Nuclear Material: Agencies Have Sound Procedures for Managing Exchanges but Could Improve Inventory Monitoring
Published: 2016-09-23T00:00:00

Fast Facts:
Certain nuclear facilities in the United States get nuclear material from foreign countries under peaceful agreements, which require that it can't be used for military purposes. To meet the requirements, facilities must track how much of their material is subject to these agreements ("obligated"). Facilities can also exchange their obligations without having to physically move any material.
Looking at these exchanges, we recommended ways to improve how the United States tracks them to ensure that it meets its international commitments.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The United States must generally account for nuclear material it has obtained under nuclear cooperation agreements with foreign partners. The agreements generally impose certain conditions, including that the material be used for peaceful purposes. Material subject to such conditions is called “obligated.” The United States relies on NMMSS to track obligated material and to help demonstrate U.S. compliance with agreements. Material not subject to agreement conditions is called “unobligated.” Some forms of uranium, such as LEU, are used to maintain the nuclear weapons in the U.S. stockpile, but the U.S. inventory of unobligated LEU is declining.
GAO was asked to review the practice of obligation exchanges and the reliability of certain NMMSS data. This report examines (1) the number of obligation exchanges in the United States since 2003, and the reasons for them, and (2) how DOE and NRC ensure such exchanges are accurately tracked and reported through NMMSS. GAO analyzed NMMSS data and agency documents and interviewed agency officials, DOE contractors, and NRC licensees, among other steps.
section_title: What GAO Found
paragraphs: In the United States, from October 1, 2003, through November 30, 2015, there were 817 exchanges of nuclear material that carried obligations to foreign partners under nuclear cooperation agreements. These exchanges allowed the obligated nuclear material to be transferred between U.S. facilities without physically moving it. For example, if a facility had a certain amount of obligated nuclear material and another facility had at least the same amount and type of unobligated material (which is not subject to the same conditions as obligated material), the facilities could exchange the obligations on their material so that each facility had a portion of both types of material without physically moving it.
Numbers of exchanges. Of the 817 exchanges, 802 were conducted by Nuclear Regulatory Commission (NRC)-licensed facilities—private companies and other entities involved in commercially producing nuclear energy. Of the remaining exchanges, 14 were conducted by contractors that run Department of Energy (DOE) laboratories and weapons-production sites, and 1 by an NRC licensee that does both commercial and DOE work.
Reasons for exchanges. NRC licensees said they conducted exchanges primarily to meet their utility customer demand, as well as to avoid the high costs and safety risks associated with physically transporting nuclear material. DOE contractors said they conducted exchanges primarily to avoid physically moving nuclear material stored at a specific site.
DOE and NRC have procedures to ensure accurate tracking and reporting of data on obligation exchanges through the Nuclear Materials Management and Safeguards System (NMMSS). GAO tested elements of these procedures and generally found them to be reliable. But, GAO identified two issues that may impact the agencies' ability to effectively monitor nuclear material inventories.
First, some facilities have carried negative obligation balances for extended periods. A negative obligation balance occurs when a facility conducts an exchange without having enough of a given material in its physical inventory to cover the exchange. In certain circumstances, negative balances may place the United States at risk of noncompliance with nuclear agreements. Negative balances have occurred because DOE and NRC have not addressed this issue in documented guidance on when facilities may carry such balances, which is inconsistent with federal internal control standards.
Second, while unobligated low-enriched uranium (LEU) could be used to correct any future negative obligation balances, the U.S. inventory of it is declining and NMMSS does not have an early-warning monitoring capability to alert DOE when the inventory is particularly low. Federal internal control standards state that agencies should establish activities to monitor internal control systems and evaluate the results, but DOE officials said that the LEU inventory is currently sufficient and no early warning capability is needed. Without developing such a capability in NMMSS, DOE officials cannot know when the inventory of unobligated LEU becomes so low that supplies may not be available to correct negative obligation balances, thereby putting the United States at risk of not complying with its nuclear agreements.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOE and NRC (1) clarify in guidance when facilities may carry negative obligation balances and (2) develop an early-warning monitoring capability in NMMSS to alert DOE when the inventory of unobligated LEU is particularly low. DOE and NRC neither agreed nor disagreed with GAO's recommendations but stated that they have ongoing efforts that may address GAO's recommendations.

section_title: Letter
paragraphs: The United States must generally account for nuclear material—such as  uranium and plutonium—that has been obtained under agreements for  peaceful nuclear cooperation between the United States and its foreign  partners. Under these agreements, the U.S. government tracks the  amounts, locations, and uses of imported nuclear material and  periodically reports this information to its foreign partners. The  agreements generally impose certain terms and conditions on transfers of  nuclear material and equipment, including adequate physical protection,  application of safeguards, and peaceful use. Material and equipment  subject to such conditions are referred to as “obligated,” or carrying a  foreign obligation. Material and equipment not subject to such conditions  are referred to as “unobligated,” or not carrying a foreign obligation. The  agreements’ peaceful use provisions mean that foreign-obligated nuclear  material in the United States cannot be used for military purposes. To  enable it to demonstrate to its foreign partners that foreign-obligated  nuclear material is used in compliance with peaceful use provisions, the  U.S. government relies on the Nuclear Materials and Management  Safeguards System (NMMSS) as its system to track such material and  report material balances to foreign partners.
