Federal Student Aid: Education's Postsecondary School Certification Process

Education provided over $122 billion in grants, loans and work study funds to help students pay for college at about 6,000 schools in fiscal year 2017. Education is responsible for certifying that these schools are eligible for and capable of properly administering federal student aid funds. Schools are required to submit an annual compliance audit that provides information on schools' administrative capability, which Education considers in its school certification decisions. GAO was asked to review Education's process for certifying schools to receive federal student aid.

This report examines (1) how Education certifies schools to administer federal student aid and how frequently schools are approved and denied certification; and (2) the role of compliance audits in the certification process and what, if any, steps Education has taken to address the quality of the audit information. GAO analyzed data on school certification outcomes for calendar years 2006-2017 (when GAO determined data were most reliable); reviewed data and reports summarizing Education's reviews of compliance audit quality for fiscal years 2006-2017; reviewed a non-generalizable sample of 21 school certification decisions from fiscal years 2015 and 2016, selected for a mix of decisions, school characteristics, and geographic regions; examined relevant federal laws, regulations, policy manuals and guidance; and interviewed Education officials.

The Department of Education (Education) is responsible for evaluating a variety of information to determine whether a postsecondary school should be certified to administer federal student aid programs, and agency data show that it approves most schools that apply. Education procedures instruct regional office staff to review school policies, financial statements, and compliance audits prepared by independent auditors, among other things. Education can certify schools to participate in federal student aid programs for up to 6 years, or it can provisionally certify them for less time if it determines that increased oversight is needed—for example, when a school applies for certification for the first time or when it has met some but not all requirements to be fully certified. In calendar years 2006 through 2017, Education fully or provisionally approved most schools applying for initial or recertification to receive federal student aid (see figure).

Note: Schools applying for certification for the first time and approved are placed in provisional certification.

In deciding whether to certify schools, Education particularly relies on compliance audits for direct information about how well schools are administering federal student aid, and Education's offices of Federal Student Aid and Inspector General have taken steps to address audit quality. The Inspector General annually selects a sample of compliance audits for quality reviews based on risk factors, such as auditors previously cited for errors. In fiscal years 2006 through 2017, 59 percent of the 739 selected audits received failing scores. Audits that fail must be corrected; if not, the school generally must repay federal student aid covered by the audit. Because higher risk audits are selected for review, Inspector General officials said they cannot assess the overall prevalence of quality problems in compliance audits. These two Education offices have taken steps to improve audit quality. For example, the Inspector General offered additional training to auditors on its revised 2016 audit guide and provided guidance to schools on hiring an auditor, while Federal Student Aid created a working group to strengthen its procedures for addressing poor quality compliance audits. Education's efforts to address audit quality could help ensure that these audits provide reliable information for school certification decisions.

GAO is not making recommendations in this report.

In fiscal year 2017, the federal government provided over $122 billion in  grants, loans, and work study funds through federal student aid programs  to help students pay tuition, fees, and other expenses at almost 6,000  postsecondary schools. The Department of Education (Education) is  responsible for certifying that schools with access to this aid are eligible  and capable of properly administering these funds. Schools that are  certified to receive federal student aid are generally required to provide  Education with an annual compliance audit conducted by an independent  auditor that provides information on schools’ administrative capabilities.  Education’s certification of schools is critical to help ensure that federal  funds are used to support students in sufficiently high-quality educational  programs at responsible schools. You asked us to review Education’s  process for certifying schools to receive federal student aid.

To address these questions, we used the following approaches:

To determine how Education certifies schools to administer federal  student aid, we reviewed laws, regulations, policy manuals, and other  agency documents describing Education’s certification process. We  also interviewed staff from Education’s Office of Federal Student Aid  (FSA) in headquarters and managers and analysts in four of its eight  regional offices to learn more about how they implement the school  certification process. We selected these regional offices based on  high certification decision volume and geographic dispersion. We also  reviewed case file documents for a non-generalizable sample of 21  certification decisions from fiscal years 2015 and 2016, selecting  cases that included a mix of certification decisions, regional offices,  and school characteristics (e.g., 2-year and 4-year, and public,  nonprofit, and for-profit). To determine how often schools are  approved and denied certification, we obtained and analyzed data  from Education’s Postsecondary Education Participants System  (PEPS) on school certification outcomes for calendar years 2006  through 2017. We assessed the reliability of these data by reviewing  Education’s PEPS data system documentation; testing the data for  outliers, obvious errors, or missing data; and interviewing Education  officials, and determined that the data were sufficiently reliable for our  reporting purposes.

To determine the role of compliance audits in the certification process  and the steps Education has taken to address the quality of the audit  information, we reviewed laws, regulations, policy manuals, training  materials, and other agency documents related to compliance audits  and compliance audit quality. We also reviewed Education’s Office of  Inspector General (OIG) data and reports summarizing its quality  reviews of selected compliance audits for fiscal years 2006 through  2017. We assessed the reliability of these data by interviewing agency  officials knowledgeable about the data, and determined that the data  were sufficiently reliable for our reporting purposes. Additionally, we  interviewed staff from FSA and the OIG about the role of compliance  audits in the certification process and actions taken to address the  quality of the audit information.

We conducted this performance audit from May 2016 to July 2018 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.

To participate in federal student aid programs, postsecondary schools  must be 1) certified by Education as eligible to participate in federal  student aid programs, 2) accredited by a recognized accrediting agency—  generally nongovernmental, nonprofit entities—and 3) authorized by the  state in which the school is physically located. (See table 1.)

FSA is responsible for ensuring that schools with access to federal  student aid are eligible and capable of properly administering federal  student aid funds, according to standards established by Education and  authorized by the Higher Education Act. These standards include  requirements for schools related to communication, personnel, policies,  procedures and reporting, and adequate checks and balances in a  system of internal controls, among others. FSA is also responsible for  conducting ongoing financial oversight of schools that receive federal  student aid. This includes reviewing annual financial statement audits to  assess a school’s financial responsibility and providing additional  oversight to schools that do not meet financial responsibility standards  outlined in the Higher Education Act.

Schools that participate in federal student aid programs generally are  required to submit annual compliance audits. The compliance audit  provides information that FSA can use to assess the school’s  administration of federal student aid programs and to identify schools that  require additional oversight because they do not fully comply with federal  student aid administrative requirements. The OIG is required to assess  the quality of school compliance audits and selects a sample to review  each year. The OIG reviews the audit documentation to ensure that it  supports the auditor’s opinions and that the audit results are reliable.  According to agency guidance, FSA staff should refer compliance audits  to the OIG for a quality review if they have any concerns about the quality  of the audits. Both FSA and OIG officials stated that the OIG has primary  responsibility for issues related to audit quality.

When a school first applies to be certified to administer federal student  aid, FSA will either approve the school for provisional certification— generally for 1 year—or deny certification (see fig. 1). Once a school is  approved for initial certification and applies for recertification, FSA will  provisionally or fully recertify the school, or deny certification.

According to FSA procedures, FSA uses provisional certification for initial,  or first time, applicants, as well as schools that are applying for  recertification. Provisional certification is the only approval status  available to new schools. In addition, FSA may decide to recertify a  school provisionally if it determines that a school has not fully complied  with federal student aid requirements. FSA prohibits provisionally  certified schools from opening new campus locations or offering new  programs without approval from FSA, and provisionally certified schools  that are denied recertification have a less substantive appeals process  than fully certified schools. Further, recertified schools in provisional  status are subject to more FSA oversight than schools that are fully  certified. FSA procedures allow for some discretion in determining for  how long to certify a school. Provisional recertification generally lasts 1 to  3 years, while full recertification generally lasts 4 to 6 years.

