United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Energy and Power, Committee on

Commerce, House of Representatives

December 1995 DEPARTMENT OF

ENERGY

Property Management

Has Improved at DOE’s

Rocky Flats Site

GAO/RCED-96-39

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-270444 

December 28, 1995

The Honorable Dan Schaefer

Chairman, Subcommittee

 on Energy and Power

Committee on Commerce

House of Representatives

Dear Mr. Chairman:

In March 1994, we reported that $29.3 million in property was either

missing from or could not be physically located at the Department of

Energy’s (DOE) Rocky Flats Environmental Technology Site in Colorado.1

In addition, we reported that the contractor’s property management

system at that site was inadequate. Responding to the report’s findings,

DOE staff at Rocky Flats made a commitment to correct the site’s problems

with property management. As requested, we reviewed (1) the current

status of the government-owned property that is missing or cannot be

located at the site and (2) the steps that DOE/Rocky Flats officials have

taken to improve property management.2

Results in Brief As of October 1995, DOE considered that only $4.5 million worth of

property was missing or could not be physically located at Rocky Flats.

This amount is considerably lower than the $29.3 million reflected in our

1994 report primarily because DOE authorized the contractor to write off

about $20.8 million in missing or “unlocated” property from the property

records. A portion of the $20.8 million—about $13.0 million—was written

off because it pertained to unlocated property for which DOE accepted the

contractor’s documentation explaining what had happened to the

property. The remainder of the $20.8 million—about $7.8 million—was

written off because it pertained to property that had been missing under a

previous contractor and for which the then-current contractor was not

liable.

1

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

(GAO/RCED-94-77, Mar. 1, 1994). As discussed in the report, the contractor said that while some of the

property could not be physically located, it had documentation explaining the property’s disposition.

2

Government-owned property as discussed in this report refers to property of any kind or type that is

in the custody of DOE or its contractors and that is owned, rented, or leased by the government,

excluding real property such as land or buildings, special source materials such as plutonium, precious

metals, and spare parts.

Page 1 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

Generally, we found that DOE has made strides in improving property

management at the Rocky Flats Site. For instance, DOE has acquired a new

property tracking system more suited to property management. DOE has

also given property management greater prominence by elevating it from a

branch to a division at the site. In addition, DOE has incorporated specific

performance measures into the contract for the site that address many

previously identified problems with property management. However, DOE

has not yet adequately addressed a significant problem highlighted in our

March 1994 report: A large percentage of the data in the site’s property

tracking system are inaccurate. Without accurate data on property, neither

DOE nor its contractor can determine how much property is present at the

site and how much has been lost or stolen.

Background DOE’s Rocky Flats Site is a government-owned, contractor-operated facility

that was formerly dedicated to weapons-related activities but is now

undergoing environmental restoration and cleanup. The site is currently

operated by Kaiser-Hill Company (Kaiser-Hill), which took over the site’s

operations from EG&G-Rocky Flats, Inc., (EG&G) on July 1, 1995. The

contract between Kaiser-Hill and DOE is a performance-based arrangement

in which fees are paid to the contractor on the basis of its achieving

certain measures by specific milestone dates. For example, the contract

states that as a performance measure for fiscal year 1995, Kaiser-Hill will

implement an automated system capable of tracking property from its

acquisition to its retirement. Overall, the contract specifies 27

performance measures to be implemented at the site in fiscal year 1995.

New performance measures can be established for each fiscal year.

In our March 1994 report on property management at Rocky Flats, we

presented the results of EG&G’s September 1993 total inventory and

reconciliation of the government-owned property at the site. The inventory

showed that 4,827 items with an acquisition cost of $12.8 million were

missing.3

 The inventory additionally showed that EG&G officials could not

physically locate 871 items with an acquisition cost of $16.5 million. EG&G

said it had documentation explaining why the property could not be

located. We reported, however, that the documentation was incomplete

and that EG&G might have to reclassify some of the unlocated property as

missing.

3

The missing or unlocated items included computer equipment such as monitors and keyboards, shop

equipment such as lathes and drill presses, electronic equipment such as radios and pagers, and heavy

equipment such as forklifts and a semitrailer.

