Lawrence Livermore National Laboratory

The Lawrence Livermore National Laboratory (LLNL) is a government-owned, contractor-operated national laboratory of the Department of Energy's (DOE) National Nuclear Security Administration (NNSA). The University of California manages the lab under a cost-reimbursable contract with NNSA. During the fall of 2002, the Federal Bureau of Investigation began investigating two Los Alamos National Laboratory employees for alleged misuse of lab credit cards. Other allegations of theft and misuse of government funds at Los Alamos soon followed. In light of the problems identified at Los Alamos, Congress asked us to review selected procurement and property management practices at two DOE and two NNSA contractor labs, including LLNL. This report summarizes the information provided during our June 4, 2004 briefing to Congressional staff on these issues as they relate to Lawrence Livermore. Specifically, we reviewed LLNL's purchase card program and property management practices to determine whether (1) internal controls over the lab's purchase card (Pcard) program provided reasonable assurance that improper purchases would not occur or would be detected in the normal course of business, (2) purchase card expenditures made under the contract properly complied with lab policies and other applicable requirements and were reasonable in nature and amount and thus were allowable costs payable to the contractor under the contract, and (3) property controls over selected asset acquisitions provided reasonable assurance that accountable assets would be properly recorded and tracked. Our review covered selected transactions that occurred during fiscal year 2002 and the first half of fiscal year 2003, which were the most current data available when we requested the data for our review.

LLNL had implemented a number of internal controls over its Pcard program and property management functions. However, weaknesses in LLNL's Pcard program increased the lab's risk of improper purchases. Of the 144 nonstatistically selected transactions obtained through data mining for fiscal year 2002 and the first half of fiscal year 2003, we found 15 (10 percent) totaling $23,923 lacked an invoice, credit receipt, or other sales documentation necessary to validate the dollar amount, quantity, and nature of the items purchased. The lack of such documentation minimizes the effectiveness of supervisory review of Pcard transactions. Additionally, during our review period, the lab allowed supplemental labor personnel--staff that worked at the lab for a labor subcontractor and thus were not LLNL employees--to be issued Pcards, but did not have adequate controls in place to help ensure that the Pcards were returned if supplemental employees stopped working at the lab. Instead, it relied on the subcontractor to perform this function, with no oversight by lab employees. These control weaknesses likely contributed to the $97,348 in improper, wasteful, and questionable purchases we identified in our review. While relatively small compared to the approximately $120 million in purchase card activity that occurred during the review period, it demonstrates vulnerabilities from weak controls that could be exploited to a greater extent. Specifically, 87 of the 144 purchases in the nonstatistical selection we reviewed were for the purchase of controlled items that LLNL's policy requires to be preapproved. Thirty-two of these 87 transactions (37 percent) totaling $31,571 did not have any evidence of preapproval. We also identified two improper split purchases--that is, groups of two or more similar transactions that were split to circumvent single purchase limits--consisting of 11 transactions totaling $28,137 from a statistical sample. Further, we considered 11 transactions totaling $9,945 to be wasteful because they were excessive in cost compared to other available alternatives and/or were of questionable need. We considered 12 transactions totaling $28,220 to be questionable because they were missing key documentation that would enable us or the lab to determine what was purchased, the quantity and cost of the items purchased, and whether the items purchased were proper and reasonable. Because we only tested a small portion of the transactions we identified that appeared to have a higher risk of fraud, waste, or abuse, there may be other improper, wasteful, and questionable purchases in the remaining untested transactions. Accountable assets we tested generally were properly accounted for and tracked in LLNL's property management system. Out of 144 transactions reviewed, there were 6 transactions for the purchase of 26 accountable assets totaling $70,048. Of these 26 assets, one item totaling $3,481 had not been recorded in the property management system. In response to recent internal audit and other reviews, LLNL management has made a number of improvements to its internal controls that, if properly implemented, should further enhance controls over the Pcard program. However, additional corrective actions are needed to address weaknesses identified.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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