MEMORANDUM FOR THE SECRETARY
 
FROM:                John C. Layton
                     Inspector General
 
SUBJECT:             INFORMATION:  Report on "Audit of
                     Environmental Restoration at the Los Alamos 
                     National Laboratory"
 
BACKGROUND:
 
The Los Alamos National Laboratory (Los Alamos) Environmental
Restoration Program was primarily monitored by the U.S.
Environmental Protection Agency (EPA) and the New Mexico
Environment Department (NMED).  However, in 1995, the Department
of Energy (DOE) and Los Alamos adopted a performance-based
management approach to contracting to hold Los Alamos more
accountable for its Environmental Restoration Program.
 
At Los Alamos, the Environmental Restoration Program's mission is
to remediate sites contaminated with various forms of hazardous,
radioactive, and mixed waste produced by past research and
development projects.  From Fiscal Year (FY) 1991 through FY
1996, Los Alamos spent approximately $386 million on
environmental restoration.  Of the $386 million, 79 percent, or
$305 million, was spent on assessment and program management and
21 percent, or approximately $81 million, was spent on
remediation and decommissioning activities.  Of the $81 million
spent on such activities, $45 million was spent in FY 1996.
 
DISCUSSION:
 
One goal of Los Alamos' Environmental Restoration Program is to
expeditiously and cost effectively remediate contaminated sites.
To monitor progress toward this goal, the University of
California (University) and DOE negotiated eight performance
measures.  The objective of the audit was to determine whether
the contract performance criteria were reasonable, measurable,
and complete, thereby allowing DOE to determine if Los Alamos had
effectively remediated contaminated sites.
                                2
                                
The audit determined that Los Alamos did not generate the
information needed to assess the cost effectiveness of
remediation on a site-by-site basis.  This situation occurred
because the performance criteria used to evaluate cost
effectiveness were not always reasonable, measurable, and
complete.  As a result, neither Los Alamos nor DOE could evaluate
the cost effectiveness or progress of the remediation program or
accurately budget for upcoming remediation activities.  The audit
also determined that Los Alamos' sample validation procedures
were too costly because Los Alamos validated more samples than
called for by Federal and New Mexico standard practices.  While
the Office of Inspector General recognizes the importance of
prudent sample validation, Los Alamos paid $540,000 more than
necessary to validate sample results.  These funds could have
been better used to remediate contaminated sites.
 
We recommended that the Manager, Albuquerque Operations Office
(1) require Los Alamos to track detailed cost data; (2) incorporate a
performance measure that would evaluate how well actual costs 
compare to planned baseline cost data; and (3) require Los Alamos to 
follow the guidance established by the EPA and the NMED for data 
validation.
 
Management concurred with the recommendations and agreed to
implement substantive changes to Los Alamos' Environmental
Restoration Program.
 
Attachment
 
cc:  Deputy Secretary
     Under Secretary
                    
                    
                    U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
 
 
                                
            AUDIT OF ENVIRONMENTAL RESTORATION AT THE
 
                 LOS ALAMOS NATIONAL LABORATORY
 
 
 
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Report Number:  DOE/IG-0410      Western Regional Audit Office
Date of Issue:  July 15, 1997    Albuquerque, New Mexico 87185
            
            
            AUDIT OF ENVIRONMENTAL RESTORATION AT THE
                 LOS ALAMOS NATIONAL 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...........  4
 
            Cost Effectiveness of the Environmental 
            Restoration Program at the Los Alamos National
            Laboratory............................  4
 
PART III - MANAGEMENT AND AUDITOR COMMENTS......... 9
 
PART IV - APPENDIX................................. 11
 
                    U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
                    OFFICE OF AUDIT SERVICES
 
            AUDIT OF ENVIRONMENTAL RESTORATION AT THE
                 LOS ALAMOS NATIONAL LABORATORY
 
Audit Report Number:  DOE/IG-0410
 
                             SUMMARY
 
     Los Alamos' Environmental Restoration Program is charged
with cost effectively remediating contaminated sites.  To monitor
progress toward this goal, the University of California, the
contractor operating Los Alamos, and the Department negotiated
eight performance measures.  The objective of this audit was to
determine whether the contract performance criteria were
reasonable, measurable, and complete, thereby allowing the
Department to determine if Los Alamos had expeditiously and cost
effectively remediated contaminated sites.
 
