June 24, 1997
 
 
MEMORANDUM FOR THE SECRETARY
 
 
FROM:          John C. Layton
               Inspector General
 
 
SUBJECT:       INFORMATION:  "Audit of Shutdown and
               Transition of the Mound Plant"
 
 
BACKGROUND:
 
The end of the Cold War has allowed the Department of Energy
(Department) to reduce weapons production and consolidate
operations throughout the nuclear weapons complex.  As part
of this consolidation, the Department has either transferred
or is planning to transfer all weapons-related and
production activities at the Mound Plant to other
Departmental facilities.  The objective of this audit was to
determine if the shutdown and transition of the Mound Plant
was progressing efficiently and effectively.  More
specifically, the audit was to determine if it was in the
best interests of the Department and the Government to keep
a portion of the Mound Plant open solely to support the
assembling and testing of isotopic heat sources and
radioisotope thermoelectric generators (HS/RTG).
 
DISCUSSION:
 
The Nonnuclear Consolidation Plan envisioned consolidating
all of the Departments nonnuclear activities at the Kansas
City Plant and closing the Mound and Pinellas Plants.
Although all weapons related work and production
capabilities at the Mound Plant have either ceased or will
cease in the near term, the Office of Nuclear Energy,
Science and Technology (Nuclear Energy) plans to continue
assembling and testing HS/RTGs at the Mound Plant.  Nuclear
Energy decided to continue its operations at the Mound Plant
without adequately considering the Departments overall
economic goals.  As a result, the Department may incur $4
million to $8.5 million more than necessary each year to
continue HS/RTG operations at the Mound Plant.
Additionally, if the HS/RTG operations remain at the Mound
Plant, the Department will spend at least $3 million to move
the operations into new facilities.  Thus, we recommended
that the Director, Nuclear Energy suspend the consolidation
of HS/RTG activities at the Mound Plant and transfer the
function to the alternate Departmental site which is most
economically advantageous.
 
cc:  Deputy Secretary
      Under Secretary
                              
                  
                  
                  U.S. DEPARTMENT OF ENERGY
                 OFFICE OF INSPECTOR GENERAL
 
                 
 
              AUDIT OF SHUTDOWN AND TRANSITION
                              
                     OF THE MOUND PLANT
                              
 
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                     U.S. DEPARTMENT OF ENERGY
                     OFFICE OF INSPECTOR GENERAL
 
 
 
 
 
               AUDIT OF THE SHUTDOWN AND TRANSITION 
                       OF THE MOUND PLANT 
 
 
 
 
Report Number: DOE/IG-0408      Eastern Regional Audit Office
Date of Issue:  June 24, 1997   Oak Ridge, TN  37830
 
 
 
               AUDIT OF SHUTDOWN AND TRANSITION
                     OF THE MOUND PLANT
                              
 
 
 
 
                      TABLE OF CONTENTS
 
 
 
                                                       Page
 
SUMMARY . . . . . . . . . . . . . . . . . . . . . .     1
 
PART I -  APPROACH AND OVERVIEW  . . . . . . . . . .    3
 
          Introduction  . . . . . . . . . . . . . .     3
 
          Scope and Methodology . . . . . . . . . .     3
 
          Prior Audit Reports  . . . . . . . . . . .    4
 
          Background  . . . . . . . . . . . . . . .     5
 
PART II - FINDING AND RECOMMENDATIONS . . . . . . .     6
 
          Continued Operation of the Heat Source/RTG 
          at the Mound Plant . .. . ... . . . . .. .    6
                                   
PART III - MANAGEMENT AND AUDITOR COMMENTS . . . . . . 12
 
 
 
 
 
 
 
                  U.S. DEPARTMENT OF ENERGY
                 OFFICE OF INSPECTOR GENERAL
                  OFFICE OF AUDIT SERVICES
                              
                              
                              
              AUDIT OF SHUTDOWN AND TRANSITION
                     OF THE MOUND PLANT
 
 
Audit Report Number:  DOE/IG-0408
 
 
                           SUMMARY
                              
     With the end of the Cold War, the Department of Energy
(Department) has greatly reduced the production of nuclear
weapons and redirected the capabilities and focus of the
weapons complex.  As part of this redirection, the Mound
Plant was transferred from a Defense Program site to an
Environmental Management site with emphasis on accelerated
cleanup and transition of facilities and personal property
to the local community.  We initiated this audit to
determine if the shutdown and transition of the Mound Plant
was progressing effectively and efficiently.
 
