UNIVERSITY PROVIDES UPDATE ON LABORATORY INVESTIGATIONS

President Atkinson expresses deep concern with and commitment to resolving allegations about Los Alamos National Laboratory financial activities

Amid a continuing review of the Los Alamos National Laboratory property management system and purchasing processes, University of California President Richard C. Atkinson pledged his continuing commitment to take decisive action to address all allegations regarding the financial activities at the UC-managed lab.

"Los Alamos National Laboratory has a long history of contributions to our nation in defense, science and now in the area of homeland security," Atkinson said. "We are very concerned about the recent allegations. They are being addressed and appropriate actions will be taken in a timely manner."

Three separate investigations have been instituted into purchasing/property tracking issues at the Los Alamos National Laboratory (LANL).

UC has placed three employees on leave, terminated the employment of one contract employee and brought in independent auditors in a widening investigation of LANL business practices. Atkinson said, "The university will not tolerate theft or mismanagement at Los Alamos or in any other part of the university. We intend to find out what occurred, correct any deficiencies and discipline anyone who has engaged in improper activity.

"Individual integrity is the basis for national security," Atkinson continued. "There will be zero tolerance for any level of illegal activity by those entrusted with safeguarding our national security."

Atkinson further instructed senior university officials to travel to Los Alamos to review the situation with senior laboratory management and to recommend any additional actions that may be necessary.

UC is undertaking an extensive review of procurement practices at LANL. These include the inappropriate use of purchase cards, allegations of criminal activities involving the laboratory purchasing system and improprieties involving property management. Both UC and LANL officials are cooperating fully with the U.S. Department of Energy, the National Nuclear Security Administration and the Department of Justice in their roles in the investigation.

UC and LANL initiated the investigations into the purchase card irregularities last August. Former Inspector General of the Department of Energy John C. Layton leads the Purchase Card Program External Review Team, which includes former Department of Labor Inspector General Charles Masten and members from the accounting firm of PriceWaterhouse Coopers. In a preliminary briefing, the team finds that LANL management has already implemented corrective actions that they believe will substantially address most of the observed control weaknesses. The team recommends further audit of accounts under question; these will be undertaken immediately by UC auditor Patrick V. Reed and the UC audit staff, in cooperation with the laboratory's staff. Further recommendations will be contained in the final report that is due later this month.

"We look forward to receiving these recommendations, and will act on them to ensure the integrity of our system," said John C. Browne, director of Los Alamos National Laboratory. He added that he has referred specific matters to appropriate law enforcement agencies.

Browne said he was also providing updated information regarding other areas of the laboratory's property management system. This is attached as a fact sheet to this release.

"The American people expect high standards of conduct for the national laboratories and our employees are committed to living up to these high standards," said Browne. "They are deserving of the trust our nation has placed in them. It is my hope that this information we are providing today will clarify these issues and allow LANL employees to remain focused on their work."

Summary of issues:

1. Inappropriate use of purchase cards:

Purchase cards account for approximately $30 million in purchases per year. Approximately 740 laboratory employees currently hold the cards, down from nearly 900 in early August 2002. That same month, the laboratory reported to the NNSA that irregularities had been identified in the purchase card system. At the behest of the University of California, the laboratory immediately contracted with PriceWaterhouse Coopers and former DOE IG John Layton to investigate the purchase card program. The ongoing review brings the to-date total of suspected inappropriate payments to $3,500.

An attempt by another employee to use a purchase card to buy an automobile was stopped with no loss. The laboratory employee to whom the purchase card was issued was placed on administrative (investigative) leave. The Federal Bureau of Investigation has completed its review and the U.S. attorney has declined to prosecute, based on minimal loss. The laboratory is pursuing follow-up action.

2. Allegations of criminal activities involving the laboratory purchasing system:

This matter is still under investigation by the Federal Bureau of Investigation. Published reports on the court documents filed in a federal investigation into alleged abuse of the laboratory's purchase order system have shown, to date, approximately $50,000 in potentially misappropriated funds. Laboratory officials have cooperated fully since being notified of the investigation and have kept University of California, NNSA and DOE officials informed since they were first notified of that investigation.

Because this is an ongoing federal investigation, the laboratory cannot comment further. However, at this point, we have seen no evidence of any compromise to national security.

3. Allegations involving property management:

All LANL property must be properly cared for, used for official purposes only and properly disposed of regardless of the condition of the property. In addition to the normal controls, property used in a secure capacity is also accounted for consistent with federal, DOE and NNSA regulations. The laboratory is required by DOE rules to account for all of its inventory-controlled property (in excess of $1 billion) each year. Inventory-controlled property is base-lined annually in a self-assessment against DOE-specified review criteria. Results are validated by UC and DOE and have consistently shown that LANL is in compliance with all applicable statutory and contractual requirements. While the department, the university and the laboratory work to account for all of the laboratory's property, inventory tracking systems seldom achieve 100 percent due to employee turnover, employee and management tracking errors, and losses, as well as theft. The management contract requires the laboratory to account for at least 99.5 percent of its inventory for it to achieve a performance rating of "outstanding." The laboratory has met that standard in each of the last three years; in fact, it has improved its performance over that period, with unaccounted for inventory in 2002 below one-tenth of one percent.

Los Alamos National Laboratory is operated by the University of California for the National Nuclear Security Administration (NNSA) of the U.S. Department of Energy and works in partnership with NNSA's Sandia and Lawrence Livermore national laboratories to support NNSA in its mission.

Los Alamos enhances global security by ensuring the safety and reliability of the U.S. nuclear stockpile, developing technologies to reduce threats from weapons of mass destruction, and solving problems related to energy, environment, infrastructure, health, and national security concerns.

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