     The audit determined that Los Alamos did not generate the
information needed to assess the cost effectiveness of
remediation on a site-by-site basis.  This situation occurred
because the performance criteria used to evaluate cost
effectiveness were not always reasonable, measurable, and
complete.  As a result, neither Los Alamos nor the Department
could evaluate the cost effectiveness or progress of the
remediation program or accurately budget for upcoming remediation
activities.  The audit also determined that Los Alamosm sample
validation procedures were too costly because Los Alamos
validated more samples than called for by Federal and New Mexico
standard practices.  While the Office of Inspector General
recognizes the importance of prudent sample validation, Los
Alamos paid $540,000 more than necessary to validate sample
results.  These funds could have been used to remediate
contaminated sites.
 
     We recommended that the Manager, Albuquerque Operations
Office (Albuquerque) (1) require Los Alamos to track detailed 
cost data, (2) incorporate a performance measure that would 
evaluate how well actual costs compare to planned baseline cost 
data, (3) require Los Alamos to follow the guidance established 
by the Environmental Protection Agency (EPA) and the New Mexico
Environment Department (NMED) for data validation.  Albuquerque
concurred with the recommendations.
 
 
                                 
                                 _______/signed/__________________
                                 Office of Inspector General
                             
                             
                             PART I
 
                      APPROACH AND OVERVIEW
 
INTRODUCTION
 
     The University and the Department negotiated a contract
which included performance measures.  These measures would
function as standards against which the University's performance
of administrative and/or managerial obligations would be
assessed.  In addition, the measures would be used to evaluate
whether Los Alamos' Environmental Restoration Program
expeditiously and cost effectively remediated contaminated sites.
The purpose of this audit was to determine whether the
performance measures included in the contract were reasonable,
measurable, and complete, and; therefore, would make Los Alamos
accountable for expeditiously and cost effectively remediating
contaminated sites.
 
SCOPE AND METHODOLOGY
 
     The audit was conducted at Los Alamos from July 29, 1996,
through December 3, 1996.  To accomplish the audit objective, we:
 
     o  reviewed the prime contract between the Department and 
        the University relating to the terms and conditions of 
        the contract;
     
     o  reviewed laws and regulations as they applied to
        environmental restoration;
     
     o  interviewed EPA and NMED officials responsible for
        monitoring the Los Alamos Environmental Restoration 
        Program;
     
     o  reviewed reports and general guidance pertinent to
        performance-based contracts and performance measures; 
        and,
 
     o  interviewed Los Alamos Area Office and Albuquerque 
        personnel responsible for management of Los Alamos' 
        Environmental Restoration Program.
 
     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.  We did not rely on computer-generated data in
developing this audit because such data did not appear to reflect
actual occurrences and transactions.  Because our review was
limited, it would not necessarily have disclosed all internal
control deficiencies that may have existed at the time of the
audit.  An exit conference was held with Albuquerque officials on
December 19, 1996.  Followup meetings with Albuquerque were held
on April 1 and April 18, 1997.
 
BACKGROUND
 
     The Los Alamos Environmental Restoration Program was
primarily monitored by the EPA and the NMED.  In 1995, however,
with the adoption of the performance-based management approach to
contracting, the Department began to hold Los Alamos accountable
for the achievement of program objectives.
 
     At Los Alamos, the Environmental Restoration Program focuses
on remediating sites that were contaminated with items like
hazardous, radioactive, and mixed waste produced by past research
and development projects.  From Fiscal Year (FY) 1991 through FY
1996, Los Alamos spent approximately $386 million on
environmental restoration.  Of the $386 million, 79 percent, or
$305 million, was spent on assessment and program management and
21 percent, or approximately $81 million, was spent on
remediation ($48 million) and decommissioning activities ($33
million).
 
OBSERVATIONS AND CONCLUSIONS
 
     In numerous discussions throughout the audit, officials from
Albuquerque's Environmental Restoration Division expressed their
desire to work with Los Alamos toward improving performance
measures.  These officials stated that while the measures agreed
to in Fiscal Years 1995 and 1996 were a good starting point,
future refinements were needed to assure that environmental
restoration goals were cost effectively and expeditiously met.
In his response to an earlier draft of this report, Albuquerque's
Assistant Manager for Environment/Project Management also
suggested additional techniques for improving financial
accountability, including the implementation of a work
authorization procedure for environmental restoration work.
While we did not specifically examine the merits of a work
authorization system during the audit, we support mechanisms to
ensure the authorization of specific remediation tasks and
related internal controls that help assure accountability.  We
were appreciative of management's comments regarding its
commitment to enhancing cost effective cleanup at Los Alamos.
 