     The Department prepared a Nonnuclear Consolidation Plan
(NCP) designed to reduce its costs of operation by closing
and consolidating facilities.  In contrast to the goal of
the NCP, the Department plans to keep a portion of the Mound
Plant open solely to perform work for other Federal
agencies.  Specifically, the Department has decided to
continue assembling and testing isotopic heat sources and
radioisotope thermoelectric generators (HS/RTG) at the
Mound Plant despite the transfer or planned transfer of all
other production operations.  The Office of Nuclear Energy,
Science and Technology decided to continue its HS/RTG operations 
at the Mound Plant without adequately considering the overall 
economic goals of the Department.  As a result, the Department 
may not achieve the savings envisioned by the NCP.  Also, the 
Department may incur between $4 million and $8.5 million more 
than necessary each year to continue its HS/RTG operations at the
Mound Plant.  Additionally, if the HS/RTG operations stay at the 
Mound Plant, the Department will spend more than $3 million to 
consolidate these operations into one location.
 
     Management did not respond formally to the official draft 
of this report despite an extended comment period.  However, in 
response to an earlier draft, management neither concurred nor
nonconcurred with the recommendations in the report.  Management 
stated that continuing HS/RTG work at the Mound Plant was a 
prudent decision supportable by economic, environmental, and 
safety data analyses.  However,  management recently committed 
to take a strategic look at the operations associated with the space
and terrestrial power systems throughout the Department of
Energy complex, including the Mound Plant.
 
 
 
                                        (Signed)
                                Office of Inspector General
                           
                           
                           PART I
                              
                    APPROACH AND OVERVIEW
 
 
INTRODUCTION
 
     The end of the Cold War has allowed the Department of
Energy (Department) to reduce weapons production and
consolidate operations throughout the nuclear weapons
complex.  As part of this consolidation, the Department has
either transferred or is planning to transfer all weapons
related and production activities at the Mound Plant to
other Departmental facilities.  The new emphasis at the
Mound site is accelerated cleanup and the transfer of
facilities and property to the local community.  The
objective of this audit was to determine if the shutdown and
transition of the Mound Plant was progressing efficiently
and effectively.  More specifically the audit was to
determine if it was in the best interests of the Department
and the Government to keep a portion of the Mound Plant open
solely to support the HS/RTG operations.
 
 
SCOPE AND METHODOLOGY
 
     The audit was performed at the Mound Plant in
Miamisburg, Ohio, from August 27, 1996, through February 19, 1997.  
To accomplish the audit objective, we:
 
     o Reviewed the Department's Nonnuclear Consolidation
       Plan;
     
     o Reviewed Departmental assessments of the Isotope Power
       Systems Program;
     
     o Held discussions with personnel from the Ohio Field
       Office, Miamisburg Area Office, and  Departmental
       Headquarters personnel and Los Alamos National Laboratory
       rregarding plans for assembling and testing HS/RTG.
     
     o Examined documentation detailing the Department's plans
       for the HS/RTG operations; and
     
     o Evaluated the Department's decision to keep HS/RTG 
       assembly and test operations at the Mound Plant.
     
    The audit was performed in accordance with generally accepted 
Government auditing standards for performance audits and included 
tests of internal controls and compliance with laws and regulations 
to the extent necessary to satisfy the audit objective. Accordingly, 
we assessed Departmental controls over HS/RTG assembly and testing 
operations at the Mound Plant.  Because our 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 conduct a 
reliability assessment of computer-processed data because only a very 
limited amount of computer-processed data was used during the audit.
 
    The audit disclosed a material internal control weakness that
that management should consider when preparing its yearend assurance 
memorandum on internal controls.  Management did not respond to 
the official draft report that was due to us by June 13, 1997.  
Consequently, we are incorporating management's response to the 
initial draft of the report.
 
