Cooperative Threat Reduction: DOD Has Adequate Oversight of Assistance, but Procedural Limitations Remain
Released: 2001-06-19T00:00:00

Letter

Background

Since 1992, DOD has obligated more than $2.5 billion of the over $3 billion the Congress has appropriated to help CTR recipient countries destroy weapons of mass destruction, transport and store weapons to be destroyed, and prevent weapons proliferation. Early in the program, CTR assistance was largely provided to recipient countries in the form of equipment, such as cranes, trucks, and cutting tools. As the program matured, most of the assistance provided was in the form of services, such as the dismantlement of Russian nuclear submarines that are contracted for or provided by the CTR program to recipient countries. Additionally, other costs have been associated with the program, such as travel expenses, the defense and military contacts program, and contractor support. Figure 1 shows the level and types of assistance provided from fiscal years 1992 through 2000.

In 1992, DOD began providing equipment to recipient countries for use in destroying weapons of mass destruction and improving the infrastructure needed to destroy these weapons. By the mid-1990s, DOD began to hire U.S. companies to coordinate and integrate the destruction of the recipient countries’ weapons of mass destruction because these countries claimed they could no longer afford to complete the work and were falling behind schedule. When work is undertaken at sensitive facilities where access is limited or denied, DOD often contracts directly with recipient country contractors.

DOD uses the following three basic procedures to provide oversight and maintain accountability for CTR assistance: (1) audit and examination team visits, (2) routine program management, and (3) intelligence analysis. At the start of the CTR program, bilateral agreements were signed with recipient countries that established the United States’ right to determine if assistance is being used for its intended purposes. To implement its rights under these agreements, DOD initially developed what it calls “audit and examination” procedures to account for CTR-provided equipment. Under these procedures, a DOD team documents equipment condition and use by visiting sites to inspect the equipment and reviewing documents to determine its use, a process of essentially taking an inventory of equipment provided under the program. CTR assistance provided in the form of service contracts is generally overseen and accounted for under the program management function. Program management entails the continual involvement of DOD officials throughout the life of the project to ensure proper use of all services and training before payment, in accordance with Federal Acquisition Regulations. All contracts for services with recipient countries are awarded on a firm-fixed-price basis; that is, contract milestones must be met and work accepted by a U.S. government representative before payment is authorized. The Defense Contract Audit Agency reviews all contract costs and conducts audits of U.S. contractors involved with the CTR program. To compliment its audit and examination and program management oversight, DOD also uses information provided by the intelligence community to account for CTR assistance.

Initially, much of the CTR assistance provided consisted of equipment, whereas now the vast majority of assistance is provided in the form of contracted services. As illustrated in figure 2, in 1994, 45 percent of CTR assistance provided was equipment compared with less than 1 percent in 2000.

DOD Has Procedures To Provide Reasonable Assurance of Accountability for CTR Assistance

DOD has procedures in place to obtain the information necessary to provide reasonable, but not absolute, assurance that most CTR assistance is used for the purpose intended. Through program management, audit and examination procedures, and intelligence analysis, our analysis indicated that DOD can reasonably account for at least 95 percent of the total program dollars provided to recipient countries. Using these methods, DOD obtains a variety of information, including documentary, visual, testimonial, and photographic evidence, that it then uses to compile its annual accounting report to the Congress. The 5 percent or less of the total value of assistance provided for which DOD cannot give reasonable assurance that it is being used for the purposes intended generally consists of equipment located at sites where DOD’s access is restricted or denied. (See app. I for information on DOD’s 1999 report accounting for CTR assistance.)