Education Evaluates a Variety of Information during the Certification Process and Approves Most Schools Education Reviews Information from Multiple Sources to Assess a School’s Capability to Administer Federal Student Aid

Education’s FSA regional staff draw information from a variety of sources  during the certification process to assess a school’s capability to  administer federal student aid. According to FSA documents, regional  staff are to review information collected from schools and third parties,  such as annual compliance audits conducted by independent auditors,  among other information sources. FSA staff responsible for different  functional areas, such as financial and compliance audits, accreditation  status, and student loan default rates, compile and review information on  schools, according to FSA procedures. FSA officials told us that these  staff meet to discuss any potential program eligibility issues and to ensure  that all information relevant to a school is considered before making a  certification decision. FSA’s certification procedures outline some of the  key information that regional staff should assess, some of which is  relevant to both initial and recertification decisions, and some of which is  specific to each type of certification process (see fig. 2).

Documents and policies provided by schools: FSA regional staff  are directed to review documents submitted by schools, including  school catalogs, and certain school policies—such as admissions and  student refund policies—that are relevant to assessing administrative  capability.

Proof of accreditation: School accreditors are responsible for  applying and enforcing standards to help ensure that the education  offered by schools is of sufficient quality to achieve program  objectives. Accreditation of schools, which generally includes a site  visit, takes place on a cycle that may range from every few years to as  many as 10 years.

Proof of state authorization: States are responsible for authorizing  schools to offer postsecondary education and respond to student  complaints. The process for approving schools varies from state to  state and may include on-site visits.

Audited financial statements: FSA regional staff are directed to  review information in audited financial statements to assess schools’  financial health. Schools are required to have annual audited financial  statements issued by an independent certified public accountant or a  government auditor.

Key Information Required for Initial Certification

Self-reported school data: FSA regional staff are instructed to  review data on continual student enrollment in eligible academic  programs and student withdrawal rates.

Pre-certification review and school outreach: FSA staff are  responsible for contacting school personnel to verify the school’s  application information and discuss relevant policies, procedures, and  other materials relevant to administering federal student aid.

FSA visits to newly certified schools: After schools first apply and  are provisionally certified, Education requires FSA regional staff to  contact them within 3 months and schedule an on-site school visit.  Schools cannot administer federal student aid until they are certified,  so FSA has limited information on how newly certified schools are  administering federal student aid programs. School visits provide FSA  with an opportunity to collect additional information about a  provisionally certified school’s ability to administer federal student aid.  Some FSA regional staff we interviewed told us that on-site visits to  newly certified schools provide valuable first-hand information about  whether these schools are administering federal student aid in  accordance with program requirements. If FSA regional staff find that  a school is having difficulties administering federal student aid, FSA  procedures direct regional staff to assist schools by providing  clarification and guidance on federal student aid policies,  recommending additional training for school officials, and helping  schools develop a plan to track and report on their corrective actions,  among other things.

Key Information Required for Recertification

Compliance audits: FSA staff are directed to review information in  compliance audits to determine if schools are complying with specific  federal student aid requirements. Generally, compliance audits are  required to be conducted annually by an independent auditor, and  submitted with the school’s audited financial statements.

Program reviews: FSA regional staff are also responsible for  conducting program reviews, usually on site, which evaluate school  compliance with federal requirements and can provide more in-depth  information on schools than compliance audits, according to some  FSA staff we interviewed. Generally, FSA selects schools for program  reviews that it considers to be at risk for noncompliance, according to  Education documents. FSA conducts approximately 250 to 300  program reviews per year, according to FSA documentation. FSA  staff from all four of our selected regional offices told us they consider  results from any recent program review in decisions about  recertification and noted that such information, when available, is  valuable for assessing schools’ administrative capability.

Education data: FSA regional office staff are also directed to review  data on student loan default rates.

Most Schools Are Provisionally or Fully Certified to Receive Federal Student Aid

From calendar years 2006 through 2017, FSA approved most schools  applying for certification to receive federal student aid, according to  Education data.

From 2006 through 2017, FSA approved 89 percent of schools new to  administering federal student aid for provisional certification and denied  11 percent of schools overall (see fig. 3). Denial rates for initial  certification were 11 percent for public and for-profit schools and 14  percent for nonprofit schools. For more information on 2006-2017 school  certification outcomes by year, see appendix I.

FSA regional staff responsible for reviewing school applications told us  that schools are denied initial certification for issues such as a lack of  accreditation, not offering eligible programs for federal student aid, or not  meeting other statutory eligibility requirements. For example, FSA staff  said that for-profit and vocational schools that apply for initial certification  are required to provide an eligible program continuously for 2 years prior  to their initial application. FSA staff may also advise schools that do not  meet basic eligibility requirements not to apply, which could result in  fewer initial certification denials overall. In addition, FSA staff said they  often work with schools to address compliance problems, for example, by  providing guidance on revising school policies that do not meet  requirements, so that the schools are able to meet FSA’s certification  requirements.

From 2006 through 2017, 76 percent of schools applying for  recertification were fully recertified, 21 percent were provisionally  recertified, and 3 percent were denied recertification. Sixty-six percent of  for-profit schools were fully recertified, 28 percent were provisionally  recertified, and 6 percent were denied. In comparison, 86 percent of  public schools were fully recertified, 14 percent were provisionally  recertified, and fewer than 1 percent were denied. Nonprofit schools had  rates similar to public schools, with 80 percent fully recertified, 18 percent  provisionally recertified, and 2 percent denied (see fig 4).

FSA staff from all four of our selected regional offices told us that they  typically deny recertification when a school no longer meets eligibility  requirements, such as losing accreditation, or when there is significant  evidence of serious issues or massive wrongdoing, such as fraud. For  example, managers in one regional office told us they denied  recertification for a school because they had evidence that the school was  accepting students without valid high school diplomas and referring them  to diploma mills to boost enrollment.

Staff in two FSA regional offices told us that they can also choose to fully  recertify a school for shorter periods of time if they uncover issues related  to administrative capability. For example, one regional staff member told  us that when they found a school’s default rate for one federal student  loan program had been high for the prior 3 years, the regional office  decided to shorten the school’s full recertification period from 6 to 4 years,  to allow FSA staff to review the school again sooner.

FSA staff from all four of our selected regional offices told us that they  provisionally certify schools for a variety of reasons, including when a  school submits a late compliance audit or when a recent compliance audit  indicates that a school could potentially have significant problems.  Generally, schools in provisional certification status are subject to  additional monitoring by FSA compared to schools that have been fully  certified. For example, Education officials said that if they have concerns  about a provisionally certified school’s student withdrawal rate, they can  add provisional conditions requiring the school to submit monthly  enrollment rosters for review. Staff in two FSA regional offices told us that  in other cases, if they have concerns about how a school is administering  federal student aid or suspected fraud, they can put a school on  provisional status and conduct a program review to collect more detailed  information on compliance with federal requirements.

Education data also show that most schools remain in provisional status  the first time they are recertified—62 percent from 2006 to 2017. In  contrast, FSA staff fully recertified over three-quarters of schools that  applied for recertification a second time during the same time period (see  table 2). For more information on first and second recertification  outcomes by school sector, see appendix II.

