STATEMENT BY BRUCE B. DARLING
SENIOR VICE PRESIDENT FOR UNIVERSITY AFFAIRS
AND INTERIM VICE PRESIDENT FOR LABORATORY MANAGEMENT, UNIVERSITY OF CALIFORNIA
BEFORE
THE HOUSE ENERGY & COMMERCE COMMITTEE
SUBCOMMITTEE ON OVERSIGHT & INVESTIGATIONS
May 1, 2003

Good afternoon, Mr. Chairman, Mr. Deutsch, and members of the Committee: I appreciate the opportunity to appear before you for the third time and I would like to inform you about actions taken by the University of California since your last hearing to address the business and management problems at Los Alamos National Laboratory.

We have made considerable progress on a number of fronts at Los Alamos: from nearing completion of the comprehensive property inventory to addressing the backlog of property identified as missing, lost, or stolen. Let me focus on some items that have been of particular interest to the Committee:

In recent weeks we have released the findings from two independent reviews. They include seven reports on core business practices and internal controls at Los Alamos by Ernst & Young. Twenty consultants spent two months examining the organization, business systems and practices, and the required skills of the Laboratory’s Business Division. Ernst & Young provided us approximately 90 recommendations that cover the full range of Los Alamos business practices, including property management. The Laboratory is already implementing these recommendations.

Laboratory procurement practices were the subject of a separate review conducted by the External Review Team chaired by former DOE Inspector General John Layton and assisted by forensic accountants from PricewaterhouseCoopers. The External Review Team identified internal control weaknesses and deficiencies in Lab procurement practices that increased the Lab’s vulnerability to fraud, waste and abuse.

The External Review Team recommended a number of corrective actions, including an evaluation of staffing needs across all procurement functions; new controls in the Just-in-Time program; and safeguards to limit purchases under Local Vendor Agreements. These recommendations are being implemented and are in addition to corrective actions already underway at the Lab. These include reducing both the number of individuals allowed to make Local Vendor Agreement purchases and the number of property distribution sites, known as “drop points.” All drop points are now secured except for 45 that will be secured or eliminated in the near future.

In addition, the External Review Team identified $14,530 in potentially inappropriate transactions out of a total of $2.3 billion in procurement transactions during a two-year period. This information has been brought to the attention of the Inspector General. Los Alamos management is also investigating five lists of transactions that required additional documentation and review. Thus far we have not uncovered any fraudulent activity, although some purchases may be determined to be unallowable due to the lack of a clear Lab policy governing the purchase of required clothing items.

In the last week we have responded to two Inspector General reports. On the allowable costs audit, we believe that the majority of costs claimed for business meals are allowable under the contract. Even so, we will review our guidelines with The National Nuclear Security Administration and make appropriate policy revisions. We also believe the majority of travel claims questioned by the Inspector General are consistent with the applicable Federal Travel Regulation guidelines and are allowable costs. Los Alamos has researched and resolved 100 percent of the sample items on which the Inspector General based its “projected questioned costs.”

The Inspector General also criticized the performance of the Los Alamos Audits and Assessments office. As you have heard in previous testimony, the Internal Audit function is one that we have pursued very aggressively. As a result, the Inspector General’s recommendations have already been implemented.
The Inspector General’s most recent interim report was on internal controls over personal computers. We agree that the administrative processes that account for classified computers are flawed in ways that made verification of the computers difficult. The Laboratory is correcting these procedures. But let me emphasize an important point: Los Alamos has verified that all classified computers have been properly secured and at no time was classified information compromised or at risk as a result of these problems.