 
PRIOR AUDIT REPORTS
 
     The Office of Inspector General has issued several
reports dealing with the restructuring of the nuclear
weapons complex and its affects on the Mound Plant.  In
report DOE/IG-0328, Audit of Mound Plant's Reduction in
Force, we concluded that the lack of Departmental guidelines
contributed to excessive costs for the Mound Plant's FY
1992 reduction in force and the approval of inconsistent
employee benefits among Departmental sites.  In report ER-B-
94-03, Audit of Production Decline and Nonnuclear
Consolidation at the Mound Plant, we determined that EG&G
Mound Applied Technologies, Inc., did not reduce staffing
commensurate with workload, and did not delay or cancel
capital projects in response to the NCP.  In report DOE/IG-
0360, Audit of the Transfer of Government-Owned Property at
the Mound and Pinellas Plants, we determined that the
Department planned to transfer or otherwise make available
to economic development initiatives personal property that
had Defense Program requirements or had not been properly
screened for other needs.  In report ER-L-97-02, Audit of the 
Department of Energy's Economic Development Activities at the 
Pinellas, Mound, and Rocky Flats Plants, we concluded that the 
Department's new draft guidance, along with actions taken in 
response to prior audits, should enable the Department to 
achieve its long-term economic development goals.  In report 
ER-B-97-02, Audit of the Department of Energy's Grant for Economic
Development at the Mound Plant, we determined that, contrary
to Federal regulations, the Department advanced the City of
Miamisburg, Ohio, $2.6 million more than the minimum funds
needed to meet immediate cash requirements, and most of the
funds were maintained in non-interest-bearing accounts.
 
 
BACKGROUND
 
     The Mound Plant, located in Miamisburg, Ohio,
traditionally has been a Department-owned, contractor-
operated facility, operated in support of nuclear weapon
production and research and development.  Currently, there
are only two ongoing production operations at the Mound
Plant--the Tritium Weapons Program and the Isotope Power
Systems Program.  The Tritium Weapons Program
is expected to be completed by March 1998.  However, the
Department has decided to continue the Isotope Power
Systems Program at the Mound Plant into the
foreseeable future.
 
     The Isotope Power Systems Program involves the production of
HS/RTGs for the National Aeronautic and Space Administration 
(NASA) and the Department of Defense (DOD).  Under the Atomic 
Energy Act of 1954, as amended, the Department has the authority 
and responsibility to develop and produce such systems for user 
agencies and to assure the safety of these radioactive materials 
and the devices that utilize them.  Other Departmental facilities
involved in the production of isotopic heat sources and RTGs
include the Los Alamos National Laboratory, Oak Ridge
National Laboratory and the Savannah River Site.  The
Department's Office of Nuclear Energy, Science and
Technology is responsible for this program.
 
     Total expendituresexpendetures for the HS/RTG operation
were about $60 million for FY 1996. The Department funded
$49.3 million while NASA and DOD contributed $9.3 million 
and $2.3 million, respectively, to the program.  Total HS/RTG 
expenditures at the Mound Plant were $14.2 million in FY 1996.  
The majority of expenditures at the Mound Plant in FY 1996 were 
for NASA's Cassini Space Mission.  The Mound Plant's support for 
the Cassini Space Mission is expected to be completed in mid-FY 1997.
 
     Although future HS/RTG requirements at the Mound Plant have 
not yet been funded, several DOD and NASA projects have been 
planned. The next mission at the Mound Plant is expected to be 
the DOD 50-watt project for which the Mound Plant will assemble 
and test 15 RTGs.  This project has not yet been officially approved.  
However, the Mound Plant is expected to get involved in preliminary 
design and fabrication during FY 1998.  The project is tentatively 
scheduled for completion in March 2006.  The next NASA project is 
the Pluto Express Mission.  If this mission is funded, the Mound
Plant will probably get involved around October 1999.  In
addition to these missions, DOD high-performance generators
are periodically sent to the Mound Plant for disassembling,
refurbishing, and assembling.  One of these generators is
expected to be reassembled at the Mound Plant in the second
half of FY 1998.
 
