho Operations Office,
reduce the busing subsidy by adopting a park and ride system,
minimizing overtime costs, increasing ticket prices, setting and
maintaining a system-wide minimum occupancy level, increasing the
utilization of Laboratory buses, and periodically comparing bus
service costs with ticket sale revenues.  The Office of Inspector
General (OIG) estimated that the Department could save as much as
$7.2 million per year by implementing these recommendations.
 
     Management partially concurred with recommendation 1 and
concurred with recommendations 2, 3, and 4.  However, management
did not provide proposed actions and completion dates for these
recommendations.  Management and auditor comments are presented
in Part III.
 
 
                               _______________________________
                                 OFFICE OF INSPECTOR GENERAL
 
 
                             PART I
                                
                      APPROACH AND OVERVIEW
 
INTRODUCTION
 
     In September 1995, the OIG issued the Audit of Subsidized
Ancillary Services at the Nevada Test Site (WR-B-95-08) which
concluded that the Department continued to pay high subsidies for
ancillary services, including bus services, that were not used
extensively, may no longer be needed, could be more fully
supported by its users, or could be operated more efficiently.
Consistent with the audit at Nevada, the purpose of this audit
was to assess whether bus service subsidies at the Laboratory
were still necessary or reasonable.  Specifically, the audit
determined if the current level of bus services was still needed,
if operating costs could be reduced, and if users should bear a
greater share of bus operations costs.
 
SCOPE AND METHODOLOGY
 
     The audit was conducted at the Idaho Operations Office and
the Laboratory from January 1996 through June 1996.  To
accomplish the audit objectives, we interviewed key personnel and
reviewed:
 
     *    Lockheed's performance-based contract with the Department;
     
     *    Lockheed's contracts with local unions;
     
     *    employment reports for staffing levels from October 1993
          through February 1996;
     
     *    accounting records for bus service cost and pricing data;
     
     *    bus service statistics for ridership levels on Laboratory
          buses; and,
     
     *    prior reviews and internal audit reports on the management
          of bus operations.
 
     The audit was performed according to generally accepted
Government Auditing Standards for performance audits and included
assessments of internal controls and compliance with laws and
regulations to the extent necessary to satisfy the audit
objectives.  We limited the review of internal controls to those
controls associated with determining the need for and
reasonableness of the Laboratory's bus service.  Because the
review was limited, it would not necessarily have disclosed all
internal control deficiencies that may have existed at the time
of our audit.  We did not rely extensively on computer-processed
data and, therefore, did not fully examine the reliability of
that data.  An exit conference was held on October 28, 1996.
 
BACKGROUND
 
     The Laboratory, located in southeastern Idaho, is the
largest applied engineering facility within the Department's
national laboratory system.  Initially chartered in 1949, the
Laboratory was instrumental in establishing the U.S. Navyms
nuclear submarine fleet, supporting the commercial nuclear power
industry, and recovering uranium from spent nuclear fuel.  For
more than 40 years, these three missions -- national security,
nuclear power, and uranium recovery -- dominated Laboratory
operations.
 
     Prior to Fiscal Year 1995, five contractors managed the
Laboratory.  At the beginning of Fiscal Year 1995, however, these
five contracts were consolidated into one contract which was
awarded to Lockheed Idaho Technologies Company (Lockheed).  When
Lockheed became the Laboratory's management and operating
contractor, it continued using a former contractor's Fleet
Management Division to operate the Laboratory's bus service,
which had about 150 Department owned buses.  The Department's
former contractors had started the Laboratory's bus service in
1951 with 24 buses which serviced Pocatello, Blackfoot, and Idaho
Falls, Idaho.  Since its inception, the Laboratory's bus service,
which provides safe and reliable transportation, became an
integral part of the Laboratory's support system for Government
and contractor employees who have needed mass transportation from
Pocatello, Blackfoot, and Idaho Falls, Idaho, more than 50 miles
from the Laboratory's eastern boundary.
 
