United States General Accounting Office

GAO Report to Congressional Requesters

July 1995 DEPARTMENT OF

ENERGY

Poor Property

Management Allowed

Vulnerability to Theft

at Rocky Flats

GAO/OSI-95-4

GAO United States

General Accounting Office

Washington, D.C. 20548

Office of Special Investigations

B-261651 

July 3, 1995

The Honorable Cardiss Collins

Ranking Minority Member

Committee on Government Reform

 and Oversight

House of Representatives

The Honorable Dan Schaefer

Chairman, Subcommittee on Energy

 and Power

Committee on Commerce

House of Representatives

The Honorable David E. Skaggs

House of Representatives

This report responds to the October 5, 1994, request from Mike Synar, then

Chairman, Subcommittee on Environment, Energy and Natural Resources,

House Committee on Government Operations, that we examine whether

theft has contributed to the Department of Energy’s (DOE) inability to

account for millions of dollars worth of equipment at DOE’s Rocky Flats

Plant (now the Rocky Flats Environmental Technology Site). This report

continues the examination of property management issues at Rocky Flats

that we reported on in 1994.1

 In addition, the Subcommittee’s office

requested that we investigate allegations that the plant’s Motor Vehicle

Maintenance Shop was vulnerable to theft and that contract-award abuse

had occurred.

Background The Subcommittee’s request followed its September 1994 hearing2

 on

property management at DOE facilities. Concerns were raised at the

hearing about the operation and management of the government-owned,

contractor-operated Rocky Flats Plant. The facility was formerly dedicated

to nuclear weapons-related activities. Today, Rocky Flats is addressing

environmental restoration, cleanup, and waste management issues that

1

Department of Energy: The Property Management at the Rocky Flats Plant Is Inadequate

(GAO/RCED-94-77, Mar. 1, 1994) and Department of Energy: Status of DOE’s Property Management

Program (GAO/RCED-94-154FS, Apr. 7, 1994).

2

Managing DOE: Government Property Worth Millions of Dollars Is Missing (GAO/T-RCED-94-309,

Sept. 19, 1994).

Page 1 GAO/OSI-95-4 Poor Property Management and Theft at Rocky Flats
B-261651 

grew out of its use as a nuclear weapons plant. Since January 1, 1990,

EG&G-Rocky Flats, Inc. (EG&G) has operated the plant. In September 1993,

government-owned property in the plant’s property tracking database

totalled about $600 million. At that time, the contractor reported nearly

$13 million worth of missing property. GAO is currently assessing whether

the contractor and DOE have resolved these property management issues.

Our 1994 testimony documented serious weaknesses in EG&G’s property

management and noted that DOE’s oversight of EG&G was insufficient. The

testimony presented several reasons for missing property, one of which

was theft. The testimony further discussed the possibility of a tainted

contract award (a parts purchase agreement contract for the Rocky Flats

Motor Vehicle Maintenance Shop) and the need for future investigation.

Results in Brief According to DOE and EG&G officials, theft has contributed to their inability

to account for millions of dollars worth of government-owned property

throughout the plant. The extent to which theft is a factor is unknown due

to poor property management practices and inadequate records. Further,

even when potential theft was identified, it oftentimes was not properly

referred to the DOE/Office of Inspector General (OIG) or the Federal Bureau

of Investigation (FBI), the responsible investigative entities.

We uncovered weaknesses in the ordering and inventory systems of Rocky

Flats’ Motor Vehicle Maintenance Shop. Ineffective management oversight,

inadequate internal controls, and lax physical security contributed to an

environment in which the shop automotive parts and supplies were easily

pilferable.

We also discovered that an EG&G shop supervisor had accessed a database

without authorization and disclosed the incumbent supplier’s unit prices

of its then current contract to a competitor. The competitor subsequently

won the new contract.

Since the hearing that prompted this request, DOE and EG&G have reported

improvements in the physical security of government-owned property.

However, it is important that their increased focus on property

management and associated security measures continue during the

interval between and after the changeover of contractors.

As of July 1, 1995, Kaiser-Hill will be the new contractor for plant

operations. Susceptibility to theft and a loss of accountability is high

Page 2 GAO/OSI-95-4 Poor Property Management and Theft at Rocky Flats
B-261651 

during changeover periods, and the new contractor must be aware of the

problem areas we found.

Possible Theft Not

Referred or

Investigated

Appropriately

Poor property management practices, such as characterizing possibly

stolen property as missing and not confronting theft issues, contributed to

an environment that allowed theft at Rocky Flats. We found instances in

which EG&G did not report possible theft to DOE, and we also found

instances in which DOE did not refer possible theft to the DOE/OIG or the FBI,

as regulations require.

EG&G Did Not Report

Possible Theft to DOE

The EG&G Administrative Inquiries Unit did not always report suspected

stolen property to DOE for referral to investigative authorities. In fiscal year

1993, 65 cases of missing/possibly stolen property were reported to EG&G’s

Administrative Inquiries Unit. That unit reported 5 of the 65 cases to DOE’s

Office of Safeguards and Security.3

 The EG&G unit incorrectly assumed that

another unit would forward the remaining 60 cases to DOE.