Page 2 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

We also found a number of problems with the adequacy of EG&G’s property

management system. For instance, inappropriate changes had been made

to data in the site’s property tracking system, including the deletion of

entire records. Also, the contractor had inadequate controls over how

property was retired at the site. We reported that as a result, EG&G could

not accurately determine how much property was actually present at the

site and how much had been lost or stolen. In our report, we made a

number of recommendations to improve property management at Rocky

Flats. Subsequently, DOE said it concurred with and was taking action in

response to each of the recommendations.

The Amount of

Missing or Unlocated

Property at Rocky

Flats Has Changed

As of October 1995, DOE considered that only $4.5 million in property was

missing or could not be physically located, which is considerably lower

than the $29.3 million we previously reported. The primary reason for this

change is that DOE authorized EG&G to write off about $20.8 million in

missing or unlocated property from the records.

Table 1 summarizes the reasons why the amount of missing or unlocated

property reported at the Rocky Flats Site has changed. The most

significant reason is the write-off. As the table shows, in April 1994 DOE

authorized EG&G to write off $13.0 million in property after accepting

EG&G’s documentation as to why the property could not be located.4

4

DOE’s contract with EG&G authorized DOE’s contracting officer to determine whether EG&G had

complied with the contract’s requirements in its accounting for the government-owned property and

whether the contractor could or should be held accountable for any missing property. By accepting

EG&G’s documentation as to the whereabouts of the unlocated property and directing the contractor

to write off the balance of the missing property, DOE effectively released EG&G from further liability

for the loss of this property.

Page 3 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

Table 1: Changes to DOE’s Missing

Property Inventory Since March 1994

(as of October 1995) 

Amount (Dollars

in millions)

Property we reported as missing or unlocated in our March 1994

report $29.3

Amount of unlocated property that DOE, in April 1994, authorized

EG&G to write off the property records –13.0

Amount of missing property that DOE, in February 1995, authorized

EG&G to write off the property records - 7.8

Amount of missing property found during 1994 and 1995 - 6.0

Amount of additional property identified as missing as a result of two

1995 inventories + 2.0

Total amount of property that DOE considered missing as of

October 1995 $ 4.5

Note: As of October 1995, according to DOE officials, the government-owned property at the site

had a value of about $630 million.

According to EG&G officials, the contractor spent hundreds of staff hours

researching and obtaining supporting documentation to show what had

happened to the property that could not be located. The documentation

consisted of information taken from the property records and/or obtained

from EG&G site property custodians, who provided written statements

attesting to the whereabouts of the unlocated property. For example, in

one case the documentation explaining a missing television monitor

showed that the monitor had been sold at auction. In another case, the

documentation explaining a missing video cassette recorder was a

statement by a property custodian saying that the recorder had been

stolen about 5 years earlier. After an extensive review of EG&G’s

documentation, DOE authorized the contractor to write off 782 of the 871

items of unlocated property, worth $13.0 million, from the property

records.5

 In a few cases in which complete documentation was not

available, DOE officials said they had used their best judgment to determine

whether the documentation that EG&G provided was sufficient.

In February 1995, DOE authorized EG&G to write off a total of about

$7.8 million in missing property from the records. The property in question

had been missing under the previous contractor, and according to DOE,

EG&G was not liable for it. DOE/Rocky Flats officials pointed out that a

December 1989 agreement between DOE and EG&G stipulated that EG&G’s

liability for the missing property would not commence until after a 1991

5

DOE also reviewed deletions of property from the records and placed about 100 deleted items back

on the records. In addition, DOE reviewed records of property that had been retired; it rejected the

retirement of 208 items and placed them back on the records.

Page 4 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

baseline inventory had been completed. In our 1994 report on property

management at Rocky Flats, we reported that although it might not be

possible to prove the contractor’s liability for the property that was

missing before 1991, by investigating the missing property, DOE could help

determine when and under what circumstances the property had been lost

and whether some of the missing property had been stolen. However, DOE

never conducted an investigation to determine the root causes of why the

property was missing.6

Other changes have occurred in the amount of inventory reported missing

at Rocky Flats. Specifically, EG&G reported that it had found $6 million

worth of the missing property since 1993. Furthermore, as a result of two

1995 inventories, EG&G determined that about $2 million in additional

property was missing.7

 The first inventory, completed in February 1995,

reviewed sensitive equipment at the site—those items susceptible to being

taken for personal use or readily converted to cash, such as computers

and photographic equipment. The inventory determined that $1.3 million

in sensitive property was missing. The second inventory, completed in

June 1995, reviewed capital equipment at the site—those items costing

$5,000 or more and having a useful life of 2 years or more, such as lathes.