NMMSS is managed by the Department of Energy’s (DOE) National  Nuclear Security Administration (NNSA), a separately organized agency  within DOE that is responsible for the management and security of the  nation’s nuclear weapons, nonproliferation, and naval reactors programs.  Jointly funded by DOE and the Nuclear Regulatory Commission (NRC),  the nuclear regulatory body of the United States, NMMSS is the U.S.  government’s official database for tracking nuclear material inventories,  material balances, and transactions in the United States. The United  States relies on NMMSS to track nuclear material as it is imported to,  exported from, or moved within the United States and to process about 1  million transaction records each year. Approximately 420 commercial  nuclear and government entities submit data to NMMSS on 17 different  nuclear materials, including those that can be used in industrial and  medical applications as well as the types of uranium and plutonium that  can be used directly to manufacture nuclear explosives. These entities  include facilities licensed by NRC, which are private companies involved  in the commercial production of and research on nuclear energy, as well  as academic institutions. DOE laboratories and weapons production  sites also submit data to NMMSS; these laboratories and sites are  responsible for military uses of nuclear material and are owned by the  U.S. government but managed and operated by contractors.
One type of transaction conducted by both NRC licensees and DOE  contractors, and recorded in NMMSS, is known as an “obligation  exchange.” An obligation exchange involves the transfer between entities  of the obligations on nuclear material without physical movement of the  material. For example, Facility A may have a certain amount of material  physically located on its site, all of which is obligated. Facility B may have  an equal amount of material physically located on its site, all of which is  unobligated. In an obligation exchange between the two facilities, rather  than Facility A physically transferring a portion of its obligated material to  Facility B in exchange for the same amount of unobligated material, the  two facilities can exchange the obligations on the material, so that each  facility now has a portion of obligated and a portion of unobligated  material. The total amounts of nuclear material at each facility do not  change, and no material is physically moved, but the conditions on the  use of the material have changed.
According to DOE documents, the United States has a vital national  security need for unobligated low-enriched uranium (LEU), which is used  in the production of tritium—a key isotope used in nuclear weapons.
DOE reported in October 2015 that obtaining tritium is its “most pressing  defense mission need.” As long as the United States relies on nuclear  weapons, DOE requires a continuous supply of LEU to produce tritium.  However, according to DOE officials, the domestic supply of unobligated  LEU is declining, in part because the United States lost its sole supplier of  unobligated LEU in May 2013. At that time, a former government-owned  corporation—created in 1992 as the United States Enrichment  Corporation and then privatized in 1998—ceased enriching uranium at  the Paducah Gaseous Diffusion Plant. As of 2015, the majority of LEU  in the United States carried foreign obligations, and DOE officials stated  that this material could not be used for tritium production. According to  DOE officials, only unobligated LEU can be used for tritium production.
This position is based on both law and policy considerations, and we  examined this issue in a 2014 report.
The U.S. government relies on NMMSS as its accounting system for  tracking and reporting of foreign obligated material. Specifically,  NMMSS data is used to produce annual obligation inventory reports for  the United States to provide to its foreign partners. The annual obligation  inventory reports enable the United States to demonstrate compliance  with its nuclear cooperation agreements and provide assurance to foreign  partners that their nuclear material is being used only for peaceful  purposes, according to NNSA officials.
Questions have been raised about the practice of obligation exchanges,  including about the reliability and integrity of certain NMMSS data, which  are used to demonstrate compliance with nuclear cooperation  agreements. You asked us to review the practice of obligation exchanges  and the reliability of certain NMMSS data. This report examines (1) the  number of exchanges involving foreign obligated nuclear material that  have taken place in the United States since 2003 and the reasons for the  exchanges and (2) how DOE and NRC ensure accurate tracking and  reporting of obligation exchanges through NMMSS.
For both objectives, we reviewed the text of U.S. agreements for peaceful  nuclear cooperation (nuclear cooperation agreements). We also reviewed  portions of the administrative arrangements for implementing these  agreements that relate to obligation accounting and reporting for four key  U.S. nuclear trading partners: Australia, Canada, the European Atomic  Energy Community (EURATOM), and Japan. To determine how many  exchanges involving foreign obligated nuclear material have taken place  in the United States since 2003, as well as the reasons for the  exchanges, we examined NMMSS data on obligation exchanges  conducted by DOE sites and NRC-licensed facilities from October 1,  2003, through November 30, 2015. We identified eight NRC-licensed  facilities that conducted obligation exchanges during this period and  interviewed representatives from each of those facilities. We also  identified the two DOE sites that conducted obligation exchanges during  this period and interviewed officials from those sites.
To determine how DOE and NRC ensure accurate tracking and reporting  of obligation exchanges through NMMSS, we took the following steps:
We analyzed DOE and NRC documents that describe the  requirements for obligation exchanges, including those on data entry  and reporting procedures.
We obtained and reviewed NMMSS data on obligation exchanges,  including shipment and receipt data of obligated material for each  DOE and NRC facility that had conducted an obligation exchange  during this period. We compared these data with NMMSS inventory  records and checked for differences.
We visited two U.S. facilities holding foreign obligated material—a  uranium enrichment facility and a fuel fabrication facility—and  interviewed representatives from these facilities on their nuclear  material accounting procedures and obligation exchange activity.
We interviewed NNSA and NRC officials, and current and former  NMMSS officials, to identify any limitations in NMMSS’s data.