     Since the mid 1980s, however, significant changes have
impacted Laboratory operations as well as the need for subsidized
bus services.  The Cold War ended, for example, and the
Laboratory's mission changed from supporting national security
and the commercial nuclear power industry to environmental
management.  As a result, Laboratory programs ended, including
the training program for U.S. Navy officers and crew as well as
the uranium recovery program.  Accordingly, Laboratory employment
declined approximately 3,700 positions (i.e., from over 12,000 in
Fiscal Year 1992 to fewer than 8,300 positions in Fiscal Year
1996), and its budget decreased about $44 million from $987
million in Fiscal Year 1993 to about $943 million in Fiscal Year
1996.  Consequently, each of these changes -- an end to the Cold
War, a mission change, program cancellations, as well as
employment and budget declines -- impacted on the extent of bus
services needed and provided at the Laboratory.
 
OBSERVATIONS AND CONCLUSIONS
 
     Since Fiscal Year 1992, Idaho and the Laboratory's
contractors have recognized the need to reduce the busing
subsidy.  In May 1992, for example, Idaho completed a review of
bus operations and recommended eliminating bus driver overtime
costs, reducing the size of the bus fleet as well as the level of
services, and increasing the price of round-trip bus ticket.
Consequently, the size of the Laboratory's bus fleet declined
from about 152 active buses in Fiscal Year 1992 to nearly 120
active buses in April 1995.  Further, a Lockheed presentation on
bus operations in February 1996 included recommendations to (1)
increase bus service occupancy rates to as much as 90 percent per
bus, (2) adopt a park and ride system, and (3) increase ticket
prices.  We commend Idaho and the Laboratory's contractors for
addressing and reducing the busing subsidy.
 
     This audit showed that, despite these actions, reports, and
recommendations, bus operations were neither cost-effective nor
efficient, ridership levels were less than desired levels per
bus, and ticket fares were significantly less than the costs to
provide this service.  In our opinion, continuing to subsidize
the Laboratory's bus service that is neither cost-effective nor
efficient is a material internal control weakness that Idaho
should consider when preparing the yearend assurance memorandum
on internal controls.
 
                             PART II
                                
                   FINDING AND RECOMMENDATIONS
                                
 Subsidized Busing at the Idaho National Engineering Laboratory
 
FINDING
 
     The National Performance Review and the Secretary's
strategic alignment plan recommended that the Department "cut
back to basics" by discarding old work practices that are neither
cost-effective nor efficient, and by reducing subsidies for
services that could be more fully paid for by their users.
However, the Department heavily subsidized the Laboratory's bus
service that was neither cost-effective nor efficient, ridership
was less than a desired rate per bus, and ticket fares were
significantly lower than the cost to provide this service.  The
Department continued to pay high subsidies for the bus service
because the contractor's Fleet Management Division sustained past
practices and did not implement Idahoms recommendations to adopt
a centralized park and ride system, eliminate overtime, and
increase ticket prices.  Additionally, Idaho did not enforce
these recommendations.  As a result, the Department's bus service
subsidy has averaged about $14.6 million per year for the past
three years.
 
RECOMMENDATIONS
 
     We recommend that the Manager, Idaho Operations Office,
decrease the Department's bus service subsidy by:
 
        * implementing prior Idaho recommendations to adopt a park and
          ride system, minimize overtime costs, and increase bus service
          ticket prices;
     
        * setting and maintaining a system-wide minimum occupancy
          level for Laboratory buses;
     
        * increasing the utilization of Laboratory buses; and
     
        * periodically comparing bus service costs with generated
          ticket revenues to ensure that the Departmentms bus service
          subsidy remains within a defined benchmark for this subsidy.
 
MANAGEMENT REACTION
 
     Idaho management partially concurred with recommendation 1
and concurred with recommendations 2, 3, and 4.  However,
management did not provide proposed actions and completion dates
for these recommendations.  Management and auditor comments are
presented in Part III.
 
                       DETAILS OF FINDING
 
     The National Performance Review, completed in September
1993, recommended that all Federal agencies "cut back to basics"
by reducing spending on programs and services that serve special,
not national, interests.  The Review also stated that taxpayers
should not be called upon to subsidize services that could be
paid for more fully by their users.  In addition, the
Department's strategic alignment plan and a performance based
contract with Lockheed echo a theme similar to the National
Performance Review.  The strategic plan, for example, challenges
the Department to make its operations smaller and less costly to
operate by discontinuing the use of limited resources for past
practices that are neither cost-effective nor efficient.
Furthermore, Lockheed's performance based contract with the
Department requires it to manage and operate the bus service more
cost-effectively and efficiently than previous contractors.
 