The June inventory determined that $0.7 million in capital property was

missing.

DOE/Rocky Flats Has

Improved Property

Management

Since we issued our 1994 report, DOE has taken several steps to improve

property management at Rocky Flats. DOE has acquired a new property

tracking system more suited to property management. In addition, DOE has

given property management greater prominence by elevating it from a

branch to a division at the site. DOE also has implemented most of the

recommendations contained in our March 1994 report. Finally, DOE has

incorporated specific performance measures into its contract with

Kaiser-Hill to address problems with property management.8

6

DOE/Rocky Flats officials did refer the matter to DOE’s Office of Inspector General, which conducted

an investigation of eight property items stolen from Rocky Flats during 1994-95. The office was not

able to recover the stolen items or determine who had stolen them. DOE also conducted a validation

of EG&G’s September 1993 inventory. DOE officials believe this was sufficient to understand the root

cause of the problems with property management at the site.

7

Both 1995 inventories were validated by a team composed of EG&G internal auditors and DOE/Rocky

Flats personnel.

8

DOE/Rocky Flats also implemented a policy of individual financial accountability for all of the sensitive

property and established a regulatory requirement for baseline acceptance and close-out inventories at

the site.

Page 5 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

DOE’s Implementation of

Our Recommendations

In our 1994 report, we made seven recommendations aimed at having DOE

either (1) require EG&G to correct the weaknesses we identified in its

property management system or (2) improve its oversight of property

management at the site. In response to our report, DOE agreed to fully

implement our recommendations. As shown in table 2, three of the

recommendations have been fully implemented and four have been

partially implemented.

Page 6 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

Table 2: Status of DOE’s

Implementation of Our

Recommendations

Our recommendation DOE’s response

Revise, with DOE’s guidance, the criteria at

the site for what should be in the tracking

system so that all of the sensitive equipment

is included in the system.

Fully implemented. EG&G completed a

review of the criteria used to identify

sensitive items and issued a revised list of

the items that would be controlled as

sensitive property. DOE approved this list

in May 1994.

Institute system-level edits into the system to

limit and prevent unauthorized access.

Fully implemented. DOE acquired a new

tracking system that has the appropriate

system-level edits. The system is due to be

fully operational by the end of calendar

year 1995.

Develop guidance specifying the roles and

responsibilities of the property management

staff in retiring property.

Fully implemented. EG&G implemented a

requirement that staff obtain the approval

of both the property accounting supervisor

and the property management supervisor

before retiring any item.

Order an investigation, in accordance with

DOE’s guidance, of the property missing

from the site and determine, among other

things, what happened to the missing

property.

Partially implemented. In January 1994,

DOE requested its Office of Inspector

General to initiate an investigation of the

property losses. The office investigated the

theft of eight items but was unable to

recover the items or determine who had

stolen them.

Place a higher priority on overseeing

property management at the site. Doing so

could necessitate adjusting DOE’s staff

levels at the site as well as setting

milestones for improving DOE’s oversight.

Partially implemented. DOE completed an

analysis that identified a need for seven

additional property management

employees. As a result, DOE hired two

federal employees and two support

service contractor employees to oversee

the contractor’s property management.

Require EG&G to immediately develop

written procedures for its property

management operations and submit its

procedures to DOE for review and approval.

Partially implemented. EG&G developed

detailed procedures for property

management and submitted those

procedures to DOE for review and

approval. Contractor officials said they

hope to have DOE’s approval within 18

months, or by the end of calendar year

1996.

Undertake, to the extent practical, a study of

the historical records at the site to identify

and include all appropriate property in the

site’s property tracking system and to

correct inaccuracies in the system as

necessary.

Partially implemented. Some inaccuracies

in the tracking system’s data have been

corrected. However, problems with the

accuracy of the data remain. DOE

estimated, in its validation of EG&G’s 1995

inventory of sensitive items, that 30

percent of the records sampled had one or

more inaccurate data fields.