At the last hearing, I was questioned about specific whistleblower cases at the Los Alamos and Livermore national laboratories. In response, I sent a letter to Chairman Greenwood addressing the University’s whistleblower policies and the cases in question. My letter also addresses our practice related to reimbursement for legal costs, and it reports that I have seen no evidence to support the assertion of a culture of retaliation against whistleblowers. On the contrary, the University has redoubled its efforts to ensure that employees know that comprehensive whistleblower policies are in place and that employees are encouraged to express concerns without fear of retaliation.
In addition, I have personally met with attorneys for a number of the whistleblowers at the two Labs to hear their perspectives on those cases and the underlying causes. Following those discussions, I have arranged for the attorneys to meet with the University’s General Counsel to discuss possible ways to settle the cases through alternative dispute resolution.

We are also working to resolve a number of outstanding personnel matters. You will recall that on the date of the last hearing, the University’s Deputy General Counsel and the former U.S. Attorney in San Diego were meeting with representatives of the U. S. Attorney’s Office in Albuquerque. The purpose of the meeting was to obtain crucial information about the “Mustang case” from the U. S. Attorney’s earlier meeting with the Los Alamos Lab’s Principal Deputy Director and Laboratory Counsel. The University representatives also sought to better understand the past working relationship — and to improve the future working relationship — between the Laboratory and the U.S. Attorney’s Office. In addition, we had hoped that the meeting might provide other valuable information. However, the U.S. Attorney’s Office did not wish to engage in substantive discussions at that time. The University will continue to pursue this as soon as the U.S. Attorney’s Office is willing to do so.

Similarly, in regard to the “Mustang case,” the U.S. Attorney is not pursuing prosecution of this case and the FBI investigative file has been closed. However, we have sent on two separate occasions a team of University investigators to visit the owner of AllMustang.com in Phoenix to obtain additional documents that could enable us to establish who made the attempted purchase of the Ford Mustang. We have served a Freedom of Information Act request to obtain the FBI investigative file but we were denied a copy of the file by the FBI yesterday. Our attorneys are reviewing the basis for the denial to determine the next steps in this matter. We are still pursuing the matter vigorously in order to bring the matter to a satisfactory conclusion.

On the TA-33 matter, the FBI case is continuing. The Lab has inventoried all of the equipment and supplies improperly acquired, and has recovered all but approximately $50,000 of more than $300,000. The merchandise has been put into use by the Lab’s major service subcontractor. PricewaterhouseCoopers has been engaged to assist in reviewing records of purchases from the vendor from whom the TA-33 purchases were made. The Lab intends to pursue recovery from the vendor for any residual amounts not otherwise recovered.

Additionally, the Laboratory continues to work on the backlog of property identified as missing, lost or stolen. All open cases have been investigated with no findings of significant theft. Those items regarded as suspicious have been referred to the Inspector General.

As you know, the Laboratory initiated a comprehensive property inventory, known as a “wall-to-wall” inventory. I am pleased to report that the Lab continues to be well ahead of schedule and to date has accounted for 97 percent of the total inventory value of Lab property.

Finally, I want to mention that at its next meeting on May 14 and 15, the University’s Board of Regents will approve additional audit procedures for the national laboratories. The purpose is to expand the scope of the external auditors’ review of the three UC-managed national laboratories to include a more in-depth review of the Labs’ financial controls. We want to be sure that the financial controls are functioning effectively.

Unrelated to Los Alamos, but of critical concern to the University, are the recent indictments in an FBI case that revealed the association of a Lawrence Livermore National Laboratory employee — a former senior FBI agent — with one of the individuals indicted. In response, the Lab and the University moved quickly to deny the employee access to his offices; to place him on investigative leave; to relieve him of his Laboratory badge; to deny him physical and computer access to the Lab; to change the locks on his offices and seal them so that his offices, files and computers were immediately secured; and to request the suspension of his clearance, which DOE acted on immediately. The University also initiated a classified “administrative inquiry,” which is now under the direction of the National Nuclear Security Administration. The Lab and the University are providing full support and cooperation to the NNSA. The employee has since resigned.

Mr. Chairman, that concludes my remarks. Vice President Broome, University Auditor Reed and I will be happy to address each of these issues in greater detail as well as answer any other questions you may have.