SUBSIDIZED BUS SERVICES
 
     In recognition of the need to make bus operations smaller
and less costly to operate, Idaho and the Laboratory's
contractors have conducted several bus reviews and made several
recommendations to reduce the size and cost of operating the
Laboratory's bus service.  Despite these recommendations,
however, the audit showed that the Laboratory's bus service was
neither cost-effective nor efficient, ridership was less than a
desired rate per bus, and ticket fares were significantly less
than the costs incurred to provide this service.
 
Bus Service Routes and Runs
 
     The audit showed that the Laboratory's bus service was
neither cost-effective nor efficient because there were numerous,
overlapping bus routes and runs for Pocatello, Blackfoot, and
Idaho Falls.  During Fiscal Year 1995, for example, Fleet
Management dispatched about 54 buses per day to and from the
Idaho Falls area, and most of these buses would leave within
minutes of each other from the same general location on the west
side of Idaho Falls.  Before leaving the city, however, these 54
buses would stop and board passengers within four to five blocks
of their homes.  In an attempt to reduce the level of bus
operations in Idaho Falls, Fleet Management adopted a Modified
Route System in January 1996.  As a result, two buses were
eliminated from the Idaho Falls operations, but the remaining 52
buses continued to follow the same general routes and runs.
However, if the Idaho Fallsm bus operations were consolidated
under a park and ride system, according to a Lockheed internal
report published in July 1995, Fleet Management could have
eliminated 21 buses rather than 2 buses.  Moreover, this
reduction of 21 buses could have reduced bus operations costs, as
well as the Department's subsidies, by as much as an estimated
$2.1 million per year.  Consequently, the Modified Route System
did not significantly improve the cost-effectiveness or the
efficiency of bus operations in Idaho Falls.
 
Ridership Levels
 
     The audit also showed that ridership levels on Laboratory
buses servicing Pocatello, Blackfoot, and Idaho Falls were less
than desired levels of 90 percent per bus.  In Fiscal Years 1993
and 1994, for example, the percentage of seats filled averaged
between 50 and 60 percent per bus.  Then in Fiscal Year 1995,
ridership averages ranged from about 42 percent to 46 percent per
bus.  Moreover, ridership averages had declined in spite of
reducing the size of the fleet from 152 active buses in Fiscal
Year 1993 to 120 active buses as of April 1995.  In fact,
ridership statistics compiled by the Laboratory showed that
average ridership had declined from over 4,000 per day in Fiscal
Year 1993 to less than 3,000 per day during Fiscal Year 1995.  In
a study conducted during the audit, Lockheed proposed setting a
system-wide minimum ridership level of 90 percent per bus.  If
this level of ridership had been applied to the ridership
statistics compiled by the Laboratory during Fiscal Year 1995,
Fleet Management could have serviced an average of 3,000
passengers per day with 73 buses rather than 120 active buses.
 
Ticket Fares
 
     Finally, bus service cost and ticket revenue reports showed
that the Department's cost to operate Laboratory buses increased
significantly, with no related increase in ticket fares.  In
Fiscal Year 1993, for example, the Department paid about $14.75
million, or about $97,000 per bus, to operate the Laboratory's
152 active buses, and part of these costs included over $1.3
million in bus operations overtime expenses.  By the end of
Fiscal Year 1995, the Department's bus service subsidy had
increased to about $122,000 per bus, while bus operations
overtime expenses had increased to about $1.5 million per year.
In contrast to the Department's increased subsidy cost of about
$25,000 per bus, which included an increased cost of $200,000 per
year for bus operations overtime expenses between Fiscal Years
1993 and 1995, ticket fares did not change to reflect these
increased costs.  In fact, while the Department's bus service
subsidy had increased from about $13 per person in Fiscal Year
1993 to about $22 per person in Fiscal Year 1995, round-trip
ticket fares had not changed since they were set at $1.00 in
Fiscal Year 1989.
 