We are concerned with DOE’s failure to fully implement one

recommendation directed at correcting incomplete or inaccurate data in

Page 7 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

the current property tracking system. In our March 1994 report, we

provided a number of examples of incomplete or inaccurate data in the

system. For instance, the system contained records for 121 computer

keyboards that had the same serial number as other keyboards in the

system. We reported that without properly entered serial numbers, the

contractor could not accurately identify, and thereby account for, the

government-owned property at the site. Therefore, we recommended that

DOE require the contractor to correct the deficiencies resulting from

incomplete or inaccurate data as necessary. DOE agreed with us but has not

fully implemented the recommendation.

According to DOE/Rocky Flats and contractor officials, considerable time

and attention have been spent on correcting the incomplete or inaccurate

data in the system. These officials pointed out that the problem of

incomplete or inaccurate data will be corrected when Kaiser-Hill

completes a property inventory within the first 6 months of fiscal year

1996. However, we do not believe that completing a property inventory

will, by itself, correct the problem. We noted in our March 1994 report that

some property items that had not been entered into the site’s property

tracking system may now be missing. In addition, the acquisition cost

listed in the system for other property items was inaccurate. It is unclear

how a property inventory will identify missing property items that have

not been entered into the system. Likewise, it is unclear how a property

inventory will confirm whether the acquisition cost listed in the system for

individual property items is correct. In our view, a check of the historical

records is the only way to correct these inaccuracies.

Performance Measures

Included in the Contract

for the Site

The contract between DOE and Kaiser-Hill for the Rocky Flats Site is

designed to contain performance measures, so that a fee is paid when

certain results are achieved. The performance measures are intended to

define very specific goals, tasks, and timetables for the work to be

completed at the site. DOE has instituted these measures in an attempt to

establish a direct relationship between a contractor’s performance and the

entire fee received.9

 While the contract between DOE and Kaiser-Hill

contains performance measures related to improving overall property

management at Rocky Flats, DOE has not developed specific plans to

correct the significant problem of inaccurate data in the site’s property

tracking system.

9

Historically, under cost-plus-award-fee contracts, DOE did not use objective criteria for the fees it

awarded contractors but instead determined the fee portion of payments under the contract on the

basis of subjective judgment, leaving open the possibility for abuse.

Page 8 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

The contract between DOE and Kaiser-Hill contains performance measures

for property management for 2 consecutive years. For fiscal year 1995, the

contract specifies that, among other things, the contractor will implement

an automated system capable of tracking property from acquisition to

retirement. In addition, the contractor will develop the policies and

procedures associated with that system and provide a minimum of 8 hours

of training to all property management personnel. For fiscal years 1996

through 1999, the contract as of December 1, 1995, specifies that the

contractor will hold property losses to less than $1 million a year. Starting

in fiscal year 2000, the contract specifies that the contractor will hold

property losses to less than $200,000 annually. These performance

measures will be renegotiated each year.

To determine the amount of the property losses incurred, DOE needs

accurate data on the property that is present at the site and its value.

However, inaccurate data in the site’s property tracking system could

preclude DOE from precisely determining its property losses. We reported

on inaccuracies in these data in our March 1994 report, and DOE

highlighted the problem of inaccuracies in the data in an August 1995 draft

“issues and concerns” memorandum that it plans to finalize and transmit

to Kaiser-Hill. By issuing this memorandum, DOE intends to alert the

contractor to its specific concerns about matters in need of resolution.

DOE’s memorandum, however, does not rank the issues and concerns listed

or establish a timetable for correcting them. Therefore, it is difficult to

determine the significance that DOE has assigned to any of the issues and

concerns, including the problem of inaccurate data. In our view, the

presence of inaccurate data in the site’s property tracking system is a

significant problem. DOE/Rocky Flats officials advised us that, in their

opinion, the percentage of inaccurate data on sensitive items in the system

is as high as 30 percent. We believe that having accurate data is critical to

being able to determine what property is present at the site and whether

the contractor has held property losses to the levels prescribed in the

contract’s performance measures.

Conclusions While DOE has taken a number of steps to improve property management

at Rocky Flats, the Department was not fully responsive to the

recommendations in our March 1994 report, particularly the

recommendation to correct the inaccurate data in the site’s property

tracking system. DOE needs accurate data to determine whether the

Page 9 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

contractor has met the performance measures contained in the site

contract.