Procedures Used to Account for CTR Assistance

Through program management, audits and examinations, and intelligence analysis, DOD can account for most of the total program dollars provided to recipient countries. As illustrated in figure 1, approximately $2.2 billion of the $2.5 billion of CTR assistance obligated has been in the form of services and other activities, with the remaining $340 million of assistance provided in the form of equipment. Our review shows that DOD maintains effective accountability for services, other activities, and some equipment through its program management and intelligence analysis. However, the inability to view all equipment, particularly at those sites where Russia does not allow U.S. personnel access, precludes DOD from determining that all equipment is being used for the intended purpose. Our analysis showed that a limited amount of equipment—less than 5 percent of the total value of CTR assistance provided—is in locations where U.S. personnel have no access rights or do not visit. Although DOD has used these procedures to account for CTR assistance since the program began, we found that, in the past, DOD officials did not routinely document the results of their program management visits. DOD has strengthened its procedures for documenting information collected through its program management efforts, which is extremely important now that the vast majority of new CTR assistance is in the form of services, whose accountability primarily relies on program management.

Program Management

DOD partially accounts for CTR assistance through program management, which provides oversight of the majority of CTR assistance. In managing their projects, CTR program officials make frequent visits to recipient countries. Through these site visits, they observe the use of CTR-provided equipment, monitor contract performance and schedule, and inspect and accept the work performed, in addition to discussing technical and programmatic issues with recipient country officials. DOD has recently developed a reporting system to capture these activities more systematically. Since implementing the system at the start of fiscal year 2001, 70 program management visits were conducted through the end of February 2001; 69 of these visits have been documented. Thirteen visits included inspecting and accepting the work performed, and 30 visits included the inspection of CTR-provided equipment and materials, among other activities performed.

Additionally, program managers obtain information from the U.S. contractors that manage some of the projects and maintain CTR-provided equipment. Project managers obtain the status of projects from contractors responsible for managing entire projects. For example, the U.S. contractor for the construction of the Security Assessment Training Center at Sergiev Posad, Russia, maintains U.S. nationals on site to directly oversee ongoing work. Contractor personnel provide weekly status reports and meet frequently with CTR project officials. When we visited Sergiev Posad in January 2001, we observed the interaction between contractor personnel and program officials regarding the construction of a small arms training facility and the testing of various security systems. For example, figure 3 shows several types of vehicle security gates provided through CTR assistance. These gates are tested by U.S. and Russian personnel at the facility to determine which equipment best meets requirements for upgrading security at Russian nuclear storage facilities.

DOD also has one U.S. contractor providing logistics and maintenance support for all CTR-provided equipment. This contractor has recently developed the Electronic Information Delivery System that tracks equipment location, value, and maintenance. The system also monitors the number of contractor visits scheduled, completed, and denied to the sites where equipment is located. The database is available to program officials through the Internet. Program officials can obtain reliable information from their various contractors on how CTR assistance is used.

Audits and Examinations

DOD personnel conduct audit and examination visits on the basis of formal agreements and procedures with recipient countries. Audit and examination teams essentially take an inventory of CTR-provided equipment to verify location and use for the annual accounting report; however, the teams do not assess the projects’ efficiency or effectiveness. For calendar year 2000, DOD scheduled 23 audits and examinations, of which 14 were conducted. The remaining nine were either cancelled or postponed, primarily due to difficulties with the Russians concerning the agreement governing audit and examination procedures. However, CTR program officials stated that they had full confidence that the equipment meant to be inventoried by the audit and examination teams was being used as intended as the result of their program management procedures.

The selection of which projects, sites, and equipment will undergo an audit and examination is judgmental and is based on the risk of equipment loss, misuse, or diversion; the estimated dollar value of the equipment; the date of the last audit and examination of that project; and the site’s accessibility. DOD officials, however, could not always specify the rationale used in scheduling audits and examinations.