                             PART II
                                
                   FINDING AND RECOMMENDATIONS
 
 Cost Effectiveness of the Environmental Restoration Program at
                               the
                  Los Alamos National Laboratory
 
FINDING
 
     The contract between the University and the Department
requires Los Alamos to expeditiously and cost effectively
remediate contaminated sites.  To monitor progress toward this
goal, the parties negotiated eight performance measures.  The
audit determined, however, that Los Alamos did not generate the
information needed to assess whether specific sites were
remediated in a cost effective manner. This situation occurred
because the performance criteria used to evaluate cost
effectiveness were not always reasonable, measurable, and
complete.  As a result, neither Los Alamos nor the Department
could evaluate the cost effectiveness or progress of the
remediation program or accurately budget for upcoming remediation
activities.  The audit also showed that Los Alamosm sample
validation procedures were not cost effective because Los Alamos
validated more samples than called for by Federal and New Mexico
standard practices.  Los Alamos paid up to $540,000 more than 
necessary to validate results.  These funds could have been used 
to remediate contaminated sites.
 
RECOMMENDATIONS
 
     We recommend that the Manager, Albuquerque Operations
Office:
 
       Require Los Alamos to provide actual detailed remediation
       cost data on a site-by-site basis.
 
       Incorporate a performance measure that would evaluate how
       well actual costs compare to planned baseline cost data.
 
       Require Los Alamos to follow the guidance or tolerances
       established by the EPA and the NMED for data validation.
 
MANAGEMENT REACTION
 
     Albuquerque concurred with the recommendations.  Management
comments are summarized in Part III.
                       
                       DETAILS OF FINDING
 
     In 1993, the Secretary of Energy formed a Contract Reform
Team to evaluate the Department's contracting practices and to
formulate specific proposals for improving those practices.
Their results were published in Making Contracting Work Better
and Cost Less, which noted several weaknesses in the Department's
contracting system and encouraged the use of performance-based 
contracts.  In discussing performance-based contracts, the report 
identified key elements including the necessity to have:
 
     o clearly stated, results-oriented performance criteria and
       measures; and,
 
     o improved financial accountability.
 
     The need to measure performance is also addressed in the
Government Performance and Results Act of 1993.  In addition, the
Information Technology Management Reform Act of 1996 requires
each Federal agency to benchmark, where possible, its performance
in terms of cost, speed, productivity, and quality of outputs and
outcomes.  Also, the Chief Financial Officers Act of 1990
requires that each Federal agency develop and maintain an
integrated agency accounting and financial management system
including financial control which provided for the systematic
measurement of performance.
   
     In negotiating the contract for Los Alamos, the Department
and the University agreed to include performance objectives and
measurements.  One overall objective was that Los Alamos'
Environmental Restoration Program would expeditiously and cost
effectively remediate contaminated sites.  In addition, the
University was required to maintain "current cost information to
reflect the cost of performing the work . . . ."  Finally, the
contract stipulated that if the University did not meet specified
baseline objectives, the Department could modify the contract.
This modification would allow the Department to seek alternative
management mechanisms for the Environmental Restoration Program.
 
DETAILED COST DATA
 
     Although Los Alamos budgeted for remediation on a site-by-
site basis, it did not track detailed cost data needed to assess
the cost effectiveness of specific remediated sites or
activities.  In addition, sample validation, the one related
activity with traceable cost data, was not cost effective.
 
     Los Alamos used a baseline document, which included detailed
cost estimates by remediation site, to request funds for its
Environmental Restoration Program.  After receiving the funds,
however, Los Alamos tracked and reported costs in the aggregate
rather than breaking the costs down by site.  Consequently, site-
by-site evaluation of cost effectiveness was impossible.  A
review of ten remediated sites, for example, showed that Los
Alamos did not have detailed data to support the costs of four
common remediation activities (1) planning, (2) assessment,
(3) characterization, and (4) actual clean up.  As a result, Los
Alamos did not have the detailed data necessary to conduct
meaningful comparisons between estimated baseline costs and
actual costs.
 