Compliance Audits Are Key to Certification Process and Education Has Taken Steps to Address Audit Quality

We found that FSA generally relies on compliance audits as the only  annual on-site review to determine how schools applying for  recertification administer federal student aid. The audits provide direct  information collected by independent auditors from school visits and file  reviews examining how schools administer federal student aid and  comply with program requirements. For example, OIG audit guidance  directs auditors to check whether schools are distributing federal student  aid to eligible students and accurately calculating student loan amounts.  FSA officials and staff from all four of our selected regional offices said  that compliance audits are a key source of information they use to assess  a school’s administrative capability.

Officials from Education’s OIG said that the quality of information in  compliance audits varies substantially and depends on the auditor. The  OIG has found quality problems in some of the compliance audits it  selects—based on auditor and school risk factors—for its annual quality  control reviews. Because the OIG selects higher risk audits to review, its  reviews are more likely to detect problems, and OIG officials said they  cannot make any conclusions about the overall prevalence of quality  problems in compliance audits. However, our analysis of OIG quality  review data found that of the 739 compliance audits reviewed by the OIG  from fiscal years 2006 through 2017, the OIG passed 23 percent (173)  and failed 59 percent (436). An additional 18 percent (130) passed with  deficiencies. For example, across the 41 compliance audits it reviewed  in fiscal year 2016, the OIG identified 264 quality deficiencies with the  auditor’s work, according to our analysis of quality reviews provided by  the OIG. The most frequently cited issues in these 41 audits were:  reporting (24 audits), such as lack of evidence that the auditor tested  whether the school correctly reported student enrollment status;  student eligibility (20 audits), such as lack of evidence that the auditor  verified student school attendance; and administrative capability (19 audits), such as lack of evidence that the  auditor determined whether the accreditor had been notified about a  change in school ownership within 10 days.

FSA officials also identified quality issues with the compliance audits of  some schools. FSA headquarters officials and staff we interviewed in  several regional offices said they have seen schools with significant  program review findings that had not been identified in annual compliance  audits. FSA staff said they have referred some compliance audits to the  OIG for quality reviews when they have had questions about the  thoroughness of an audit. We also found a couple of examples in our  review of school certification documents in which the findings identified in  a school’s compliance audit were different from the findings identified by  FSA in a program review of the same school covering the same time  period. In one case, FSA staff said they probably would have fully  recertified the school if they had relied solely on the compliance audit.  Instead, they used the program review to determine that the school  should be provisionally recertified. Compliance audits and program review  findings are based on a sample of student records, and FSA staff said  some differences in findings might be explained by differences in the  records reviewed.

FSA and OIG officials cited several issues that can affect the quality of  compliance audits. FSA and OIG officials we interviewed said that some  auditors conducting compliance audits have insufficient training in federal  student aid, which contributes to audit quality problems. OIG staff also  said that even if an auditor meets the general training hour requirements  for auditors, the training content may not be relevant for federal student  aid audits. In addition, FSA and OIG officials said some schools— particularly smaller schools—tend to hire less experienced auditors in  order to save money, often resulting in poor quality audits. FSA officials in  most selected regional offices said that additional training on federal  student aid for auditors who are new to or unfamiliar with federal student  aid could help improve audit quality.

FSA and the OIG recently have taken steps to address audit quality and  the information available to FSA staff when making certification decisions.  These efforts include:

Training for auditors: The OIG has taken steps to enhance training  offered to auditors of schools’ administration of federal student aid  and is exploring opportunities to provide additional training. In  December 2017, the OIG and the American Institute of Certified  Public Accountants cosponsored training for auditors on the OIG’s  2016 revised guide for audits of for-profit schools, and other topics  related to auditing federal student aid. The training included  discussion of common audit quality issues and areas of highest risk.  According to an OIG official, about 200 auditors attended, and after  the event, the American Institute of Certified Public Accountants and  the OIG posted a recording of the training to their websites to make it  available to additional auditors. In addition, OIG officials said they  maintain an email account—listed on the OIG website—through which  auditors can ask questions and receive responses. In March 2018, the  OIG posted frequently asked questions and answers to the website.

Timeliness of OIG quality reviews: Both FSA and OIG officials said  that the OIG has recently renewed efforts to issue compliance audit  quality reviews more quickly, after several years in which staffing  shortages and other issues led to some delayed quality reviews.

Guidance to schools on selecting an auditor: OIG officials said  that at the 2017 FSA training conference for school financial aid staff,  they presented to more than 400 participants about factors schools  should consider when hiring an auditor. For example, they suggested  that schools verify the licenses of certified public accountants, ask  about the types of engagements an auditing firm has conducted,  request and check references, check for any actions that may have  been taken against a firm, and ask whether the auditor has been  subject to a previous review by the OIG or another agency. FSA  officials said they expected to invite the OIG to present at future FSA  conferences, and OIG officials said they were seeking additional  opportunities to share information on auditor selection with schools,  including a planned presentation to an association of postsecondary  schools.

FSA working group: FSA recently established a working group to  update its guidance to FSA staff on how to coordinate with the OIG to  address compliance audits with quality problems. Among other topics,  the working group has consulted with the OIG about how schools are  made aware of the OIG’s findings regarding the quality of their audits.  FSA officials said that OIG officials have provided input and feedback  on FSA’s proposed changes to the guidance.

Audit guide revisions: In addition, OIG and FSA staff told us they  expected the OIG’s 2016 revisions to the for-profit school audit guide  to improve the quality of compliance audits for those schools. They  said that because the revised guide clarified some issues that were  confusing to auditors in the previous guide issued in 2000, auditors  might be better able to implement the guidance. The audit guide  revisions include more testing and reporting requirements, clarified  procedures, and guidance on issues such as fraud reporting and  coordinating financial and compliance audits. The 2016 revisions first  applied to audits for fiscal years beginning after June 30, 2016, and  FSA began receiving those audits at the end of 2017. In addition,  although the OIG’s 2016 revisions only apply to audits of for-profit  schools, FSA officials said they planned to establish a working group  to consider improvements to audit guidance for public and nonprofit  schools.

FSA and OIG efforts to address audit quality could help ensure that  compliance audits provide accurate and reliable information on school  administrative capability for Education’s recertification decisions.

We provided a draft of this report to Education for review and comment.  Education’s Office of Inspector General provided technical comments,  which we considered and incorporated as appropriate. Education did not  provide other comments on the report.

We are sending copies of this report to the appropriate congressional  committees; the Secretary of Education; and other interested parties. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (617) 788-0534 or emreyarrasm@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.

Appendix I: School Certification Outcomes, Calendar Years 2006-2017

Appendix II: Distribution of First and Second Recertification Outcomes by School Sector, Calendar Years 2006-2017

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Michelle St. Pierre (Assistant  Director), Kristy Kennedy (Analyst-in-Charge), Edward Bodine, Marissa  Jones, and Mark Ward made significant contributions. Also contributing to  this report were Susan Aschoff, Deborah Bland, Nagla’a El-Hodiri, Monika  Gomez, Sheila R. McCoy, Jessica Orr, Mimi Nguyen, John Mingus,  Rhiannon Patterson, Monica Savoy, Benjamin Sinoff, and Rosemary  Torres Lerma.


Department of Energy: Continued Actions Needed to Modernize Nuclear Infrastructure and Address Management Challenges

DOE's NNSA is responsible for managing the nuclear weapons stockpile and supporting nuclear nonproliferation efforts. DOE's Office of Environmental Management's mission includes decontaminating and decommissioning facilities that are contaminated from decades of nuclear weapons production.

Over the last few years, GAO has reported on a wide range of challenges facing DOE and NNSA. These challenges contribute to GAO's continuing inclusion of DOE's and NNSA's management of major contracts and projects on the list of agencies and program areas that are at high risk of fraud, waste, abuse, and mismanagement, or are in need of transformation. GAO also recently added the U.S. government's environmental liabilities to this list.