Audit and examination team leaders determine the specific sites to be visited and equipment to be inventoried on the basis of program manager and contractor input; however, the decision is subject to director approval. Audit and examination teams, through visual inspection and record reviews, annually inventory a selection of CTR-furnished equipment to ensure its proper location and use. The information obtained through audits and examinations varies from project to project, depending upon the implementing agreements with recipient countries. For example, we observed DOD officials conduct two audits and examinations in Russia. One consisted of visiting a site where CTR-provided equipment was located, meeting with the officials who used the equipment, conducting a complete inventory of high-value equipment, and reviewing training documents. Figure 4 shows the Reutov Business Development Center, where we observed an audit and examination team examine about $270,000 worth of CTR-provided office equipment. The other audit and examination compared detailed photographs, taken by recipient country officials, of CTR-provided equipment with inventory lists provided by DOD and the recipient country. Although the DOD officials who conducted these audit and examination visits verified that equipment provided through the CTR program was in place, the officials did not assess whether the projects examined were conducted in an efficient manner, or whether they were effectively meeting the objectives of the CTR program, because such assessments were not part of the scope of work of the audit and examination teams.

The Weapons Intelligence, Nonproliferation, and Arms Control Center provides intelligence analysis to the CTR program. The center’s staff analyzes information obtained from across the intelligence community regarding CTR-provided assistance. Its assessments supporting CTR accountability are included in a classified annex to DOD’s annual accounting report. The center’s assistance also includes briefings to program and project managers when needed, assessments of ways in which potential CTR projects could enhance recipient countries’ military forces, studies of current events and trends, and information helpful in negotiating and implementing projects.

DOD Does Not Have Full Access to All Sites Where Equipment Is Located

DOD’s inability to gain access to all sites in some recipient countries where CTR-provided equipment is located has been an issue since the CTR program began in 1992. The U.S. government has been concerned about its ability to examine the use of the equipment, while recipient countries have had security concerns regarding U.S. access to sensitive facilities. In an effort to balance these concerns, bilateral agreements were signed to provide the United States with the general right to audit CTR assistance, but separate agreements were also required specifying the procedures by which the United States can audit individual projects. For example, all audit and examination team visits require a 30-day notice of the audit before arrival of the team and are limited to no more than three visits per calendar year, per project. Due to the extreme sensitivity of nuclear weapon storage sites, Russia did not agree to provide U.S. personnel with access to those sites. Thus, a separate agreement was negotiated to provide photographic audits rather than on-site visits to account for the use of CTR-provided assistance. This agreement stipulates that recipient country officials, after meeting with the audit and examination team, use CTR-provided cameras and film to photograph equipment at sites where U.S. officials are denied access. The team provides the country officials with specific guidance on how to photograph the equipment as well as a unique identifier that must be included in all photographs. Recipient country officials then provide the photographs to the awaiting audit and examination team for review. The team compares the CTR-provided equipment in the photographs with inventory lists maintained by DOD and the recipient country.

Although the level of access varies among CTR projects, nearly all CTR program-related visits must be preapproved by recipient countries. Certain types of documents, such as visas, are required of all visitors. We have grouped the level of access to sites where $340 million worth CTR equipment has been provided into the following three categories: (1) those sites where no access is provided to U.S. personnel, although audits and examinations are performed through alternative methods; (2) those sites where audits and examinations are not performed due to the absence of administrative arrangements but where program managers have access to the project sites (restricted access); and (3) those sites where access has not been denied to either audit and examination teams or project managers (unrestricted access). Figure 5 shows the value of CTR equipment by recipient country and level of access.

United States officials are not provided access to the Russian sites where the equipment associated with the storage and transportation of nuclear warheads is located. In some cases, equipment such as the U.S.-provided railcars used to transport warheads is delivered to alternate locations for review by U.S. government officials. In other cases, such as for the equipment at warhead storage sites, U.S. government officials are provided with time-stamped photographs of the equipment to account for its use. For example, figure 6 is a photograph of a supercontainer that was used to transport nuclear weapons. The photograph was taken during the January 2001 audit and examination of equipment at Russian nuclear weapons storage sites. DOD accepted the photograph as proof that the equipment was located at a nuclear weapons storage site where U.S. personnel were denied access.