     The audit confirmed the results of a 1995 Independent
Technical Review of the Environmental Restoration Program.  This
review also showed that the lack of historical cost data
prevented comparisons of the estimated cost of remediation with
actual costs.  Without such comparisons, the cost effectiveness
of specific remediation activities cannot be determined.  We
discussed the need for tracking and reporting detailed costs with
Los Alamos officials.  They stated that achieving this level of
accountability would cost approximately $1 million and 10 full
time equivalents.  Los Alamos could not fully document the
expenditures it claimed would be necessary to enhance
accountability for remediation costs.  However, even if the Los
Alamos estimate is accurate, the benefits may be well worth the
costs given the magnitude of future environmental remediation
expenditures.
 
     Difficulties in determining actual site specific costs were
further compounded because Los Alamos replaced 26 of the 52 
individual sites that it had originally agreed to remediate during 
FY 1996.  While these substitutions may have been necessary for 
technical or programmatic reasons, they were made without the 
Department's prior approval.  Further, the Department could not 
document whether the substituted sites compared favorably to the 
original sites either in cost or priority ranking.  In fact, a Los 
Alamos official stated that many of the 26 substitutions were made 
based on the need to meet a numeric quota for specific site
remediations, not because of scientific or technical reasons.
These substitutions, combined with the absence of detailed cost
data, render impossible a judgment on whether the $29 million
spent on remediation activities during FY 1996 represented
optimal use of the Department's environmental restoration funds.
 
PERFORMANCE MEASURES
 
     The inability to assure cost effective site redemption
occurred because the performance criteria used by the Department
and Los Alamos were not always reasonable, measurable, and
complete.  Reasonable and objective performance measures would
have included benchmarks based on historical data or estimates.
However, the Department negotiated the performance measures for
the number of sites to be remediated prior to the completion of a
baseline document which included such estimates.  The baseline
ultimately provided the number of sites (52) to be remediated in
FY 1996, as well as a detailed cost estimate for each site.
However, the baseline document was not available until
approximately one month after the performance measures had been
negotiated  As a result, the performance measures did not appear
to use the information available in the baseline document and
were not reasonable as to the number of sites to be remediated
for the year.
 
     For performance measures to be effective, both the
Department and Los Alamos needed accurate and timely information
on actual costs.  However, the Los Alamos performance measures
for financial accountability did not produce results-oriented
data.  Performance measure number 6, for instance, required Los
Alamos to compare planned to actual cost. However, the Department 
did not require Los Alamos to collect the detailed cost data 
necessary to perform the required comparison.  Performance measure 
number 6, therefore, could not produce any results-oriented measure-
ments that would allow the Department to determine whether specific 
remediation activities were cost effective.
 
     Finally, the performance measures were not complete.  For
completeness, one or more of Los Alamos' performance measures
should have contained a rating factor on financial
accountability.  However, no performance measure included any
cost effectiveness rating factors even though cost effective
remediation was an overall goal.
 
FINANCIAL ACCOUNTABILITY
 
     Since Los Alamos did not provide detailed cost data, neither
the Department nor Los Alamos could determine whether specific 
remediation activities were performed in a cost effective manner.  
The Department also needs detailed cost data in order to compare the
cost of remediation projects at Los Alamos to the costs incurred
for remediation projects at other Department facilities and the
private sector.  Such comparisons would enable the Department to
determine if its remediation funds are spent cost effectively and
whether its environmental restoration expenditures are being
optimized.  Finally, without this cost data, the Department
cannot realistically budget for future remediation projects.
 
SAMPLE VALIDATION
 
     In contrast to its practice of not tracking site-specific
cost data, Los Alamos maintained detailed cost information
related to sample validation.  This data showed, however, that
sample validation was not cost effective.  Los Alamos' validation
practices were, in fact, excessive and duplicative.  For example,
Los Alamos routinely validated 90 to 100 percent of sample data
returned from analytical laboratories.  Further, in order to meet
reporting deadlines, Los Alamos routinely performed in-house data
validation while simultaneously paying to have the same data
validated by a local subcontractor.  Since both validations
produced the same results, the duplication of effort did not
provide added value.
 