We interviewed DOE and contractor representatives from DOE sites  to learn about their obligation exchange activity as well as  representatives from NRC-licensed facilities from different stages of  the nuclear fuel cycle, to learn about the commercial issues that drive  obligation exchanges. In addition, we interviewed representatives  from organizations that either promote or consult on the nuclear  industry to get a general understanding of obligation exchanges.
We interviewed officials from the Tennessee Valley Authority (TVA), a  government corporation and the nation’s largest public power  company, to learn about its involvement in obligation exchanges and  its steps to preserve unobligated LEU.
We assessed the reliability of NMMSS obligation exchange data by (1)  performing electronic testing of required data elements; (2) reviewing  existing information about the data and the system that produced them;  and (3) interviewing agency officials knowledgeable about the data. We  found the data to be sufficiently reliable for the purposes of our review.
We conducted this performance audit from June 2015 to September 2016  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: This section describes the legal framework for obligation accounting, the  uranium market and how obligations on uranium may be added at various  stages of the nuclear fuel cycle, the mechanics of obligation exchanges,  and the national security need for unobligated LEU.
subsections: section_title: Legal Framework for Obligation Accounting
paragraphs: The United States has negotiated nuclear cooperation agreements under  section 123 of the Atomic Energy Act of 1954, as amended, with nuclear  trading partners worldwide. These agreements establish obligations  governing how nuclear material and equipment subject to the agreements  are to be used. The United States had 22 nuclear cooperation  agreements in force as of June 2016.
Once a nuclear cooperation agreement has been negotiated, U.S.  government officials may negotiate an administrative arrangement that  provides procedures for implementing the agreement, including details  about accounting for foreign obligated material. Administrative  arrangements with foreign partners may require DOE to produce annual  reports on inventories of obligated material. For example, under the  administrative arrangements for Australia, Canada, and EURATOM, the  reports are to be conducted at the country level, not by facility. According  to DOE documents, this is generally the case with its foreign partners.  The annual obligation inventory reports summarize the import and export  of foreign obligated material into and out of the United States in a given  year. NMMSS produces summary information for these reports, which  contain aggregated data for foreign obligation balances at all U.S.  facilities by calendar year. After NMMSS generates data for the annual  obligation inventory reports, NNSA provides these reports to U.S. foreign  partners. These foreign partners use the reports to periodically reconcile  their accounting records with those of the United States.
Other regulations, orders, guidance and an international agreement  govern the accounting and reporting of nuclear material as well. For  example, a DOE order and NRC regulations establish requirements for  nuclear material control and accounting and the reporting of nuclear  materials to NMMSS. The DOE order provides direction on the  procedures that DOE contractors are to use in submitting data on certain  quantities of 17 DOE-owned reportable nuclear materials. NRC  regulations require NRC licensees to submit data to NMMSS on certain  quantities of some of these nuclear materials. In addition, the United  States has an agreement with the International Atomic Energy Agency  (IAEA) on the safeguard of nuclear material, which requires the United  States to maintain a system of accounting and control over certain  nuclear material. Through the application of safeguards, IAEA seeks to  verify that nuclear material subject to safeguards is not diverted to nuclear  weapons or other proscribed purposes.
section_title: Uranium Market and How Obligations on Uranium May Be Added at Various Stages of the Nuclear Fuel Cycle
paragraphs: Uranium is a commodity that is necessary for commercial nuclear power.  The market is global, and the vast majority of the uranium used to fuel  U.S. commercial nuclear reactors is mined abroad. According to a 2016  U.S. Energy Information Administration, report, in 2015, only 6 percent  of the 57 million pounds of uranium delivered to fuel U.S. nuclear reactors  was of U.S. origin. Of the remaining 94 percent, 47 percent originated in  Australia or Canada; 37 percent originated in Kazakhstan, Russia, or  Uzbekistan; and the remaining 10 percent originated in Bulgaria, the  Czech Republic, Malawi, Namibia, Niger, or South Africa.
After being mined, uranium undergoes a number of additional processing  steps to become nuclear fuel for commercial reactors. These steps make  up the nuclear fuel cycle. Obligations on nuclear material may be added  at various stages in the cycle (see fig. 1). For example, if uranium is  mined and milled in Australia and is then shipped to Canada, it may carry  an Australian obligation. If the uranium goes through conversion at a plant  using Canadian technology and is then shipped to Europe, it may carry a  Canadian obligation. If the uranium is enriched at a plant using European  technology and is then shipped to Japan, it may carry an obligation from  EURATOM. Finally, if the uranium undergoes fuel fabrication at a plant  using Japanese technology before export to a final user in the United  States, it may carry a Japanese obligation. By the end of the process, the  uranium may carry obligations to Australia, Canada, EURATOM, and  Japan. Figure 1 illustrates how obligations may be added to uranium at  various stages of the nuclear fuel cycle. Such obligations are tracked in  NMMSS while the material remains in the United States.
section_title: Mechanics of Obligation Exchanges
paragraphs: To conduct an obligation exchange and record the transaction in  NMMSS, both the facility “shipping” the obligation and the facility  “receiving” the obligation must submit a DOE/NRC Form 741, “Nuclear  Material Transaction Report,” to NMMSS. The shipper’s transaction  report and the receiver’s transaction report should contain the same data.  Following an obligation exchange, each facility will have the same total  amount of a given material type, such as LEU, as it had before the  exchange, but it will have different proportions of obligated and  unobligated material (see fig. 2).
section_title: National Security Need for Unobligated LEU
paragraphs: Tritium is a key radioactive isotope used to enhance the power of nuclear  weapons in the U.S. stockpile. Tritium is produced in nuclear reactors,  and NNSA supports a program that produces tritium from LEU to help  meet stockpile demands. NNSA’s tritium program requires that only  unobligated LEU be used in reactors to produce tritium. The reactors that  are under agreement to produce tritium for DOE belong to TVA, a  government corporation, and, according to DOE, LEU fuel loaded into  TVA reactors for tritium production must consist entirely of LEU that is  unobligated.