Audit and examination teams have restricted access to sites containing equipment designed to help the Russians eliminate their strategic nuclear delivery systems—that is, heavy bombers, intercontinental ballistic missiles, and submarine launched ballistic missiles—and the safe storage of fissile materials. Although program managers usually have access to those sites where such equipment is located, the Russian government has denied access to CTR audit and examination teams since 1999, even though DOD considers this a violation of Russia’s obligations under the bilateral agreements. DOD officials said that they are working with the Russian government, primarily the Ministry of Atomic Energy, to negotiate a mutually acceptable arrangement to promote the continuation of audits and examinations.

The final category covers CTR equipment provided to recipient countries where access has not been routinely denied to audit and examination teams and project managers. This equipment ranges from that used to destroy chemical weapons in Russia to that used to eliminate strategic nuclear delivery vehicles in Ukraine and Kazakhstan. However, recipient countries must preapprove virtually all visits to sites where CTR assistance is located, and, occasionally, project managers and audit and examination teams are denied access to CTR-provided equipment. For example, during a September 2000 audit and examination of export control equipment in Kazakhstan, team members were denied access to two buildings for security concern reasons. Furthermore, some contractor personnel have been denied access to recipient country facilities that are normally open to U.S. personnel. From May 2000 through April 2001, the CTR logistics support contractor scheduled 361 site visits to repair and maintain CTR-provided equipment, but in 9 cases, the requests were denied. All nine denials were at sites in Russia involving the elimination of strategic offensive arms.

DOD Can Improve Its Audit and Examination Procedure to Better Oversee CTR Assistance

DOD could improve the quality of its program oversight function by better targeting and expanding the scope of its audit and examination procedure. Audits and examinations have become less useful in accounting for CTR assistance because they frequently duplicate what program managers do on a routine basis, and, as currently conducted, the reviews simply consist of taking equipment inventories. As the CTR program has changed from providing equipment to providing contracted services, audits and examinations have not evolved to include assessments of the effectiveness or efficiency of the services provided.

Many audits and examinations conducted in 2000 appear to provide little value in accounting for CTR assistance beyond the information already provided through program management and intelligence analysis. Of the 13 audits and examinations scheduled for Russia in calendar year 2000, 7 did not take place. However, CTR officials we interviewed stated that it did not matter that these audit and examinations were not conducted because the officials could account for their projects without the information supplied by audits and examinations. The officials said they had sufficient data available from program management and intelligence analysis to provide reasonable assurance on the use of equipment. Figure 7 is a photograph used to inventory CTR-provided equipment at a Russian nuclear weapons storage site. DOD accepted this photograph as proof that U.S.-provided equipment was located at the site where U.S. personnel were denied access.

Our analysis indicated that audit and examination visits often duplicated equipment verification already performed and documented through program management. For example, in October 2000, a project manager visited a strategic nuclear arms elimination site in Ukraine and documented his observation of CTR-provided equipment, including 16 of 33 dump trucks. Later, in December, an audit and examination team visited the same site and inventoried the same equipment, but this time observed 17 of 33 trucks. During both visits, the remaining trucks were accounted for through a review of records.

Although DOD officials acknowledged that audits and examinations, as currently conducted, provide little additional value, they believe that these procedures should continue to be used to account for CTR assistance. The officials commented that the United States should maintain its right to audit and examine CTR-provided assistance as stated in the bilateral agreements with the recipient countries but added that the scope of audits and examinations could be expanded to encompass more than simply taking an inventory of equipment. The results of a recent DOD Inspector General audit of CTR assistance support the concept of broader reviews.For example, the report raised no issues regarding the accountability of assistance but did raise concerns regarding the efficiency of some CTR projects. Specifically, DOD officials questioned how recipient countries would use funds generated by salvageable materials from the elimination of weapons of mass destruction. Furthermore, with the help of the Defense Systems Management College, DOD officials are reviewing CTR program management processes to see if they can be strengthened.