PAST PRACTICES
 
     The Laboratory's bus service was neither cost-effective nor
efficient, ridership was less than a desired rate per bus, and
ticket fares were significantly lower than the cost to provide
this service.  This occurred because Fleet Management sustained
past practices and did not implement Idahoms recommendations to
make the Laboratory's bus operations smaller and less costly to
operate.  Specifically, Idaho conducted a bus operations review
in Fiscal Year 1992 and found that ridership levels of 60 percent
per bus were unacceptable, overtime costs in excess of $1.3
million per year were too high, and round-trip ticket prices of
$1.00 were too low.  Consequently, Idaho recommended that Fleet
Management make the Laboratory's bus service smaller and less
costly to operate by (1) reducing the size of the fleet and the
level of provided services, (2) adopting a centralized park and
ride system, (3) eliminating overtime, and (4) increasing the
price of a round-trip bus ticket to as much as $3.00.  Had Fleet
Management adopted these recommendations, Idaho estimated that
the Department could have saved about $5.3 million per year on
bus service subsidies.
 
     Instead of implementing Idaho's recommendations, Fleet
Management sustained past practices.  For example, overtime costs
increased and ticket fares remained at $1.00 for a round-trip
ticket.  In addition, Fleet Management did not provide Idaho with
statistics showing that Laboratory buses usually operated at less
than 60 percent capacity.  Instead, Fleet Management provided
Idaho with bus operations reports showing that Laboratory buses
were operating at 90 percent to 95 percent capacity, or with 41
to 43 passengers per 45 passenger bus.  While the 90 percent to
95 percent occupancy rates may have been accurate for some buses,
inventory reports for buses compared to ridership statistics
showed that Laboratory buses consistently traveled to and from
the site with an average ridership level of about 50 percent to
60 percent between Fiscal Years 1993 and 1995.
 
     Finally, the Laboratory's bus service did not operate as
cost-effectively or efficiently as it could have operated because
Fleet Management did not provide Idaho with revised results of a
centralized park and ride study.  In Fiscal Year 1990, Idaho
commissioned a former contractor to evaluate the feasibility of a
park and ride system in Idaho Falls.  The results of this study
showed that the Department would have to spend about $7.6 million
to save about $127,000 per year on bus operations costs.  Since
the payback period exceeded 50 years for this alternative ($7.6
million/$127,000), Idaho accepted a recommendation to reject the
park and ride system.  In Fiscal Year 1995, however, Idaho
commissioned Lockheed to restudy the feasibility of a park and
ride system.  The 1995 report concluded that the Department could
save about $2.0 million per year on bus operations costs by
spending about $4.0 million for two parking lots -- one on the
east side and another on the west side of Idaho Falls.  The 1995
study also showed the Department how it could recover its $4.0
million investment in about two years and continue saving about
$2.0 million per year on bus service subsidies.  However, the
published results of this 1995 study were not provided to Idaho,
and the system was not implemented.
 
BUS SERVICE SUBSIDIES
 
     Since Fiscal Year 1993, the Laboratory's bus system has cost
an average of $15.5 million per year.  Of this amount, the
Department's subsidy has averaged about $14.6 million, or 94
percent per year.  However, bus service ticket sales only
generated on an average less than 6 percent of total operating
costs, or $860,000 per year.  By implementing the recommendations
made in this and previous reports, the Department could reduce
bus operations costs and related subsidies by approximately $7.2
million per year, or $36 million over five years.
 
     These savings could be realized by making the Laboratory's
bus operations smaller and less costly to operate.  Reducing the
number of active buses from 120 to 73, for example, could save
the Department about $6.0 million per year ($128,000 per bus
times 47 buses) in bus service costs and related subsidies, which
include about $1.5 million per year in bus operations overtime
costs.  Additionally, an increase to the cost of a round-trip bus
ticket (from $1.00 to $3.00, for example) to reflect increased
operating costs could save an additional $1.2 million per year.
In fact, the Department significantly reduced its bus service
subsidy at the Nevada Test Site when the contractor increased the
price of a bus ticket from $2.00 per round-trip to $4.00 per
round-trip effective May 20, 1996.
 