It is DOE’s responsibility to ensure that TVA is supplied with unobligated  fuel to support tritium production. DOE maintains an inventory of  unobligated LEU. However, the United States lost its sole supplier of  unobligated LEU when USEC ceased uranium enrichment operations in  2013. In 2014, NNSA projected that unobligated LEU fuel for tritium  production would last through 2027. NNSA has since identified several  actions that could extend that projected date from 2038 to 2041. These  actions include “downblending” highly enriched uranium (HEU) from  dismantled weapons to produce unobligated LEU, as well as conducting  obligation exchanges to preserve unobligated LEU. According to DOE,  to meet defense mission requirements in the future, the United States will  eventually need to reestablish the capability to produce unobligated LEU.  In the meantime, NNSA and TVA have been working together to identify  actions to preserve DOE’s remaining quantities of unobligated LEU.
section_title: Over 800 Obligation Exchanges Have Taken Place Since October 2003, and Most Were Conducted for Commercial Reasons
paragraphs: From October 1, 2003, through November 30, 2015, 817 obligation  exchanges took place in the United States, and most were conducted to  meet commercial customer demand. The majority (98 percent) of these  exchanges involved NRC-licensed commercial facilities; the rest were  conducted by DOE contractors. NRC licensees told us they generally  conducted exchanges to meet customer demand for material with  obligations from certain countries and to avoid the need to physically  transport uranium. DOE contractors told us they conducted a number of  obligation exchanges primarily to accommodate the closure of the vault  where the material was being stored.
subsections: section_title: Exchanges Typically Involved Commercial Nuclear Facilities, and Numbers of Exchanges Have Decreased in Recent Years
paragraphs: According to NMMSS data, there were 817 exchanges of foreign  obligated nuclear material in the United States from October 1, 2003,  through November 30, 2015. The majority of these obligation  exchanges were between commercial nuclear facilities and involved  particular material types and certain types of obligations. Specifics on the  exchanges follow.
Of the 817 obligation exchanges, 802 (98 percent) were conducted by  NRC-licensed commercial nuclear facilities; 14 were conducted by  DOE contractors; and 1 was conducted by an NRC licensee that  conducts work both for commercial purposes and for DOE.
The majority (99 percent) of the obligations exchanged involved LEU  or natural uranium, and the remaining 1 percent consisted of two  obligation exchanges involving plutonium and two involving depleted  uranium.
The majority (99 percent) of obligation exchanges involved facilities  exchanging obligated for unobligated material. The remaining 1  percent involved facilities exchanging obligated material for obligated  material.
The majority (92 percent) of the obligations exchanged involved  obligations from either Australia or Canada. Five percent were  obligations from Argentina, Brazil, Chile, China, EURATOM, or Japan,  and 3 percent involved material with layered obligations—that is,  obligations to multiple countries.
The number of obligation exchanges peaked in 2007 with 107 exchanges  and has generally declined since then, with steady declines since 2011.  Figure 3 shows the number of obligation exchanges conducted in the  United States from October 1, 2003, through November 30, 2015.
According to officials from Centrus Energy Corp. (formerly USEC), the  company that conducted the most obligation exchanges from 2003 to  2015—the peak in 2007 resulted from increased demand that year for  LEU. The officials noted that the demand for LEU fluctuates and can be  cyclical, as most nuclear power plants operate on an 18-month cycle and  must be shut down at regular intervals to replace spent fuel rods with new  ones. The officials attributed the decline in obligation exchanges to  decreased demand for LEU and to the May 2013 closure of the Paducah  Gaseous Diffusion Plant, which meant that less unobligated LEU was  available.
section_title: Most Exchanges Were Conducted to Meet Commercial Customer Demand for Uranium with Specific Obligations and to Avoid Physically Transporting Material
paragraphs: According to NRC licensees, exchanges were generally conducted to  meet commercial customer demand for material with obligations from  certain countries and to avoid the need to physically transport uranium. In  contrast, DOE contractors told us they conducted a number of obligation  exchanges primarily to accommodate the closure of the vault where the  material was being stored.
subsections: section_title: Obligation Exchanges Conducted by NRC Licensees
paragraphs: According to NRC licensees, obligation exchanges were conducted  primarily to meet their customers’ demand for uranium with specific  obligations. These customers were utility companies that may have had  contracts that specified the delivery schedule and obligation requirements  for LEU years in advance of delivery of material. NRC licensees told us  that sometimes, as a result of these contracts, facilities needed to deliver  uranium with specific obligations before they had physically obtained  uranium with the required obligations, so they conducted obligation  exchanges with other facilities to obtain and provide the material on the  required schedule. Customers wanted either unobligated LEU or LEU  with obligations from certain countries to help simplify their nuclear  material accounting. For example, representatives from one facility stated  that their customers prefer to obtain unobligated LEU to avoid having to  maintain separate inventories of obligated and unobligated material, as  each obligation type needs to be tracked separately in NMMSS. By  having unobligated material, or limiting the number of different  obligations, facilities were able to minimize the number of tracking steps.