Conclusions

DOD has procedures in place that provide reasonable assurance that most assistance is used for its intended purpose; however, DOD’s inability to gain access to some sites preclude it from collecting sufficient evidence to ensure that all CTR-provided assistance is used only for the purposes intended. DOD has developed and begun implementing new procedures for documenting the methods it uses to collect data regarding CTR assistance. Specifically, information obtained from the recently developed reporting system to capture program manager trip activities and the Electronic Information Delivery System for tracking CTR-provided equipment could improve the quality of future accounting reports. Given the program’s transition from providing equipment to providing services, most of the audits and examinations conducted in 2000 appear to lack value beyond that provided by program management and intelligence analysis.

By restructuring and better targeting audits and examinations, DOD would have a more valuable tool to oversee and account for CTR assistance. This may mean doing fewer audits and examinations, but expanding the scope of such audits and examinations to include assessments of projects’ effectiveness and efficiency, including the delivery of services. Currently, there are no well-defined criteria for targeting audits and examinations.

Recommendation for Executive Action

To improve DOD’s accounting of CTR-provided assistance, we recommend that the Secretary of Defense strengthen audit and examination procedures by developing criteria to target audits and examinations at the most vulnerable CTR projects, such as those least accounted for through other means; and expanding the scope of audits and examinations from simply taking an inventory of equipment provided under the program to assessing the effectiveness and efficiency of CTR assistance, including contracted services.

Agency Comments

DOD’s Defense Threat Reduction Agency commented on a draft of this report and agreed with our findings and our recommendation to enhance the quality of its oversight of the Cooperative Threat Reduction Program. In discussing how it plans to implement our recommendation, DOD said it has developed a methodology to better target audits and examinations at the most vulnerable CTR projects, such as those least accounted for through other means. The methodology includes calculating a weighted risk factor for each CTR project based on 10 criteria. (See appendix II for more details.) By applying these criteria to each project, program officials can better target which audits and examinations to conduct. In addition, DOD officials plan to expand the scope of audits and examinations to periodically assess the effectiveness and efficiency of CTR assistance, including contracted services. DOD did not specify, however, how and when such measures would be incorporated into its CTR audit and examination process.

Scope and Methodology

On the basis of the legislative mandate, our objectives were to assess (1) whether DOD’s oversight procedures produce the necessary information to determine if the threat reduction assistance, including equipment provided and services furnished, is being used as intended and (2) whether improvements can be made in the way DOD carries out its oversight responsibilities.

To accomplish our objectives, we examined DOD’s scope, procedures, and mechanisms for collecting and analyzing data used to account for the use of CTR assistance; determined what data DOD uses to report on whether CTR assistance is being used for the purpose intended; and reviewed how much of the equipment and services DOD actually accounts for. Specifically, we interviewed Defense Threat Reduction Agency officials, CTR policy officials, and CTR contractors responsible for DOD’s CTR accounting reports. We interviewed four of the six primary program managers and several project managers, particularly those who had audit and examination visits for their programs cancelled. We interviewed five of the eight audit and examination team leaders. We also met with officials from the Weapons Intelligence, Nonproliferation, and Arms Control Center to obtain information on certain CTR projects and on how the intelligence community supports CTR program accounting efforts.

We reviewed program management trip reports, weekly reports, quarterly program reviews, and other program documents. We were given a demonstration and were provided documentation of the newly developed Electronic Information Delivery System, which is a contractor-based logistics and maintenance support database. We also spoke with U.S. contractors working in Russia. We accompanied a Defense Threat Reduction Agency audit and examination team on two audits and examinations in Russia from January 19, 2001, to February 1, 2001. Additionally, we reviewed all audit and examination trip reports for 1999 and 2000. We met with and obtained documentation from officials in the DOD Inspector General’s Office who had recently examined several CTR projects.

We also reviewed DOD’s annual accounting report for 1999 to determine whether the Department had met the legislative requirements of section 1206 of the National Defense Authorization Act for Fiscal Year 1996. See appendix I for our analysis.

We performed our work from October 2000 through May 2001 in accordance with generally accepted government auditing standards.