For example, in a property accountability report, a Rocky Flats property

custodian categorized the removal of a laptop computer as a theft because

it had disappeared from an employee’s unlocked, overhead storage cabinet

while the employee was at lunch. However, EG&G’s Administrative

Inquiries Unit reflected it as a missing laptop computer. Because the

report was not submitted to the Office of Safeguards and Security, it was

not referred to the FBI or DOE/OIG for investigation.

In another instance, a Rocky Flats employee arranged to move an Apple

computer, monitor, and keyboard to his new office location. The employee

and the property custodian verified that the three items, which had been

packed in boxes, arrived at the new site. However, when the employee

began unpacking his office belongings, the three items were missing. The

employee reported this to EG&G, but the incident was not referred to DOE.

Four weeks after the incident, the same employee reported that his Apple

LaserWriter II printer and cables had been taken from his office. The

employee again informed the EG&G Administrative Inquiries Unit about the

missing equipment. For over a year, the Administrative Inquiries Unit did

not report either instance to DOE so that they could be referred to the FBI or

the DOE/OIG.

3

The Office of Safeguards and Security oversees preliminary inquiries to develop information on the

probability of violations, losses, and security incidents. It reports such information to the DOE/OIG,

the FBI, and other responsible DOE headquarters elements, as appropriate.

Page 3 GAO/OSI-95-4 Poor Property Management and Theft at Rocky Flats
B-261651 

According to DOE, it has clarified the reporting responsibilities, in that

DOE’s Office of Safeguards and Security now periodically reviews EG&G

reports to ensure that all cases concerning possibly stolen property are

reported to DOE for referral to the proper investigative authorities.

DOE Did Not Refer

Potential Theft to

DOE/OIG or FBI

Officials of DOE’s Office of Safeguards and Security stated that, in

accordance with DOE Order 5639.3, authority to investigate theft at Rocky

Flats is limited to the FBI and DOE/OIG. Despite instances of missing/stolen

property reported by plant employees, DOE has referred few instances to

these two entities. For example, the Office of Safeguards and Security

referred six incidents of possible theft to the FBI and DOE/OIG in fiscal year

1993. Although DOE’s Office of Safeguards and Security kept no records of

its referrals for fiscal years 1991-92, the FBI official responsible for that

region reported receiving “few” stolen-property referrals from Rocky Flats

in those years. As a result, instances of stolen or missing property at

Rocky Flats—ranging from laptop computers to laser printers and power

tools—may not have been adequately investigated. The fact that DOE did

not refer all potential theft cases to appropriate investigative authorities

decreased the likelihood that actual theft could be detected or the

criminals could be apprehended.

Increased

Investigative Efforts

at Rocky Flats Now

Occurring

As a result of our audit/investigation, the FBI in Denver, supported by the

U.S. Attorney’s Office, increased its investigative efforts at Rocky Flats to

detect property theft. Additionally, DOE’s Office of Safeguards and Security

is now referring all instances of missing or possibly stolen property to the

DOE/OIG, which is working closely with the FBI. For example, currently

there are four separate ongoing investigations of property theft, as well as

an investigation into how eight armored personnel carriers, formerly

owned by Rocky Flats, ended up in private hands.

Motor Vehicle

Maintenance Shop

Vulnerable to Theft

Management and internal control inadequacies on the part of DOE and EG&G

have created an environment that is vulnerable to theft. For example, at

the Rocky Flats Motor Vehicle Maintenance Shop,4 DOE and EG&G did not

conduct required semiannual stock inventories and did not maintain

adequate inventory controls and documentation. Additionally, they

allowed lax security involving the automated ordering/inventory systems

and the parts and supplies.

4

The Motor Vehicle Maintenance Shop personnel maintain and repair over 675 motorized vehicles and

capital equipment, ranging from cars and trucks to heavy construction and emergency equipment. The

shop also issues related parts and petroleum fuels for all government equipment at Rocky Flats.

Page 4 GAO/OSI-95-4 Poor Property Management and Theft at Rocky Flats
B-261651 

EG&G did not conduct regular semiannual stock inventories as required by

the EG&G Procedures Manual. Since 1991, only two inventories have been

conducted. The two, in 1991 and 1994, identified discrepancies of

68 percent and 60 percent, respectively, between inventory records and

physical counts. DOE personnel did not consider that inventory control

regulations applied to numerous automotive items stored in the Motor

Vehicle Maintenance Shop parts department, e.g., batteries, alternators,

tires, oil filters, and seat cushions. Thus, DOE did not require EG&G to

perform inventories.

Because EG&G did not inventory stock regularly, automotive parts could be

easily ordered and even stolen without indication in the contractor’s

records. For example, in fiscal year 1993, according to accounting records,

the shop purchased over $196,000 worth of parts or vehicle supplies from

vendors. For that year, purchases worth $22,000, or approximately

11 percent of the total amount purchased, were recorded in the inventory.