According to some NRC licensees, conducting obligation exchanges also  allowed them to obtain the obligations their customers wanted without  physically transporting uranium from another NRC-licensed facility. They  stated that obligation exchanges allowed them to avoid the high  transportation costs and safety risks associated with physically shipping  nuclear material. Overall, NRC licensees told us that obligation  exchanges are a customary and normal business practice in the nuclear  fuel industry. Representatives from one NRC licensee told us that the  facility “could not operate” without conducting obligation exchanges and  that it is an essential industry-wide practice.
In addition, we found that certain NRC licensees conducted obligation  exchanges for national security purposes—that is, to obtain unobligated  LEU for tritium production. Specifically, of the 802 obligation exchanges  conducted by NRC licensees, 3 were conducted by licensees that  supplied nuclear fuel to TVA, which produces tritium for NNSA. In 2014  and 2015, on behalf of TVA, three NRC-licensed facilities each conducted  an obligation exchange to preserve unobligated LEU for tritium production  at TVA’s Watts Bar 1 commercial nuclear power reactor. According to  DOE officials, such obligation exchanges help extend the date when the  United States will run out of unobligated LEU for tritium production.  According to DOE officials, these obligation exchanges are necessary  because the United States no longer has a domestic source of  unobligated LEU for tritium production. TVA and DOE officials stated that  additional exchanges for national security are anticipated in the future— perhaps one or two each year.
section_title: Obligation Exchanges Conducted by DOE Contractors
paragraphs: DOE contractors and on-site agency officials told us they conducted 14  obligation exchanges primarily to accommodate the closure of the vault  where the material was being stored. Specifically, 13 of the 14 obligation  exchanges were conducted to transfer obligations to accommodate DOE  closure of a vault in a building at the Y-12 National Security Complex,  which was scheduled for modernization. As part of the effort to empty the  vault, contractors transferred the obligations on this material to other  facilities, allowing them to relocate the now unobligated material from the  vault. The other exchange was conducted to transfer obligated plutonium  to a facility under IAEA safeguards at the Savannah River Site, according  to DOE contractors.
section_title: DOE and NRC Have Procedures for Accurate Tracking and Reporting of Obligation Exchanges, but Conditions Exist That May Affect Agencies’ Abilities to Use NMMSS to Demonstrate Compliance With Nuclear Cooperation Agreements
paragraphs: DOE and NRC have three procedures designed to ensure accurate  tracking and reporting of transaction data in NMMSS, including data on  obligation exchanges. However, conditions exist that may affect agencies’  abilities to use NMMSS to demonstrate compliance with nuclear  cooperation agreements in the future and monitor unobligated inventories  effectively.
subsections: section_title: DOE and NRC Have Procedures for Accurate Tracking and Reporting of Obligation Exchanges
paragraphs: DOE and NRC have three procedures designed to ensure the accurate  tracking and reporting of transaction data in NMMSS. These procedures  apply to all transaction data in NMMSS, including data on obligation  exchanges. The procedures are validation, reconciliation, and export  records comparison.
Validation. NMMSS completes automated validation checks for the  completeness and accuracy of data on nuclear material transactions.  There are two kinds of validation checks: (1) edit checks, which verify  that the data are complete and properly formatted, and (2)  compatibility checks, which verify that the shipper and receiver submit  identical information about the obligation exchange. There are 550  separate types of edit checks and 74 types of compatibility checks.  Validation checks control for data entry mistakes and omissions. Any  errors identified through these checks can be corrected by NMMSS  officials in consultation with authorized personnel at DOE sites and  NRC-licensed facilities.
Reconciliation. Reconciliation is the process of comparing NMMSS  nuclear material inventory data with other records. Reconciliation  occurs at two levels: at the facility level and at the country level. At the  facility level, NMMSS officials compare facilities’ reported physical  inventory records—including their obligation balances—with the data  in NMMSS and either confirm that these records are in agreement or  alert facilities to make adjustments, if necessary. A DOE order and  NRC regulations require U.S. facilities to reconcile their nuclear  material inventories—including their foreign obligation balances—at  least once annually. DOE contractors must report their inventories to  NMMSS by September 30 of each year and reconcile any  discrepancies with NMMSS. NRC licensees must report their  inventories to NMMSS at least annually, depending on the type of  material held, and reconcile any discrepancies with NMMSS. At the  country level, NMMSS officials annually compare the inventory data  with the records of foreign partners, including obligation balances.  According to DOE officials, this inventory reconciliation process is  conducted in accordance with the terms of certain administrative  arrangements. Like reconciliation at the facility level, the officials told  us that this process confirms whether NMMSS records are in  agreement with other records and alerts officials to follow up, if  necessary.
Export records comparison. A function in NMMSS compares  foreign partners’ export records with NMMSS data. Foreign partners  provide advance notification, as well as a confirmation of shipment, to  the U.S. government when shipping nuclear material to the United  States. NMMSS then compares these communications, as well as  foreign partners’ export records obtained through IAEA, with data in  NMMSS. Until January 2012, the communications were stored in  documents, but since then, they have been recorded electronically in  NMMSS.