                            PART III
                                
                 MANAGEMENT AND AUDITOR COMMENTS
                                
     In responding to the official draft report, management
partially concurred with recommendation 1 and concurred with
recommendations 2, 3, and 4.  However, management did not provide
proposed actions and completion dates for these recommendations.
A summary of management comments and our replies follows.
 
Recommendations
 
     Management Comments.  Management partially concurred with
recommendation 1, stating that a recommendation to require
Lockheed to implement Idaho's prior recommendations regarding a
park and ride system, overtime, and ticket prices is too
specific.  Management added that the proposed actions deserve
more evaluation as to their viability, including implementation
challenges and paybacks.  Furthermore, management stated that a
reduction in overtime costs is a labor contract issue,
conflicting park and ride studies and recommendations need to be
analyzed and resolved, and the impact of increased ticket prices,
and the level of increase, have not yet been analyzed.
Management, therefore, proposed that this recommendation be
changed to allow Idaho an opportunity to further study the
specific actions recommended by the OIG.
 
     Auditor Comment.  We have interpreted management's response
as a nonconcurrence.  This recommendation was intended to
encourage Idaho to follow through on its own prior studies and
determinations regarding cost-effective bus operations.  If Idaho
is unwilling or unable to bring pressure to bear on the
contractor to implement its own recommendations, the usefulness
of those recommendations, and the studies which produced them, is
called into question.  The results of this audit, however,
support Idaho's prior conclusions that many opportunities exist
to reduce the costs incident to bus operations.  Further, based
on the audit, the OIG does not support further study of the park
and ride issue.  The audit fully supports the 1995 Lockheed study
which concluded that the Department could save about $2.0 million
per year on bus operations costs by implementing a park and ride
system.  Finally, management's comment that the impact of
increased ticket prices, and the level of increase, needs to be
analyzed is valid, but a target date for taking this action needs
to be established.
 
     The OIG fully agrees that bus operations overtime is a labor
contract issue.  We do not agree, however, that Idaho has no
control over this issue based on actions that Idaho has already
taken and can take in the future to minimize these costs.
Specifically, Idaho expressed its concern over the costly nature
of overtime costs during contract negotiations between Lockheed
and the Amalgamated Transit Union in August 1996.  As a result of
expressing this concern, the overtime clause in the former
contract was changed in the current four year contract that was
ratified in September 1996.  Additionally, the action that Idaho
has already taken should enable Lockheed to minimize bus
operations overtime costs in the future.
 
     Management Comment.  Management concurred with
recommendations 2, 3, and 4, but did not provide a corrective
action plan and target dates for implementing the
recommendations.
 
     Auditor Comments.  Management comments are responsive to the
recommendations.  However, management should prepare a proposed
Departmental position which states the corrective actions taken
or planned and the target dates for completing each
recommendation.
 
 
IG Report No. WR-B-97-02
 
 
                     CUSTOMER RESPONSE FORM
                                
The Office of Inspector General has a continuing interest in
improving the usefulness of its products.  We wish to make
our reports as responsive as possible to our customers'
requirements, and therefore ask that you consider sharing
your thoughts with us.  On the back of this form, you may
suggest improvements to enhance the effectiveness of future
reports.  Please include answers to the following questions
if they are applicable to you:
 
1.  What additional background information about the
  selection, scheduling, scope, or procedures of the
  audit or inspection would have been helpful to the
  reader in understanding this report?
 
2.  What additional information related to findings and
  recommendations could have been included in this report
  to assist management in implementing corrective actions?
 
3.  What format, stylistic, or organizational changes
  might have made this report's overall message more clear
  to the reader?
 
4.  What additional actions could the Office of Inspector
  General have taken on the issues discussed in this
  report which would have been helpful?
 
Please include your name and telephone number so that we may
contact you should we have any questions about your
comments.
 
Name ____________________________ Date______________________
 
Telephone _______________________ Organization______________
___
 
When you have completed this form, you may telefax it to the
Office of Inspector General at (202) 586-0948, or you may
mail it to:
 
     Office of Inspector General (IG-1)
     U.S. Department of Energy
     Washington, D.C. 20585
     ATTN:  Customer Relations
 
If you wish to discuss this report or your comments with a
staff member of the Office of Inspector General, please
contact Wilma Slaughter at (202) 586-1924.