According to EG&G personnel, most of the unrecorded purchases were

installed on the vehicles for which they were ordered. Counter to plant

procedures, the shop had no invoices or file documentation for many of

the vehicles, resulting in no verification that all of the parts had been

installed.

With regard to security, unauthorized employees had access to the shop’s

computerized ordering system. In addition, shop employees installed parts

immediately after receiving them without first entering them in the

computerized inventory system or placing them in the parts/supply room.

Further, sometimes the parts/supply room was left open and unattended,

enabling any employee to enter and take parts at will. For example, one

employee told us he could walk into the parts room and obtain parts for

personal vehicles.

Contract-Award

Procedures Abuse

The environment of weak management and loose internal controls at the

Rocky Flats Motor Vehicle Maintenance Shop also provided the

opportunity for abuse of contract-award procedures. In a joint effort with

the FBI, we discovered that an EG&G shop supervisor had provided the

incumbent supplier’s unit prices to a competitor. The supervisor had no

role in the contracting process and no authority to access a database for

ordering parts that the incumbent vendor supplied EG&G. At the time, both

contractors were bidding on a contract to supply the shop with automotive

parts and supplies.

Page 5 GAO/OSI-95-4 Poor Property Management and Theft at Rocky Flats
B-261651 

During our investigation of this incident, the supervisor admitted to us

that, without authorization, he had abused contract-award procedures by

giving unit prices that the incumbent supplier charged EG&G for automotive

parts to a competing contractor prior to the contract award. Further,

according to the supervisor, the competitor used the information to

structure a bid lower than the incumbent’s and was thus awarded the

contract. Although we traced the incumbent’s pricing information to the

winning vendor’s files, the winning vendor denied using the information to

structure its bid. The FBI continues to conduct a grand jury investigation of

this matter.

DOE and EG&G

Report Improvements

Since the hearing that prompted this request, DOE and EG&G have reported

improvements in the physical security of property at the Rocky Flats Plant.

The Rocky Flats Material Control Manager is now controlling the ordering,

stocking, and access to vehicle parts at the Motor Vehicle Maintenance

Shop. A security official also has reported that security police have

increased site-wide random vehicle stops and building patrols. We have

not evaluated the effectiveness of changes reported by DOE and EG&G. We

are also aware that, as of July 1, 1995, Kaiser-Hill will be the new

contractor. As DOE transitions to the new contractor, it and the new

contractor should benefit from the experiences and problems we have

found in the past.

Methodology We began our investigation on July 19, 1993, after being alerted to the

possibility of theft at the Rocky Flats Plant by GAO evaluators, and

concluded it on May 9, 1995. We examined investigative files and

interviewed personnel of EG&G’s Administrative Inquiries Unit to determine

how they dealt with missing property and theft issues. We also met with

officials of DOE, DOE/OIG, and the FBI to obtain their data and input on the

relevance of theft at the plant.

To obtain overall cost data and the value and quantities of recorded

inventories at the Motor Vehicle Maintenance Shop, we reviewed

accounting records and interviewed accounting personnel. To determine

the accuracy of the inventory records, we obtained the results of past

inventories from accounting personnel. We discussed parts management

procedures that were being used and should have been used with

personnel at the Motor Vehicle Maintenance Shop and at the Rocky Flats

Plant warehouse.

Page 6 GAO/OSI-95-4 Poor Property Management and Theft at Rocky Flats
B-261651 

Because we could not verify the complete Motor Vehicle Maintenance

Shop inventory, we selected a high-volume stock item and then collected

file data on purchases and recorded issuances. We checked vehicle files to

locate work orders showing the use of that part to determine whether the

work orders corresponded to the number of recorded issuances.

Jointly with the FBI, we investigated the allegations of contract-award

abuse by interviewing and examining documents of all witnesses and

participants named in the contract negotiations and alleged abuse.

We are sending copies of this report to interested congressional

committees. We will also make copies available to others upon request. If

you have questions concerning this report, please contact me or Deputy

Director Donald Wheeler of my staff at (202) 512-6722.

Richard C. Stiener

Director

Page 7 GAO/OSI-95-4 Poor Property Management and Theft at Rocky Flats
Appendix I 

Major Contributors to This Report

Office of Special

Investigations,

Washington, D.C.

William L. Davis, III, Assistant Director for Regional

 Investigations

Barbara W. Alsip, Communications Analyst

Denver Regional

Office

James H. Solomon, Assistant Regional Manager

Clark B. Hall, Assistant Director for Investigations

Paul S. Begnaud, Senior Evaluator

Christopher M. Pacheco, Senior Evaluator

Mark A. McClarie, Staff Evaluator

Office of the General

Counsel, Washington,

D.C.

Barbara C. Coles, Senior Attorney

(600371) Page 8 GAO/OSI-95-4 Poor Property Management and Theft at Rocky Flats
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. Orders for 100 or more copies to be mailed to a

single address are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 6015

Gaithersburg, MD 20884-6015

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (301) 258-4097 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Mail

Postage & Fees Paid

GAO

Permit No. G100