We tested elements of these procedures and analyzed certain NMMSS  data and found the data to be generally accurate with little evidence of  inaccuracies or other problems with NMMSS data on obligation  exchanges. For instance, we tested several elements of the records of  compatibility and edit checks for all 817 obligation exchanges to verify  that the shipper and receiver submitted identical information to NMMSS  for each obligation exchange. We found that nearly all information  submitted by the shipper and receiver—such as material type, element  weight, and obligation country code—was identical for each of the  obligation exchanges conducted from October 1, 2003 through November  30, 2015.
However, we found two issues in NMMSS obligation exchange data. We  discussed these issues with DOE and NRC officials, who indicated that  they planned to take steps to address one of the identified issues and  explained that that other issue had already been addressed.
First, we found that according to NMMSS data, 2 of the 817 obligation  exchanges conducted by NRC licensees involved uranium with assay  levels of slightly more than 5 percent, which is contrary to NRC  guidance that obligation exchanges are restricted to uranium enriched  to 5 percent or less. According to DOE and NRC officials, these  exceeded levels were isolated anomalies and may have been due to  rounding errors in NMMSS. Nonetheless, as a result of our audit  work, NMMSS officials stated that they intend to more closely monitor  the potential exceedance of the 5 percent threshold by implementing  a new edit check in NMMSS to identify obligation exchanges at  licensed facilities on material with assay levels greater than 5 percent  and flag that transaction as an error. According to NRC officials, the  edit check will identify an error, which will prompt actions to resolve  the transaction in NMMSS. Specifically, the licensee will have to  consult with NMMSS program staff to determine whether the  transaction requires additional U.S. approval before a manual  authorization is given to override the error.
Second, we found five obligation exchanges where the shipping  facility and receiving facility reported different activity dates. According  to one of NMMSS’s compatibility checks, the date must be the same  for the shipper and receiver of an obligation exchange. However,  NMMSS did not detect the mismatched data in these five obligation  exchanges, which occurred from 2004 to 2009. According to DOE  officials, the five obligation exchanges with mismatched dates were  not caught in NMMSS because they predated an edit check that was  implemented in NMMSS in March 2013. DOE officials said that, since  the edit check was implemented 3 years ago, there have been no  obligation exchanges with mismatched activity dates. DOE officials  told us that this issue has been addressed.
section_title: Conditions Exist That May Affect Agencies’ Abilities to Use NMMSS to Demonstrate Compliance With Nuclear Cooperation Agreements and Monitor Unobligated Inventories Effectively
paragraphs: Two conditions exist that may affect DOE’s and NRC’s abilities to use  NMMSS to demonstrate compliance with nuclear cooperation agreements  and effectively monitor unobligated inventories. First, the agencies have  not documented the conditions under which facilities may carry negative  obligation balances. Second, the United States has a declining domestic  inventory of unobligated LEU for national security purposes that is  projected to last until 2038 to 2041, but NMMSS does not have a  monitoring capability that could alert DOE when the inventory of  unobligated LEU is particularly low.
subsections: section_title: Agencies Have Not Documented the Conditions under Which Facilities May Carry Negative Obligation Balances
paragraphs: Nuclear cooperation agreements and the administrative arrangements  that we reviewed do not address whether or to what extent facilities may  carry negative obligation balances but while DOE officials told us that the  practice is not prohibited, DOE and NRC have not documented the  conditions under which it is allowed. Negative obligation balances occur  when a facility conducts an obligation exchange without having enough of  a given nuclear material in inventory—similar to writing a check for an  amount that is not currently in one’s checking account, with the  assumption that enough funds will be deposited in time to cover the  cashing of the check. DOE and NRC have not documented the  conditions under which facilities are allowed to carry negative obligation  balances.
Some NRC licensees stated that they carried negative balances for  extended periods—including for several months or more than a year.  DOE officials confirmed that certain facilities have carried negative  obligation balances for brief periods, and others have carried them for  extended periods of time. Specifically, according to DOE officials, 17  facilities in the United States have carried negative obligation balances  between reconciliation dates. DOE officials attributed 6 of 17 instances  to facility “business practices.” Specifically, they stated that certain  facilities, such as uranium enrichment and fuel fabrication plants, need to  deliver uranium with specific obligations to customers before they have  physically obtained such uranium. As a result, the facilities may carry  negative obligation balances for months at a time, with the assumption  that sufficient obligations will be received on incoming shipments of  nuclear material and that receipt of this material will eventually cover the  negative obligation balance.
DOE officials attributed the negative obligation balances at 11 of the 17  facilities to the brief time lag in reporting information to NMMSS.  Specifically, the DOE/NRC Form 741 that officially records the obligation  exchange must be sent by the “shipping” facility to NMMSS within 1  business day, and the form that officially records the receipt of the  material must be sent by the “receiving” facility to NMMSS within 10 days.  Thus, it is possible for a facility to temporarily carry a negative obligation  balance within this 10-day window.