                           PART II
                              
                 FINDING AND RECOMMENDATIONS
                              
                              
Continued Operation of the Heat Source/RTG at
                       the Mound Plant
                              
                              
FINDING
 
     The goal of the Department's Nonnuclear Consolidation
Plan (NCP) was to reduce costs by closing one or more of its
nonnuclear facilities.  Specifically, the plan envisioned
consolidating all nonnuclear weapons activities at the
Kansas City Plant and closing the Mound and Pinellas Plants.
Although all weapons related work and production
capabilities at the Mound Plant have either ceased or will
cease in the near term, the Office of Nuclear Energy,
Science and Technology (Nuclear Energy) plans to continue
assembling and testing isotopic heat sources and RTGs at the
Mound Plant.  Nuclear Energy decided to continue its
operations at the Mound Plant without adequately considering
the Department's overall economic goals.  As a result, the
Department may not achieve the savings envisioned in the
NCP.  Also, the Department may incur $4 million to $8.5
million more than necessary each year to continue its
HS/RTG operations at the Mound Plant.  Additionally, if the 
HS/RTG operations remain at the Mound Plant, the Department 
will spend at least $3 million to move the operations into 
new facilities.
 
 
RECOMMENDATIONS
 
We recommend that the Director, Office of Nuclear Energy,
Science and Technology:
 
     1.   Suspend the consolidation of HS/RTG activities at 
          the Mound Plant.
 
     2.   Transfer the HS/RTG function to the alternate site 
          in the Department complex which is most
          economically advantageous.
 
 
MANAGEMENT REACTION
 
     Management did not provide a formal response to the
official draft of this report despite an extended comment
period.  However, in response to an earlier draft,
management neither concurred nor nonconcurred with
audit recommendations.  The Director, Office of Nuclear Energy,
Science and Technology, stated that it was a prudent
decision to continue the HS/RTG work at the Mound Plant and
that the decision was supportable by economic,
environmental, and safety data analyses.  However,
management stated that it recently committed to
take a strategic look at the operations associated with the
space and terrestrial power systems throughout the
Department, including the Mound Plant. Management's comments 
are summarized and addressed in Part III of this report.
                              
                     DETAILS OF FINDING
                              
                              
CONSOLIDATION OF NONNUCLEAR FACILITIES
 
     The primary goal of the Department's nonnuclear
consolidation was to reduce costs by closing facilities.  In
September 1991, the Department concluded that the Kansas
City Plant was the preferred alternative for consolidation
of the nonnuclear complex; and, as a result, all Defense
Program operations at the Mound and Pinellas Plants were
scheduled to be transferred.  The NCP acknowledged that some
""work-for-others,"" such as HS/RTG assembly and testing, was 
performed at the Mound Plant.  However, the NCP stated that it 
would be unreasonable to keep a plant funded by Defense Programs 
open just to benefit non-Defense Program customers.  The NCP 
further stated that a plant would be forced to remain open if 
only some, but not all, activities were transferred out of the 
plant.  In that case, the Department would not realize anticipated 
cost savings because plant overhead would still be incurred.
 
 
MOUND HS/RTG OPERATIONS
 
     Despite the fact that all other weapons related work
and production capabilities at the Mound Plant have either
ceased or will cease in the near term, the Department has
decided that assembly and testing of HS/RTGs will continue 
into the foreseeable future at the plant.  Additionally, the 
Department plans to make a significant capital investment in 
the HS/RTG operation at the plant.
 
     In October 1993, the General Accounting Office (GAO)
issued a report GAO/RCED-94-6, NUCLEAR SCIENCE -- More
Planning Needed to Support Future Needs for Electric Power
in Space.  The report recommended that the Department
examine the alternatives for long-term supply of RTGs in
view of the downsizing and closure of many of the facilities
where the fuel and components have been historically
produced.  The GAO was particularly concerned that the
HS/RTG assembly and testing operations at the Mound Plant 
could eventually be the only activity left at the site, and 
it would be solely responsible for paying the site's overhead 
costs.  However, in October 1994, the Department conducted 
an assessment in which it concluded that the heat source and 
RTG assembly and testing operations should continue into the 
foreseeable future at the Mound Plant.
 
     The Department plans to make a significant capital
investment at the Mound Plant to consolidate the HS/RTG operations 
into six buildings on the south hill of the facility.  The Mound 
Plant contractor expects to begin the consolidation in FY 1999.  
The operation is currently in 12 buildings.  However, its primary 
activities take place in two buildings.  The contractor submitted a
proposal to consolidate activities in the two primary
buildings into one building at a cost to the Department of
about $3 million.  The cost of the complete consolidation
had not been determined at the time of our review.
 