This statement is based on 25 GAO reports issued from April 2011 through January 2018 and discusses (1) challenges related to the affordability of NNSA's nuclear modernization plans; (2) challenges related to DOE's environmental liability; (3) the status of DOE's efforts to improve its management of contracts, projects, and programs; and (4) challenges facing NNSA's nonproliferation programs.

The Department of Energy's (DOE) National Nuclear Security Administration (NNSA) faces challenges related to the affordability of its nuclear modernization programs. In April 2017, GAO found a misalignment between NNSA's modernization plans and the estimated budgetary resources needed to carry out those plans. Specifically, GAO found that NNSA's estimates of funding needed for its modernization plans sometimes exceeded the budgetary projections included in the President's planned near-term and long-term modernization budgets by billions of dollars. GAO also found that the costs of some major modernization programs—such as for nuclear weapon refurbishments—may also increase and further strain future modernization budgets. GAO recommended in April 2017 that NNSA include an assessment of the affordability of its modernization programs in future versions of its annual plan on stockpile stewardship; NNSA neither agreed nor disagreed with that recommendation.

DOE also faces challenges with addressing its environmental liabilities—the total cost of its cleanup responsibilities. In February 2017, GAO found that DOE was responsible for over 80 percent ($372 billion) of the U.S. government's estimated $450 billion environmental liability. However, this estimate does not reflect all of DOE's cleanup responsibilities. Notably, this estimate does not reflect all of the future cleanup responsibilities that DOE may face. For example, in January 2017, GAO found that the cost estimate for DOE's proposal for separate defense and commercial nuclear waste repositories excluded the costs and time frames for site selection and site characterization, and therefore full costs are likely to be billions of dollars more than DOE's reported environmental liabilities. To effectively address cleanup, GAO has made at least 28 recommendations to DOE and other federal agencies, which could reduce long-term costs as well as environmental risks more quickly. Of these, 13 remain not implemented.

DOE has taken several important steps that demonstrate its commitment to improving contract and project management, but challenges persist. Specifically, DOE's revised project management order, issued in May 2016, made several changes in response to recommendations GAO made in prior years, such as requiring that projects develop cost estimates and analyses of alternatives according to our best practices. However, DOE's recent efforts do not address several areas, such as acquisition planning for major contracts and aspects of program and project management, where the department continues to struggle. GAO has made several recommendations related to these areas, and DOE has generally agreed with and begun to take action on most of them.

Finally, NNSA faces challenges in implementing its nonproliferation programs. For example, in September 2017, GAO found that selected programs in NNSA's Office of Defense Nuclear Nonproliferation (DNN) did not measure performance against schedule and cost baselines, as recommended by program management leading practices because DNN's program management policy did not require programs to measure performance in this way. GAO recommended that DNN revise its policy to require programs to measure performance against cost and schedule baselines. NNSA indicated it plans to take action to revise its policy.

GAO has previously suggested that Congress consider changes to the laws governing environmental cleanup activities. In addition to these suggestions, GAO has made numerous recommendations to DOE to address its management challenges.

Thank you for the opportunity to discuss our recent work on some of the  pressing management challenges facing the Department of Energy’s  (DOE) National Nuclear Security Administration (NNSA) and Office of  Environmental Management (EM). NNSA is responsible for managing  the nation’s three nuclear security missions: ensuring a safe, secure, and  reliable nuclear deterrent; achieving designated reductions in the nuclear  weapons stockpile; and supporting the nation’s nuclear nonproliferation  efforts. In support of these missions, NNSA’s February 2016 budget  justification for the Weapons Activities appropriations account included  about $49.4 billion for fiscal years 2017 through 2021 to implement its  weapons modernization plans. More recently, in November 2017, NNSA  issued its Stockpile Stewardship and Management Plan, which included  about $10.2 billion for weapons activities for fiscal year 2018.

In support of its missions, NNSA implements a range of nonproliferation  programs under its Office of Defense Nuclear Nonproliferation. These  programs include efforts to secure, consolidate, and dispose of weapons- usable nuclear materials and radiological sources; reduce the risks of  nuclear smuggling; enhance international export controls and  International Atomic Energy Agency nuclear safeguards; and support  research and development of new nonproliferation technologies.

EM is responsible for decontaminating and decommissioning nuclear  facilities and sites that are contaminated from decades of nuclear  weapons production and nuclear energy research. In February 2017, we  reported that, since its inception in 1989, EM has spent over $164 billion  on cleanup efforts, which include retrieving, treating, and disposing of  nuclear waste.

Both NNSA and EM face critical challenges in fulfilling their missions.  Since the end of the Cold War, key portions of the nuclear security  enterprise’s weapons production infrastructure have become outdated,  prompting congressional and executive branch decision makers to call on  DOE to develop plans to modernize this infrastructure. The Department  of Defense’s (DOD) 2010 Nuclear Posture Review identified long-term  modernization goals and requirements, including sustaining a safe,  secure, and effective nuclear arsenal through increasing investments to  rebuild and modernize the nation’s nuclear infrastructure, some of which  dates back to the 1940s. In January 2017, the President directed the  Secretary of Defense to initiate a new Nuclear Posture Review to ensure  that the U.S. nuclear deterrent is modern, robust, flexible, resilient, ready,  and appropriately tailored to deter 21st-century threats and reassure our  allies. This review was released in February 2018.

As NNSA works to modernize the nuclear security enterprise, EM must  address the legacy of 70 years of nuclear weapons production and  energy research by DOE and its predecessor agencies. These activities  generated large amounts of radioactive waste, spent nuclear fuel, excess  plutonium and uranium, and contaminated soil and groundwater. They  also contaminated thousands of sites and facilities, including land,  buildings, and other structures and their systems and equipment. Various  federal laws, agreements with states, and court decisions require the  federal government to clean up environmental hazards at federal sites  and facilities, such as nuclear weapons production facilities. DOE’s  approach to addressing these environmental liabilities is often influenced  by numerous site-specific factors, stakeholder agreements, and legal  provisions. For years, we and others have reported on shortcomings in  DOE’s approach to addressing its environmental liabilities, including  incomplete data on the extent of cleanup needed.

DOE relies primarily on contractors to carry out its programs, and it is the  largest civilian contracting agency in the federal government. In fiscal  year 2017, it spent approximately 90 percent of its $32 billion in annual  funding on contracts and major capital asset projects. We designated  DOE’s contract management—which has included both contract  administration and project management—as a high-risk area in 1990  because DOE’s record of inadequate management and oversight of  contractors had left it vulnerable to fraud, waste, abuse, and  mismanagement. In our 2017 high-risk update, we reported that NNSA  and EM continued to demonstrate a strong commitment and top  leadership support to improve contract and project management—a key  criterion for removing agencies and program areas from our High-Risk  List. However, we also found that DOE still needs to make more  progress on the other four criteria for removal: organizational capacity,  corrective action planning, monitoring effectiveness, and demonstrating  progress.

Further, in our 2017 high-risk update, we added the federal government’s  environmental liabilities to our High-Risk List. More than 80 percent of  these liabilities are DOE’s responsibility. In our 2017 high-risk update,  we reported that because of incomplete information and often  inconsistent approaches to making cleanup decisions, DOE does not  always approach environmental cleanup using a risk-informed approach  to reduce health and safety risks in a cost-effective manner.