However, we found that 1 of the 11 facilities had a negative obligation  balance that was of significantly longer than 10 days: this negative  obligation balance of LEU lasted 18 months and spanned multiple  reconciliation periods. Specifically, an NRC-licensed facility carried a  negative balance of foreign obligated LEU from February 2006 to August  2007. Representatives of the facility and DOE officials confirmed this  negative obligation balance and that it lasted for about 18 months— spanning three reconciliation periods. According to officials from the  facility, to remedy its negative balance, in August 2007 the facility  conducted an obligation exchange with another facility to obtain foreign  obligated LEU. DOE officials told us that since 2010, there have been no  other instances of negative obligation balances persisting at any facility  past reconciliation. Nevertheless, since one negative obligation balance  persisted past multiple reconciliation periods, a risk remains that facilities  may carry negative obligation balances for extended periods of time in the  future.
Under federal standards for internal control, agency management should  design control activities to achieve objectives and respond to risk,  including by clearly documenting internal control, and the documentation  may appear in management directives, administrative policies, or  operating manuals. While NNSA’s procedures for foreign obligation  reporting state that both the shipping and receiving facilities should verify  that there is sufficient inventory of the given material type to support an  obligation exchange, they do not document the conditions under which  carrying a negative obligation balance is allowed. Moreover, some NRC  licensees told us that it is unclear whether or to what extent facilities may  carry negative obligation balances. Representatives from one facility  stated that it would be helpful for NMMSS officials to help clarify when the  practice of carrying negative obligation balances is allowed and for what  duration.
DOE officials told us they strongly encourage facilities to avoid carrying  negative obligation balances but acknowledge that they have not  documented in guidance when the practice is allowed. Specifically, DOE  and NRC officials said that they discourage this practice through  informational presentations that they provide to NRC licensees and DOE  contractors at trainings and conferences. However, DOE officials told us  that the practice of carrying negative obligation balances is not prohibited  and that they have not documented the conditions under which carrying a  negative obligation balance is allowed. Instead, DOE officials stated that  their main internal control for negative obligation balances is to review  facilities’ inventory once each year as part of the annual reconciliation  process. Through this process, NMMSS analysts expect facilities to  correct any negative obligation balances by the time of reconciliation.  However, as we noted, this process did not address the negative  obligation balance carried by one facility through several reconciliation  cycles. According to NNSA documents, additional internal control  procedures have been implemented in NMMSS in the past 6 years—such  as developing new edit checks to detect incidences of negative obligation  balances at the time of reconciliation—which NNSA officials believe will  prevent facilities in the future from carrying negative obligation balances  past reconciliation. However, we were unable to test these internal  controls to verify whether there have been any additional incidences of  facilities carrying negative obligation balances past reconciliation. As the  inventory of LEU continues to decline, there is a growing risk that facilities  carrying negative obligation balances between reconciliation periods may  not be able to correct their negative obligation balances at year end.  Without DOE and NRC clarifying in guidance the conditions under which  facilities can carry negative balances, facilities may be at risk in the future  of conducting exchanges that they ultimately cannot fulfill, putting the U.S.  government at risk of not complying with its nuclear cooperation  agreements.
section_title: NMMSS Does Not Have a Capability to Alert DOE When the Inventory of Unobligated LEU Is Particularly Low
paragraphs: NMMSS does not have a capability to alert DOE when the inventory of  unobligated LEU is low, placing facilities with negative obligation balances  at risk of not being able to reconcile them. According to NMMSS data,  there have been significant decreases in the inventory of unobligated  LEU, particularly from 2014 to 2015, which DOE officials attributed in part  to the closure of the Paducah Gaseous Diffusion Plant in 2013, when the  United States lost its sole supplier of unobligated LEU. DOE officials  project that the inventory of unobligated LEU will continue to decrease  without a domestic source. DOE documents estimate that the inventory  will run out at some point from 2038 to 2041.
Federal standards for internal control state that management should  establish and operate monitoring activities to monitor the internal control  system and evaluate the results. Ongoing monitoring is to be built into  the entity’s operations, performed continually, and responsive to change  and may include automated tools, which can increase objectivity and  efficiency by electronically compiling evaluations of controls and  transactions. DOE officials acknowledged that they do not have a specific  capability in NMMSS that could serve as an early-warning system to alert  them when the inventory of unobligated LEU becomes low enough to put  facilities at risk of running negative obligation balances that they may not  be able to reconcile. They also told us that no such capability is currently  needed because the inventory of unobligated LEU is currently sufficient to  limit such risk. Moreover, DOE officials added that they would step in to  cover a negative obligation balance that could not otherwise be covered  out of a facility’s own inventory, by transferring unobligated LEU from the  U.S. national security inventory.
Nevertheless, while the U.S. national security inventory of unobligated  LEU could be used to correct any future negative obligation balances, if  the decline in this U.S. inventory of unobligated LEU continues, and if it is  possible to carry a negative obligation balance beyond reconciliation,  there is a risk that, at some point in the future, a facility may conduct an  exchange for nuclear material that it cannot fulfill—essentially bouncing a  check. DOE officials acknowledged that the decline in the national  security inventory of unobligated LEU may change the way senior DOE  officials need to use NMMSS in the future and that additional monitoring  may be needed to ensure compliance with nuclear cooperation  agreements. Without DOE and NRC developing an early-warning  monitoring capability in NMMSS to alert senior DOE officials when the  inventory of unobligated LEU becomes low, DOE cannot know when  supplies of unobligated LEU are no longer available to correct negative  obligation balances, thereby putting the U.S. government at risk of  noncompliance with its nuclear cooperation agreements.
section_title: Conclusions
paragraphs: Under terms of its nuclear cooperation agreements, the United States  must account for foreign obligated nuclear material, and NMMSS has  been designated as the system to track and report on that material as it  enters, leaves, and moves within the country. DOE and NRC have  developed procedures designed to ensure that the transaction data in  NMMSS, including data on obligation exchanges, are accurate. With the  exception of a few issues, which NNSA has fixed or plans to fix by  developing new internal controls, we found that these procedures are  working as expected and that NMMSS data on obligation exchanges  appear to be reliable.