 
INCOMPLETE ANALYSIS
 
     Nuclear Energy based the decision to keep HS/RTG operations 
at the Mound Plant primarily on meeting NASA and DOD requirements 
without adequately considering the long-term economic goals of the 
Department. Nuclear Energy stated that the decision to keep HS/RTG 
assembly and testing operations at the Mound Plant was made as a 
result of an internal review of the program conducted in 1994.  The 
primary purpose of Nuclear Energy's internal review was to determine 
whether the Department could continue to supply NASA and DOD with
isotopic heat sources and RTGs.  The report addressed the
question of whether or not the changing mission of the Mound
Plant could adversely impact the Department's ability to
meet customer requirements.  Although the reviewers
concluded that from a technical capabilities perspective,
HS/RTG assembly and testing operations should remain at the 
Mound Plant, senior Nuclear Energy managers told us that the 
technical capabilities could be developed and performed at an 
alternate Department site.
 
     Nuclear Energy's internal review did not fully address
the anticipated savings that would be associated with the
complete shutdown of the Mound Plant and movement of the
HS/RTG operations to another facility. Specifically, adequate 
consideration was not given to: (1) preliminary cost information 
obtained from alternate sites, (2) potential savings attributable 
to reduced shipping costs, (3) downtimes during non-build years, 
or (4) support services costs at the Mound Plant.  Without a full 
and thorough consideration of these factors, we concluded that
the Department's decision makers did not have all the data
needed to make informed judgments on the most effective
location for future HS/RTG operations.
 
     Preliminary Cost Information.  Nuclear Energy obtained
preliminary information showing that the annual operating
costs of the HS/RTG operations at the Mound Plant might be 
substantially reduced if the operations were moved to an 
existing alternate site in the Department complex.  At Nuclear 
Energy's request, responsible officials at the Los Alamos 
National Laboratory (LANL), a site candidate, developed estimated 
operating costs that would be incurred by LANL if the Mound Plant 
function was transferred to them.  Based on LANL's information, and 
data provided by the Mound Plant, we estimated that the Department 
could save $4 million to $8.5 million in annual operating costs,
depending on the level of activity, by transferring the
operations from the Mound Plant to LANL.  Although Nuclear
Energy agreed that operating costs might be reduced by
performing the operations at another site, they felt that
LANL's site cost estimates were understated.  However, they
could not provide any analytical basis or documentation for
this conclusion.  Nuclear Energy managers also argued that
the Department could incur as much as $40 million in
initial costs to relocate the HS/RTG operation.  They 
indicated that these funds were not available in their budget.  
However, the Department did not prepare a formal cost estimate 
nor estimate how long it would take to recover these costs.  
While we recognize the difficulties of obtaining major budget 
commitments in the current environment, the lack of formal cost 
estimates would have undermined any request for such funds.
 
      Shipping Costs.  Nuclear Energy did not determine the
amount of shipping costs that could be saved if the
operations were moved to an alternate site.  Nuclear
components are currently shipped to the Mound Plant for
assembly in RTGs.  However, the Department would not have to
ship these components to LANL, the prime alternate site
identified in Nuclear Energy's 1994 internal review.
Nuclear Energy did not determine the annual cost of shipping
the nuclear components to the Mound Plant because it did not
consider the amount to be significant.  However, the
Albuquerque Operations Office estimated that, during FYs
1995 and 1996, the cost of shipping these components to the
Mound Plant were $390,000 and $845,000, respectively.
 
     Employee Downtime.  Nuclear Energy did not consider the
fact that leaving the RTG operations at the Mound Plant
would eventually result in unnecessary downtime for
employees working on the program.  Since FY 1982, the number
of full-time-equivalent employees charged to the Mound
Plant's HS/RTG operations fluctuated significantly from 
year to year.  This is shown in the following graph.
 