My testimony today discusses (1) challenges related to the affordability of  NNSA’s nuclear weapons modernization plans; (2) challenges in  addressing DOE’s environmental liabilities; (3) the status of DOE’s efforts  to improve its management of contracts, projects, and programs; and (4)  challenges facing NNSA’s nonproliferation program. My statement is  based primarily on our work from 25 GAO reports issued from April 2011  to January 2018—including 5 reports issued since I last testified on this  issue in May 2017 (see the end of this testimony for a list of related  reports). Detailed information about the scope and methodology we  used to conduct our prior work can be found in each of our issued reports.  The work upon which this testimony is based was conducted 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.

Misalignment between NNSA’s Modernization Budget Estimates and Plans Raises Affordability Concerns

In April 2017, we issued our latest report on NNSA’s 25-year plans to  modernize the nation’s nuclear weapons stockpile and its supporting  infrastructure. In that report, we identified two areas of misalignment  between NNSA’s modernization plans and the estimated budgetary  resources needed to carry out those plans, which could result in  challenges to NNSA in affording its planned portfolio of modernization  programs. First, we found that NNSA’s estimates of funding needed for its  modernization plans sometimes exceeded the budgetary projections  included in the President’s planned near- and long-term modernization  budgets. In the near-term (fiscal years 2018 through 2021), we found that  NNSA may have to defer certain modernization work beyond that time  period to execute its program within the planned budget, which could  increase modernization costs and schedule risks. This is a pattern we  have previously identified as a “bow wave”—an increase in future years’  estimated budget needs that occurs when agencies are undertaking more  programs than their resources can support. In the long-term (fiscal years  2022 through 2026), we found that NNSA’s modernization program  budget estimates sometimes exceeded the projected budgetary  resources planned for inclusion in the President’s budget, raising  additional questions about whether NNSA will be able to afford the scope  of its modernization program. Second, the costs of some major  modernization programs—such as for nuclear weapon refurbishments— may also increase and further strain future modernization budgets. We  are currently reviewing NNSA’s Fiscal Year 2018 Stockpile Stewardship  and Management Plan.

Misalignment between Estimates and Plans May Result in Increased Cost and Schedule Risks and Raises Affordability Concerns

As we reported in April 2017, NNSA estimates of funding needed for its  modernization plans sometimes exceeded the budgetary projections  included in the President’s planned near- and long-term modernization  budgets.

Near-term Misalignment between Modernization Plans and Estimated Budgetary Resources

We found that NNSA may have to defer certain modernization work  planned for fiscal years 2018 through 2021 beyond its current 5-year  planning period, called the Future-Years Nuclear Security Program  (FYNSP). As we reported in April 2017, this is caused by a misalignment  between NNSA’s budget estimates for certain nuclear modernization  programs and the President’s budgets for that period. We concluded  that this deferral could exacerbate a significant bow wave of  modernization funding needs that NNSA projects for the out-years  beyond the FYNSP and could potentially increase modernization costs  and schedule risks.

As we have previously reported, such bow waves occur when agencies  defer costs of their programs to the future, beyond their programming  periods, and they often occur when agencies are undertaking more  programs than their resources can support. As NNSA’s fiscal year 2017  budget materials show, its modernization budget estimates for fiscal  years 2022 through 2026—the first 5 years beyond the FYNSP—may  require significant funding increases. For example, in fiscal year 2022,  NNSA’s estimates of its modernization budget needs are projected to rise  about 7 percent compared with the budget estimates for fiscal year 2021,  the last year of the FYNSP, as shown in figure 1.

The analysis in our April 2017 report showed that NNSA has shifted this  modernization bow wave to the period beyond the FYNSP time frame in  each of the past four versions of the annual Stockpile Stewardship and  Management Plan. For example, in the Fiscal Year 2014 Stockpile  Stewardship and Management Plan, NNSA’s budget estimates for its  modernization programs increased from a total of about $9.3 billion in  fiscal year 2018, the last year of the FYNSP, to about $10.5 billion in  fiscal year 2019, the first year after the FYNSP—an increase of about 13  percent. Similar patterns showing a jump in funding needs immediately  after the last year of the FYNSP are repeated in the funding profiles  contained in the fiscal year 2015, 2016, and 2017 plans. As we have  previously reported, deferring more work to future years can increase cost  and schedule risks and can put programs in the position of potentially  facing a backlog of deferred work that grows beyond what can be  accommodated in future years.

Long-term Misalignment between Modernization Plans and Estimated Budgetary Resources

The Fiscal Year 2017 Stockpile Stewardship and Management Plan  shows that NNSA’s overall modernization budget estimates for fiscal  years 2022 through 2026—the out-years beyond the FYNSP—may  exceed the projected funding levels in the President’s budgets for that  period, raising further questions about the affordability of NNSA’s nuclear  modernization plans. According to NNSA’s data, the agency’s estimated  budget needed to support modernization totals about $58.4 billion for  fiscal years 2022 through 2026, and the out-year funding projections  contained in the President’s fiscal year 2017 budget for the same period  total about $55.5 billion. The President’s out-year funding projections,  therefore, are approximately $2.9 billion, or about 5.2 percent, less than  NNSA estimates it will need over the same period.

Despite this potential shortfall, NNSA’s Fiscal Year 2017 Stockpile  Stewardship and Management Plan concludes that the modernization  program is generally affordable in the years beyond the FYNSP for two  reasons. First, the President’s out-year funding projections are sufficient  to support NNSA’s low-range cost estimates for its modernization  programs for fiscal years 2022 through 2026. Based on NNSA data, the  low-range cost estimates for fiscal years 2022 through 2026 total  approximately $54.4 billion and the President’s out-year funding  projections total about $55.5 billion. Figure 2 illustrates data from the  2017 plan showing NNSA’s budget estimates in nominal dollars, including  high- and low-range cost estimates for its modernization program, along  with the out-year funding projections from the President’s fiscal year 2017  budget, for fiscal years 2022 to 2026. Second, NNSA concludes that its  modernization programs are generally affordable beyond the FYNSP  because the agency’s estimated modernization budget needs will begin to  decrease in fiscal year 2027.

In our April 2017 report, we noted that NNSA’s conclusion—that its  modernization program is affordable because the President’s out-year  funding projections fall within NNSA’s modernization cost ranges—is  overly optimistic. This is because the conclusion is predicated on  optimistic assumptions regarding the cost of the modernization program  beyond the FYNSP, particularly for fiscal years 2022 through 2026. For  the program to be affordable, NNSA’s modernization programs would  need to be collectively executed at the low end of their estimated cost  ranges. The plan does not discuss any options NNSA would pursue to  support or modify its modernization program if costs exceeded its low- range cost estimates. In addition, the Fiscal Year 2017 Stockpile  Stewardship and Management Plan states that the nominal cost of  NNSA’s modernization program is expected to decrease by  approximately $1 billion in fiscal year 2027. In that year, according to the  2017 plan, it is anticipated that NNSA’s estimated budgets for its  modernization program will begin to fall in line with projections of future  presidential budgets. However, as we noted in our April 2017 report, the  decrease that NNSA anticipates in its modernization funding needs  beginning in fiscal year 2027 may not be achievable if the projected  mismatch between NNSA’s estimates of its modernization budget needs  and the projections of the President’s modernization budget for fiscal  years 2022 through 2026 is not resolved. This mismatch creates  concerns that NNSA will not be able to afford planned modernization  costs during fiscal years 2022 through 2026 and will be forced to defer  them to fiscal year 2027 and beyond, continuing the bow wave patterns  discussed above.