     Los Alamos did not use guidance available from the EPA or
NMED to establish its validation program or procedures.  An EPA
official stated that the EPA validates about 10 percent of its
sample data from remediation sites and generally considers this
level acceptable.  The EPA's "Quality Assurance/Quality Control
Guidance" most stringent requirement for validation efforts was
to validate at least 10 percent of the data.  Moreover, a
Headquarters Department official stated that Departmental policy
was to comply with guidelines established by the NMED.  New
Mexico's guidelines incorporated EPA's standards.  Although an
NMED official noted that an acceptable level of validation was a
gray area, he stated that the EPA notified his department that at
least 10 percent of sample data should be validated.
 
     Los Alamos spent more than necessary for sample validation.
For instance, although Los Alamos planned to spend only $300,000
for data validation, it actually spent $600,000 in
FY 1996.  Validating 10 percent of the samples, criteria
acceptable to EPA and NMED, would have saved Los Alamos
approximately 90 percent of the $600,000 actual costs paid to a
local subcontractor for data validation, or $540,000.  We
recognize that data validation is an important aspect of a
successful cleanup program.  Nevertheless, unnecessary
expenditures on validation take away funds that might otherwise
be available for direct remediation of contaminated sites.
                            
                            
                            PART III
 
                 MANAGEMENT AND AUDITOR COMMENTS
 
     Albuquerque's Assistant Manager for Office of
Environment/Project Management commented on the report and
concurred with the recommendations.  The Assistant Manager's
comments are summarized below.
 
Recommendation 1
 
Require Los Alamos to provide actual detailed remediation cost
data on a site-by-site basis.
 
Management Comments.  Albuquerque concurred, indicating that Los
Alamos will be required to provide detailed cost data on a site-
by-site basis for remediation sites.  According to the Assistant
Manager, collecting all costs at a lower level may not be a cost
effective effort.  Therefore, the Department will proceed first
with the limited approach of collecting costs for higher value
remediations, and then evaluating the results to determine cost
effectiveness.  The sites that will be targeted for this effort
will be the sites that Los Alamos contracts out under a fixed
price or fixed unit price subcontract.  Costs for these sites
will be collected at the next Work Breakdown Structure level
below the site level.  Contracts for remediation will be modified
to require the Los Alamos subcontractors to collect and report
these costs at this lower level.  This information will be
reported by Los Alamos quarterly.
 
Auditor Comments.  Albuquerque's comments and proposed actions
are responsive to the recommendation.
 
Recommendation 2
 
Incorporate a performance measure that would evaluate how well
actual costs compare to planned baseline cost data.
 
Management Comments.  Albuquerque concurred, stating that Los
Alamos and the Department plan to develop an appropriate
performance measure for FY 1998.  According to the Assistant
Manager, the performance measure will focus on the goal of
determining whether Los Alamos is expending funds in accordance
with the Department-approved baseline.
 
Auditor Comments.  Albuquerque's comments and proposed actions
are responsive to the recommendation.
 
Recommendation 3
 
Require Los Alamos to follow the guidance established by the EPA
and the NMED for data validation.
 
Management Comments.  Albuquerque concurred.  According to the
Assistant Manager, the Department has a benchmarking study
underway on the sample management operations of
Los Alamos, Sandia National Laboratories, and Pantex.  The
objective of the study is to determine if the data validation
efforts by the three facilities are appropriate.  The study will
determine if Los Alamos is performing the appropriate level of
data validation while following relevant guidance.
 
Auditor Comments.  Albuquerque's comments and proposed actions
are responsive to the recommendation.
 
Cost Savings
 
Albuquerque concurred with the OIG's estimated monetary impact.
 
                             PART IV
                                
                            APPENDIX
 
        Related Office Of Inspector General Audit Reports
                                
DOE/IG-0293 - Audit of Testing Laboratory Support to the
              Environmental Survey Program
 
DOE/IG-0294 - Environmental Training at the Department of Energy
 
DOE/IG-0298 - Department of Energy's Waste Minimization Program
 
DOE/IG-0401 - Inspection of the Performance Based Incentive
              Program at the Richland Operations Office
 
WR-B-94-06 -  Subcontracting for Environmental Services at Los
              Alamos National Laboratory
 
 
 
Report No. DOE/IG - 0410
 
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