We are providing copies of this report to other interested congressional committees and the Secretary of Defense. We will make copies available to others upon request.

Please contact me at (202) 512-4128 if you or your staff have any questions concerning this report. Key contributors to this assignment were F. James Shafer, Hynek Kalkus, Beth Hoffman León, Martin DeAlteriis, and Lynn Cothern.

Appendix I: Review of the Department of Defense’s 1999 Report Accounting for CTR Assistance

As required by section 1206 of Public Law 104-106, we reviewed the Department of Defense’s (DOD) 1999 accounting report to determine if it (1) contained current and complete data on the Cooperative Threat Reduction (CTR) assistance provided (both equipment and services), (2) described how CTR-provided assistance was accounted for and used, (3) provided a description of how DOD plans to account for the assistance during the following year, and (4) listed specific information on Russia’s arsenal of tactical nuclear warheads.

On the basis of our review, DOD’s 1999 accounting report covered the legislatively mandated information, yet it did not always convey the information completely and consistently. Specifically: DOD’s 1999 accounting report contained current and complete data on a little over two-thirds of all CTR assistance provided to the recipient countries through September 1999. According to DOD officials, the monies not accounted for in the report were spent on equipment purchased in country; equipment purchased in the United States but not yet shipped; and “other” CTR program costs, such as travel, shipment of equipment, military-to-military contacts, and Defense Threat Reduction Agency contractors. The report lists equipment totaling $314 million, services totaling $1.1 billion, and miscellaneous items totaling almost $16 million, for a combined total of nearly $1.5 billion worth of assistance. By the end of fiscal year 1999, however, the CTR program had provided over $2.1 billion of assistance to the recipient countries. The report lists some of the equipment that was purchased in recipient CTR countries, but it does not distinguish between that equipment and equipment shipped from the United States. According to CTR officials, the draft 2000 accounting report will provide more information about equipment purchased in recipient countries for that year. The 1999 report also included a listing of about $27 million in CTR equipment that DOD provided to recipient states during a 3- month period in 1997 that the 1998 accounting report excluded.

In its 1999 accounting report, DOD described how CTR-provided assistance was accounted for and used. Specifically, DOD explained the methods it used to account for CTR-provided equipment—audits and examinations, program management trips, and intelligence obtained through national technical means. The 1999 accounting report listed where the equipment was located at the time of the report and described the value of contractor services provided for each project. Although the report usually provided summary assessments of whether the equipment at the various projects was being used for its intended purposes, it did not detail the services provided and often did not specifically assess whether such services were satisfactory. DOD officials acknowledged that this was the situation but explained that they judged the amount of information on contractor services to be sufficient. Unlike the 1998 report, the 1999 accounting report summarized how the Departments of State and Energy account for their CTR-funded projects and referred the reader to reports submitted by these departments that detail how the assistance was accounted for.

The 1999 accounting report provided a description of how DOD plans to account for the assistance in fiscal year 2000. Although DOD had planned to conduct 23 audits and examinations during the fiscal year, it only conducted 14. The remaining nine were either cancelled or postponed due to difficulties with the Russians concerning the agreement governing audit and examination procedures.

DOD’s 1999 accounting report did not list specific information on Russia’s arsenal of tactical nuclear warheads as required by section 1312 of the National Defense Authorization Act for Fiscal Year 2000. However, DOD provided this information in a separate report sent to the Congress on January 9, 2001.

DOD’s 1999 report accounting for CTR assistance, like its five predecessors, was submitted late to the Congress. The report was due on January 31, 2000, but was not issued to the Congress until January 17, 2001—a delay of almost 12 months. DOD officials attributed the delay to a prolonged internal review process and to the fact that CTR policy officials revised the draft report, late in the review process, to incorporate the recommendations contained in our March 2000 report. The Department’s delay prevented the Congress from knowing the status of CTR-provided assistance while members were considering CTR program funding levels for fiscal year 2001.

Appendix II: Comments From the Department of Defense