Potential Rising Costs of Some Modernization Programs May Further Strain NNSA’s Modernization Budgets

Our April 2017 report identified misalignment between NNSA’s estimate  of its budget needs and NNSA’s internal cost range estimates for several  of its major modernization programs. Further, we found that the costs of  some major life extension programs (LEP) may increase in the future,  which may further strain NNSA’s planned modernization budgets.

With respect to the alignment of NNSA’s estimate of its budget needs and  NNSA’s internal cost range estimates, in April 2017 we found that  NNSA’s budget estimates were generally consistent with NNSA’s high-  and low-range cost estimates. However, for some years, NNSA’s low- range cost estimates exceeded the budget estimates for some of the  programs, suggesting the potential for a funding shortfall for those  programs in those years. Specifically, we found that the low-range cost  estimates for the W88 Alteration 370 program and all LEPs discussed in  our April 2017 report exceeded their budget estimates for some fiscal  years within the 10-year time period from fiscal year 2017 to 2026. As  we reported in 2013 and 2016, this misalignment indicates that NNSA’s  estimated budgets may not be sufficient to fully execute program plans  and that NNSA may need to increase funding for these programs in the  future.

Additionally, in April 2017 we found that the costs of two ongoing nuclear  weapon LEPs and the W88 Alteration 370 program may increase in the  future, based on NNSA information that was produced after the release of  the fiscal year 2017 budget materials. These potential cost increases  could further challenge the extent to which NNSA’s budget estimates  support the scope of modernization efforts. The LEPs facing potential  cost increases include:

B61-12 LEP. An independent cost estimate for the program  completed in October 2016 exceeded the program’s self-conducted  cost estimate from June 2016 by $2.6 billion.

W80-4 LEP. Officials from NNSA’s Office of Cost Policy and Analysis  told us that this program may be underfunded by at least $1 billion to  meet the program’s existing schedule.

W88 Alteration 370. According to officials from NNSA’s Office of Cost  Policy and Analysis, this program’s expanded scope of work may  result in about $1 billion in additional costs.

To help NNSA put forth more credible modernization plans, we  recommended in our April 2017 report that the NNSA Administrator  include an assessment of the affordability of NNSA’s portfolio of  modernization programs in future versions of the Stockpile Stewardship  and Management Plan, such as by presenting options (e.g., potentially  deferring the start of or canceling specific modernization programs) that  NNSA could consider taking to bring its estimates of modernization  funding needs into alignment with potential future budgets. In commenting  on our report, NNSA neither agreed nor disagreed with our  recommendation.

DOE Annually Spends Billions on Cleanup, but the Cost of Its Environmental Liabilities Continues to Increase

DOE also faces challenges with addressing its environmental liabilities  and its cleanup mission. In February 2017, we added the federal  government’s environmental liabilities to our High-Risk List. Specifically,  we found that the federal government’s environmental liability has been  growing for the past 20 years—and is likely to continue to increase—and  that DOE is responsible for over 80 percent ($372 billion) of the nearly  $450 billion reported environmental liability. Notably, this estimate does  not reflect all of the future cleanup responsibilities that DOE may face.  In addition, DOE has not consistently taken a risk-informed approach to  decision-making for environmental cleanup, and DOE may therefore be  missing opportunities to reduce costs while also reducing environmental  risks more quickly. Our recent work in this area has also identified  opportunities where DOE may be able to save tens of billions of dollars.

As we have previously reported, DOE’s total reported environmental  liability has generally increased over time. Since 1989, EM has spent over  $164 billion to retrieve, treat, and dispose of nuclear and hazardous  waste and, as of 2017, it had completed cleanup at 91 of 107 sites across  the country (the 91 sites were generally viewed by DOE as the smallest  and least contaminated sites to address). Despite billions spent on  environmental cleanup, DOE’s environmental liability has roughly doubled  from $176 billion in fiscal year 1997 to the fiscal year 2016 estimate of  $372 billion. Between 2011 and 2016, EM spent $35 billion, primarily to  treat and dispose of nuclear and hazardous waste and construct capital  asset projects to treat the waste (see fig. 3 for EM’s annual spending and  growing environmental liability). According to documents related to DOE’s fiscal year 2016 financial statements, half of DOE’s environmental liability  resides at two cleanup sites: the Hanford Site in Washington State and  the Savannah River Site in South Carolina.

In its fiscal year 2016 financial statement, DOE attributed recent  environmental liability increases to (1) inflation adjustments for the current  year; (2) improved and updated estimates for the same scope of work,  including changes resulting from deferral or acceleration of work; (3)  revisions in technical approach or scope for cleanup activities; and (4)  regulatory and legal changes. Notably, in recent annual financial reports,  DOE has cited other significant causes for increases in its liability. Other  causes have included the lack of a disposal path for high-level radioactive  waste—because of the termination of the Yucca Mountain repository  program—and delays and scope changes for major construction projects  at the Hanford and Savannah River sites.

We also reported in February 2017 that DOE’s estimated liability does not  include billions in expected costs. According to federal accounting  standards, environmental liability estimates should include costs that are  probable and reasonably estimable, meaning that costs that cannot yet  be reasonably estimated should not be included in total environmental  liability. Examples of costs that DOE cannot yet estimate include the  following:

DOE has not yet developed a cleanup plan or cost estimate for the  Nevada National Security Site and, as a result, the cost of future  cleanup of this site was not included in DOE’s fiscal year 2015  reported environmental liability. The nearly 1,400-square-mile site has  been used for hundreds of nuclear weapons tests since 1951. These  activities have resulted in more than 45 million cubic feet of  radioactive waste at the site. According to DOE’s financial statement,  since DOE is not yet required to establish a plan to clean up the site,  the costs for this work are excluded from DOE’s annually reported  environmental liability.

DOE’s reported environmental liability includes an estimate for the  cost of a permanent nuclear waste repository, but these estimates are  highly uncertain and likely to increase. In March 2015, in response to  the termination of the Yucca Mountain repository program, DOE  proposed separate repositories for defense high-level and commercial  waste. In January 2017, we reported that the cost estimate for DOE’s  new approach excluded the costs and time frames for site selection  and site characterization. As a result, the full cost of these activities  is likely billions of dollars more than what is reflected in DOE’s  environmental liability. In our annual report on Fragmentation,  Overlap, and Duplication in the federal government that we issued in  May 2017, we reported that DOE may be able to save billions of  dollars by reassessing the rationale for its March 2015 proposal. In  June 2017, a bill that could result in renewed efforts to open the  Yucca Mountain repository was introduced in the House of  Representatives.

In addition, according to the DOE Inspector General, DOE may have  insufficient controls in place to accurately account for its environmental  liabilities. In November 2016, the DOE Inspector General reported a  significant deficiency in internal controls related to the reconciliation of  environmental liabilities.

Moreover, DOE does not consistently take a risk-informed decision- making approach to its environmental cleanup mission to more efficiently  use resources. As our reports and those by other organizations issued  over the last 2 decades have found, DOE’s environmental cleanup  decisions have not been risk-based, and there have been inconsistencies  in the regulatory approaches followed at different sites. We and others  have pointed out that DOE needs to take a nation-wide, risk-based  approach to cleaning up these sites, which could reduce costs while also  reducing environmental risks more quickly.

In 2006, the National Research Council reported that the nation’s  approach to cleaning up nuclear waste—primarily carried out by  DOE—was complex, inconsistent, and not systematically risk- based. For example, the National Research Council noted that the  current regulatory structure for low-activity waste is based primarily on  the waste’s origins rather than on its actual radiological risks. The  National Research Council concluded that by working with regulators,  public authorities, and local citizens to implement risk-informed  practices, waste cleanup efforts can be done more cost-effectively.  The report also suggested that statutory changes were likely needed.