Agency Comments We provided DOE with a draft of this report for its review and comment.

The draft report included a proposed recommendation to the Secretary of

Energy to develop a plan and a timetable for correcting the inaccuracies in

the data in the site’s property tracking system. DOE officials, including the

Director, Office of Contractor Management and Administration, and the

Rocky Flats Site’s Group Leader, Property and Information Management

Division, generally concurred with the findings contained in this report. In

our discussion, they stressed that they had taken numerous actions to

improve property management at the site. They also pointed out that they

had recently reached agreement with Kaiser-Hill on a new performance

measure for the site that should help address the concerns that resulted in

our proposed recommendation. On December 5, 1995, DOE and Kaiser-Hill

approved the following new performance measure for fiscal year 1996:

“Complete baseline inventories . . . and update all records with complete

and accurate information.” In our view, implementing this performance

measure should help correct the inaccuracies in the data in the site’s

property tracking system. As a result, we deleted our proposed

recommendation.

We performed our work at DOE’s headquarters and Rocky Flats Site from

June through December 1995 in accordance with generally accepted

government auditing standards. Additional information on the scope and

methodology of our review is presented in appendix I.

As arranged with your office, we plan no further distribution of this report

until 7 days after the date of this letter. At that time, we will send copies to

the Secretary of Energy; the Director, Office of Management and Budget;

and other interested parties. We will also make copies available to others

on request.

Page 10 GAO/RCED-96-39 Property Management at Rocky Flats
B-270444 

Please call me at (202) 512-3841 if you or your staff have any questions.

Major contributors to this report are listed in appendix II.

Sincerely yours,

Victor S. Rezendes

Director, Energy and

 Science Issues

Page 11 GAO/RCED-96-39 Property Management at Rocky Flats
Contents

Letter 1

Appendix I 

Objectives, Scope and

Methodology

14

Appendix II 

Major Contributors to

This Report

15

Tables Table 1: Changes to DOE’S Missing Property Inventory Since

March 1994

4

Table 2: Status of DOE’S Implementation of Our

Recommendations

7

Abbreviations

DOE Department of Energy

GAO General Accounting Office

EG&G EG&G-Rocky Flats, Inc.

Page 12 GAO/RCED-96-39 Property Management at Rocky Flats
Page 13 GAO/RCED-96-39 Property Management at Rocky Flats
Appendix I 

Objectives, Scope and Methodology

In March 1995, the Chairman of the Subcommittee on Energy and Power,

House Committee on Commerce, asked us to follow up on the problems

with property management at the Department of Energy’s (DOE) Rocky

Flats Environmental Technology Site that we had described in a

March 1994 report. As agreed, we reviewed (1) the current status of the

government-owned property that is missing or cannot be located at the

site and (2) the steps DOE/Rocky Flats officials have taken to improve

property management.

We performed our work from June through December 1995 at DOE’s

headquarters and Rocky Flats Site. This work was done in accordance

with generally accepted government auditing standards.

To determine the current status of missing or unlocated

government-owned property at the site, we reviewed various sources of

information, including the contractor’s property inventory reports,

computer tapes listing equipment in the plant’s property tracking system,

and DOE/Rocky Flats’ validation of the contractor’s property inventory. In

addition, we discussed this information with DOE/Rocky Flats and

contractor personnel. We did not, however, verify the accuracy of the total

of missing or unlocated property currently reported as missing because of

the lack of available supporting documentation.

To determine what steps DOE/Rocky Flats officials have taken to improve

property management, we reviewed several documents, including

DOE/Rocky Flats’ corrective action plan for property management, DOE’s

Darts Status Report listing the actions DOE has taken in response to the

recommendations in our March 1994 report, and the new contract for the

site between DOE and Kaiser-Hill. We also discussed these documents with

DOE/Rocky Flats personnel.

Page 14 GAO/RCED-96-39 Property Management at Rocky Flats
Appendix II 

Major Contributors to This Report

Resources,

Community, and

Economic

Development

Division, Washington,

D.C.

Bernice Steinhardt, Associate Director

William F. Fenzel, Assistant Director

Robert J. Baney, Evaluator-in-Charge

Denver Regional

Office

Christopher M. Pacheco, Staff Evaluator

(302150) Page 15 GAO/RCED-96-39 Property Management at Rocky Flats
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