Certain obligation exchange practices, combined with trends in the  inventory of unobligated LEU, may change the information DOE and NRC  officials need and the actions required to ensure compliance with nuclear  cooperation agreements in the future. While DOE’s procedures for foreign  obligation reporting state that facilities should verify that there is sufficient  inventory of the given material type to support an obligation exchange,  neither the procedures nor other guidance document the conditions under  which carrying a negative obligation balance is allowed. In addition, the  United States has a declining domestic inventory of unobligated LEU, but  NMMSS does not have an early-warning monitoring capability to alert  DOE when this inventory is particularly low. Without such an early- warning monitoring capability in NMMSS to alert senior DOE officials  when the inventory of unobligated LEU is particularly low, facilities  carrying negative balances could put the U.S. government in the position  of potential non-compliance with its nuclear cooperation agreements.
section_title: Recommendations for Executive Action
paragraphs: We are making two recommendations to the Under Secretary for Nuclear  Security, as the Administrator of the National Nuclear Security  Administration, and the Nuclear Regulatory Commission to help ensure  compliance with the United States’ nuclear cooperation agreements:  1.  Clarify in guidance the conditions under which facilities may carry  negative obligation balances.   2.  Develop an early-warning monitoring capability in NMMSS to alert  senior DOE officials when the inventory of unobligated LEU is  particularly low.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided drafts of this report to DOE, NRC, and TVA for review and  comment. DOE and NRC provided written comments, which are  summarized below and reproduced in appendix I and II, respectively. TVA  did not comment on our findings and recommendations. In addition, all  three agencies provided technical comments, which we incorporated as  appropriate.
In their written comments, DOE and NRC did not explicitly state whether  they concur with the recommendations. DOE and NRC described actions  they are implementing or planning to implement to address our  recommendations.
Concerning our first recommendation that DOE and NRC clarify in  guidance the conditions under which facilities may carry negative  obligation balances, NRC stated that it is currently reviewing its guidance  on nuclear material reporting and will consider our recommendation when  updating this guidance. We will continue to monitor NRC’s  implementation of this recommendation. DOE said that it is deferring to  NRC’s response on this recommendation. DOE also stated that NNSA  has no authority to regulate negative balances that may occur as a result  of commercial business practices. DOE’s response suggests that it  believes our recommendation was limited to NRC licensees engaged in  commercial transactions. However, we recommended both NRC and  NNSA develop guidance to clarify when facilities with materials under  their jurisdiction may carry negative obligation balances because the  practice of carrying negative obligation balances at either a NRC-licensed  facility or DOE facility could put the United States in a position of  noncompliance with international agreements in the future if balances of  unobligated LEU become particularly low. Developing guidance could  mitigate this risk.
Concerning our second recommendation that DOE and NRC develop an  early-warning monitoring capability in NMMSS to alert senior DOE  officials when the inventory of unobligated LEU is particularly low, DOE  noted that it has been directed by Congress to biennially update its  Tritium and Enriched Uranium Management Plan through 2060. DOE  stated it will address our recommendation through these updates, which  will assess the inventory of unobligated enriched uranium for national  security applications. We agree that updating the plan will help DOE  monitor its inventory of unobligated LEU, and we acknowledge that for  now, biennial updates to the plan may be sufficient to monitor the  declining inventory of unobligated LEU. However, the inventory of  unobligated LEU has rapidly declined in recent years—about 10 percent  in 1 year alone—as noted in this report. As the inventory of unobligated  LEU continues to decline, more frequent monitoring may be necessary to  ensure that facilities do not conduct obligation exchanges for nuclear  material that they cannot fulfill, which could put the United States at risk of  noncompliance with its nuclear cooperation agreements. We continue to  believe that our recommendation for DOE to develop an early-warning  monitoring system will help mitigate the chance of DOE officials being  unable to address a sudden decline in the inventory unobligated LEU. In  its written response to our second recommendation, NRC stated that  DOE has notified it that DOE will complete biennial updates to the plan  and that NRC will support DOE as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report’s date. At that time, we will send copies to the appropriate  congressional committees, the NNSA Administrator, the Chairman of the  Nuclear Regulatory Commission, TVA’s Board of Directors, and other  interested parties. In addition, this report will be available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff members have questions about this report, please  contact me at (202) 512-3841 or trimbled@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made key contributions to  this report are listed in appendix III.
section_title: Appendix I: Comments from the Department of Energy
section_title: Appendix II: Comments from the Nuclear Regulatory Commission
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Nathan Anderson (Assistant  Director), Eric Bachhuber, and Tyler Kent made key contributions to this  report. Also contributing to this report were Alison B. Bawden, Antoinette  Capaccio, Julia Coulter, Kaitlin Farquharson, Ellen Fried, Cindy Gilbert,  Mitch Karpman, Amanda K. Kolling, Jeff Philips, Dan C. Royer, and  Vasiliki Theodoropoulos.