In 2015, a review organized by the Consortium for Risk Evaluation  with Stakeholder Participation reported that DOE was not optimally  using available resources to reduce risk. According to the report,  factors such as inconsistent regulatory approaches and certain  requirements in federal facility agreements caused disproportionate  resources to be directed at lower-priority risks. The report called for a  more systematic effort to assess and rank risks within and among  sites, including through headquarters guidance to sites, and to  allocate federal taxpayer monies to remedy the highest priority risks  through the most efficient means.

In May 2017, we reported on DOE’s efforts to treat a significant  portion of the waste in underground tanks at the Hanford Site. We  found that DOE chose different approaches to treat the less  radioactive portion of its tank waste—which DOE refers to as “low- activity waste” (LAW)—at the Hanford and Savannah River Sites. At  the Savannah River Site, DOE has grouted about 4 million gallons of  LAW since 2007. DOE plans to treat a portion of the Hanford Site’s  LAW with vitrification, but it has not yet treated any of Hanford’s LAW  and faces significant unresolved technical challenges in doing so. In  addition, we found that the best available information indicates that  DOE’s estimated costs to grout LAW at the Savannah River Site are  substantially lower than its estimated costs to vitrify LAW at Hanford,  and DOE may be able to save tens of billions of dollars by  reconsidering its waste treatment approach for a portion of the LAW at  Hanford. Moreover, according to experts that attended a meeting we  convened with the National Academies of Sciences, Engineering, and  Medicine, both vitrification and grout could effectively treat Hanford’s  LAW. Experts at our meeting also stated that developing updated  information on the effectiveness of treating a portion of Hanford’s  waste, called supplemental LAW, with other methods, such as grout,  may enable DOE to consider waste treatment approaches that would  accelerate DOE’s tank waste treatment mission, thereby potentially  reducing certain risks and lifecycle treatment costs. We recommended  that DOE (1) develop updated information on the performance of  treating supplemental LAW with alternate methods, such as grout,  before it selects an approach for treating supplemental LAW; and (2)  have an independent entity develop updated information on the  lifecycle costs of treating Hanford’s supplemental LAW with alternate  methods. DOE agreed with both recommendations.

Since 1994, we have made at least 28 recommendations related to  addressing the federal government’s environmental liability to DOE and  others and 4 suggestions to Congress to consider changes to the laws  governing cleanup activities. Of these, 13 recommendations remain  unimplemented. If implemented, these steps would improve the  completeness and reliability of the estimated costs of future federal  cleanup responsibilities and lead to more risk-based management of the  cleanup work. We believe these recommendations are as relevant, if not  more so, today.

DOE Has Taken Steps to Improve Management of Contracts, Projects, and Programs, but Challenges Remain

The Secretary of Energy has taken several important steps that  demonstrate DOE’s commitment to improving management of contracts  and projects. However, our recent work indicates that, even with these  efforts, NNSA and EM continue to face long-standing challenges in  several areas.

DOE Has Made Progress in Managing Contracts and Projects

As we noted in our 2017 high-risk report, DOE has made progress in its  contract and project management. DOE continued to meet the criterion  for demonstrating a strong commitment and top leadership support for  improving project management. The Secretary of Energy issued two memorandums, in December 2014 and June 2015, that lay out a series of  changes to policies and procedures to improve project management.  These changes were included in DOE’s revised project management  order, DOE Order 413.3B, issued in May 2016. As noted in the  memorandums, some of these changes are in response to  recommendations we made in prior years, such as requiring that projects  develop cost estimates and analyses of alternatives according to our best  practices.

DOE also made significant efforts to improve its performance in  monitoring and independently validating the effectiveness and  sustainability of corrective measures and now partially meets our  monitoring criterion for removing agencies and program areas from our  High-Risk List. For example, the Secretary improved the department’s  senior-level monitoring capability. The Secretary strengthened the Energy  Systems Acquisition Advisory Board by changing it from an ad hoc body  to an institutionalized board responsible for reviewing all capital asset  projects with a total project cost of $100 million or more. The Secretary  also created the Project Management Risk Committee, which includes  senior DOE officials and is chaired by a new departmental position—the  Chief Risk Officer. The committee is chartered to assess the risks of  projects across DOE and advise DOE senior leaders on cost, schedule,  and technical issues for projects.

DOE’s recent efforts do not address several areas where it continues to  have challenges including (1) acquisition planning for its major contracts,  (2) the quality of enterprise-wide cost information available to DOE  managers and key stakeholders, (3) program and project management,  and (4) major legacy projects.

Acquisition Planning for Major Contracts

As we have previously reported, during the acquisition-planning phase for  contracts, DOE makes critical decisions that have significant implications  for the cost and overall success of an acquisition. The size and duration  of DOE’s management and operating (M&O) contracts—22 M&O  contracts with an average potential duration of 17 years, representing  almost three-quarters of DOE’s spending in fiscal year 2015—underscore  the importance of planning for every M&O acquisition. In August 2016, we  examined DOE’s use of M&O contracts. According to DOE officials we  interviewed at that time, one of the primary reasons DOE uses M&O  contracts is because they are easier to manage with fewer DOE  personnel because they are less frequently competed and have broadly  written scopes of work, among other attributes. We found that DOE did  not consider acquisition alternatives beyond continuing its long-standing  M&O contract approach for 16 of its 22 M&O contracts. We concluded  that without considering broader alternatives in the acquisition planning  phase, DOE cannot ensure that it is selecting the most effective scope  and form of contract, raising risks for both contract cost and performance.  We recommended in our August 2016 report that DOE establish a  process to analyze and apply its experience with contracting alternatives.  DOE generally concurred with our recommendation, and, in November  2016, issued updated guidance requiring acquisition planning documents  to contain a thorough discussion of alternatives beyond simply extending  or competing M&O contracts.

Quality of Enterprise-Wide Cost Information

We have previously reported that the effectiveness of DOE’s monitoring  of its contracts, projects, and programs depends upon the availability of  reliable enterprise-wide cost information on which to base oversight  activities. For example, reliable enterprise-wide cost information is  needed to identify the cost of activities, ensure the validity of cost  estimates, and provide information to Congress to make budgetary  decisions. However, we have found that meaningful cost analyses across  programs, contractors, and sites are not usually possible because  NNSA’s contractors use different methods of accounting for and tracking  costs. NNSA developed a plan to improve and integrate its cost reporting  structures; however, we found in January 2017 that this plan did not  provide a useful road map for guiding NNSA’s effort. For example, we  found that NNSA did not define strategies and identify resources needed  to achieve its goals, which is a leading practice for strategic planning.  NNSA’s plan contained few details on the elements it must include, such  as its feasibility assessment, estimated costs, expected results, and an  implementation timeline. We concluded that, until a plan is in place that  incorporates leading strategic planning practices, NNSA cannot be  assured that its efforts will result in a cost collection tool that produces  reliable enterprise-wide cost information that satisfies the information  needs of Congress and program managers. We recommended that  NNSA develop a plan for producing cost information that fully  incorporates leading planning practices. NNSA agreed with our  recommendation.