              (GRAPH NOT AVAILABLE ELECTRONICALLY)                
 
The workload fluctuations were dictated by the requirements
of other agency projects.  For example, NASAs
Galileo/Ulysses Missions and the more recent Cassini Space
Mission caused significant increases in the workload at the
Mound Plant during FYs 1983 through 1985 and FYs 1994
through 1996 respectively.  During the low production years
between the big NASA projects, the Mound Plant's HS/RTG 
employees downtime was redirected to work on
other production operations at the Mound Plant.  However,
all other production operations have been, or soon will be,
discontinued at the Mound Plant.  As a result, HS/RTG employees 
will no longer be able to work on other projects during their 
downtime.  Thus, during non-build years, the Department will 
incur the costs of maintaining this capability without any 
funding from NASA and DOD.  In our view, the fluctuations in 
historical workload and the need to keep employees productive 
through the availability of other assignments, supports an 
argument that the HS/RTG operation be located at an active
facility.
 
     Support Service Costs.  Nuclear Energy did not give
adequate consideration to the fact that the HS/RTG program 
at the Mound Plant could ultimately be responsible for 
absorbing all support services costs.  The transfer of 
production activities and the clean-up of the Mound Plant 
could result in a substantial increase in the HS/RTG program's 
overhead and landlord costs. During FY 1993, the Mound Plant 
contractor estimated that if the HS/RTG operations were 
handled as a stand-alone operation, the incremental increase 
in overhead and landlord costs to the program would be about 
$3.4 million during a build-year.  No support service costs 
were projected for a non-build year; however, it would stand to
reason that costs would still be high.be higher than for a
build year.  According to the estimate, the program would be
responsible for supporting 105 FTEs for indirect support and
overhead.  The 105 FTEs would include, for example, 40
administrative personnel, 19 engineers, and 10 firemen.
Thus, the Department would be required to maintain a costly
infrastructure to support a stand alone production facility.
This appears to be contrary to the Department's goal of reducing 
indirect infrastructure costs throughout the complex. 
 
 
ACHIEVING ECONOMIC GOALS
 
      Nuclear Energy's plans to continue the HS/RTG operations 
at the Mound Plant does not give adequate consideration to the 
long-term savings that could be achieved by moving the activity 
to another Department site.  As a result of continuing HS/RTG
operations at the Mound Plant, the Department may not achieve the 
savings envisioned in the NCP, and may incur $4 million to $8.5 
million more than necessary each year to assemble and test isotopic 
heat sources and RTGs.  Moreover, significant amounts of money 
will be expended for shipping nuclear components to the site; 
employee downtime that will be incurred during low productive 
years; and in increased support service costs.  Decommissioning 
activities currently taking place at the site will necessitate 
additional costs for consolidating operations from 12 to 6 buildings.  
As previously stated, Nuclear Energy has received a $3 million
estimate to consolidate two of the primary buildings into
one.  Although we were advised that this should be the bulk
of the consolidation costs, an estimate of the funds that
would be needed to complete the entire consolidation had not
been developed at the time of our review.
                              
                          PART III
                              
               MANAGEMENT AND AUDITOR COMMENTS
                              
     The Director, Office of Nuclear Energy, Science and 
Technology (Nuclear Energy) did not respond to the official 
draft of this report.  However, in response to
an earlier draft, management neither concurred nor
nonconcurred with our recommendations.  A summary of the
management's comments and our replies follows.
 
     Management Comments.  Overall, management felt that the 
decision to continue assembling and testing isotopic heat sources 
and radioisotope thermoelectric generators (HS/RTG) at the Mound
Plant was a prudent decision supportable by economic,
environmental, and safety data analyses conducted in three
separate reviews.  Also, management stated that the cost
savings of $4 million to $8.5 million presented in the
report were overstated.  Further, management stated that the
report did not give adequate consideration to estimated
costs of up to $40 million to relocate the operation and the
associated technologies.
 
     Auditor Comments.  During the audit, we considered the
three reviews referenced by management.  We found no economic
analyses in the reviews to support management's
decision to continue HS/RTG operations at the Mound Plant.
In fact, during the audit, management told us that no
detailed economic analysis was ever performed because the up-
front costs of transferring the operation to another site
were considered prohibitive.  Further, we found no evidence
in the reviews that transferring the operation to
another site posed any significant environmental or safety
hazards.  Finally, we do not feel that the estimated cost
savings identified in the report are overstated.  Our
estimate of annual savings associated with transferring the
operation to another Departmental site was based on
information gathered by Nuclear Energy management during
their reviews of the program.  These annual savings would be
used to offset the relocation costs.
 
                             IG Report No.  DOE/IG-0408
                                                       
                              
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