In addition, as we have previously noted, quality data are needed for DOE  to manage its risk of fraud. The Fraud Reduction and Data Analytics Act  of 2015 establishes requirements aimed at improving federal agencies’  controls and procedures for assessing and mitigating fraud risks through  the use of data analytics. In a March 2017 report, however, we found  that because DOE does not require its contractors to maintain sufficiently  detailed transaction-level cost data that are reconcilable with amounts  charged to DOE, it is not well positioned to employ data analytics as a  fraud detection tool. We found that the data were not suitable either  because they were not for a complete universe of transactions that was  reconcilable with amounts billed to DOE or because they were not  sufficiently detailed to determine the nature of costs charged to DOE. We  concluded that, without requiring contractors to maintain such data, DOE  will not be well positioned to meet the requirements of the Fraud  Reduction and Data Analytics Act of 2015 and manage its risk of fraud  and other improper payments. We recommended that DOE require contractors to maintain sufficiently detailed transaction-level cost data that  are reconcilable with amounts charged to the government.

DOE did not concur with our recommendation. This is because, according  to DOE, the recommendation establishes agency-specific requirements  for DOE contractors that are more prescriptive than current federal  requirements and that its M&O contractors, not DOE, are responsible for  performing data analytics and determining what data are needed to do so.  DOE’s response to our recommendation is concerning because it  demonstrates that DOE does not fully appreciate its responsibility for  overseeing contractor costs. We believe that the use of data-analytic  techniques by DOE employees could help mitigate some of the  challenges that limit the effectiveness of DOE’s approach for overseeing  M&O contractor costs. However, effectively applying data-analytics  depends on the availability of complete and sufficiently detailed contractor  data. Therefore, by implementing our recommendation DOE could take  the important steps necessary to require contractors maintain sufficiently  detailed transaction-level cost data that are reconcilable with amounts  charged to the government.

Although, as mentioned previously, DOE has taken some steps to  improve program and project management, our recent work has shown  that DOE continues to face several challenges in these areas. Specifically  on program management:  In November 2017, we found that NNSA had established program  management requirements, such as developing cost and schedule  estimates for its uranium, plutonium, tritium, and lithium programs and  had established managers’ roles and responsibilities for these  programs. However, officials told us that the programs had not fully  met these requirements primarily because of staff shortages. We  recommended that NNSA determine the critical staff skills it will need  for these programs and use that information to address staffing  shortages. NNSA agreed with our recommendation.

In a September 2017 report on the NNSA’s uranium program, we  found that NNSA had not developed a complete scope of work, a life- cycle cost estimate, or an integrated master schedule for the overall  uranium program—all of which are considered leading practices—and  it had no time frame for doing so. We reported that NNSA plans to  do so for the specific Uranium Processing Facility project, as  required by DOE’s project management order. However, NNSA had  not developed a complete scope of work for key program  requirements, including important and potentially costly repairs and  upgrades to existing buildings in which NNSA intends to house some  uranium processing capabilities. We concluded that because NNSA  had not developed a complete scope of work for the overall uranium  program, it did not have the basis to develop a life-cycle cost estimate  or an integrated master schedule for the entire uranium program,  which runs counter to best practices identified in GAO’s cost  estimating and scheduling guides. We recommended that NNSA set a  time frame for completing the scope of work, life-cycle cost estimate,  and integrated master schedule for the overall uranium program.  NNSA generally agreed with this recommendation and has ongoing  efforts to complete these actions.

In September 2017, we found that DOE’s program to re-establish the  production of a plutonium isotope used to provide electrical power for  the National Aeronautics and Space Administration missions had  made progress but that it faced a number of technical and  organizational challenges to meeting production goals. Specifically,  we found that NNSA had not developed an implementation plan that  identifies milestones and interim steps that can be used to  demonstrate progress in meeting production goals. Our prior work has  shown that plans that include milestones and interim steps help an  agency to set priorities, use resources efficiently, and monitor  progress in achieving agency goals. In our September 2017 report,  we made three recommendations, including that DOE develop such a  plan for its plutonium isotope production approach and that DOE  assess the long-term effects of known production challenges and  communicate these effects to the National Aeronautics and Space  Administration. DOE concurred with our recommendations.

Our prior work also demonstrates that DOE continues to face project  management challenges in terms of having reliable performance data or  conducting reliable analyses of alternatives. Specifically,  In a January 2018 report, we found management challenges  associated with NNSA’s life extension programs (LEP). For  example, we found that NNSA had begun implementing requirements  for using earned value management (EVM) —a tool used across  industry and government for conducting cost and schedule  performance analysis—in three LEPs, but it had not adopted a key  best practice that could help the agency better manage risk for LEPs.  Specifically, we found that NNSA does not require an independent  team to validate the EVM systems used by NNSA’s contractors for  LEPs against the national EVM standard. We concluded that without  requiring validation of EVM systems, NNSA may not have assurance  that its LEPs are obtaining reliable EVM data for managing their  programs and reporting their status. We recommended that NNSA  require an independent team to validate contractor EVM systems  used for LEPs. NNSA agreed with our recommendation but stated  that it already relies on a DOE project management office to  independently validate contractor EVM systems. However, as we  reported, DOE has not independently validated contractor EVM  systems at six of the seven contractor sites that are responsible for  conducting LEP activities.

In May 2015, we reported that DOE initiated a new project, the Low  Activity Waste Pretreatment System project, to accelerate waste  treatment at Hanford. We found that this project was selected on the  basis of similar past proposals without consideration of other  potentially viable alternatives, contrary to requirements in DOE’s  project management order. We also reported that DOE’s cost and  schedule estimates for completion of the project were not conducted  according to best practices and were therefore not reliable. We  recommended that DOE re-evaluate alternatives and that it revise the  cost and schedule estimates in line with best practices. DOE generally  agreed with our recommendations but not some of the conclusions. In  September 2017, amid concerns about project cost growth and  schedule delays, DOE directed the contractor to conduct a new  analysis of alternatives to identify options that will allow the project to  be completed within current cost and schedule estimates. The  department has suspended work on the project pending a decision on  its design.

We will continue to monitor EM’s management and oversight of its  operations activities and DOE’s risk-informed cleanup decisions to  address environmental liabilities, as part of our ongoing work for this  subcommittee.

As previously mentioned, in response to a 2015 memorandum on project  management policies from the Secretary of Energy, DOE instituted  project management reforms that—if fully implemented—will help ensure  that future projects are not affected by the challenges that have persisted  for DOE’s major legacy projects. Although DOE has taken action on  certain major projects, we found that it has not consistently applied these  reforms, and in particular, DOE has not applied such reforms to its largest  legacy cleanup project at its Hanford Site in Washington state. As we  found in a May 2015 report, DOE continues to allow construction of  certain Waste Treatment and Immobilization Plant (WTP) facilities at  DOE’s Hanford Site before designs are 90 percent complete. This  contrasts with DOE’s revised project management order that now  requires a facility’s design to be at least 90 percent complete before  establishing cost and schedule baselines and cost and schedule  estimates that meet industry best practices. The WTP is DOE’s largest  project, and it has faced numerous technical and management challenges  that have added decades to its schedule and billions of dollars to its cost.  We recommended in May 2015 that DOE (1) consider whether to limit  construction on the WTP until risk mitigation strategies are developed to  address known technical challenges, and (2) determine the extent to  which the quality problems exist, in accordance with its quality assurance  policy, for the facilities’ systems that have not been reviewed to determine  if additional vulnerabilities exist. However, as of September 2016, DOE  had not yet implemented our recommendations. In December 2016, DOE  announced that the cost estimate for one portion of the WTP—the part  needed to treat a fraction of the low-activity waste—had increased to  nearly $17 billion. We are currently in the process of completing a report  on DOE’s WTP quality assurance program.

NNSA’s Nonproliferation Program Faces Performance Measurement and Program Management Challenges

Our previous work has found that NNSA also faces challenges  implementing its nonproliferation programs under its Office of Defense  Nuclear Nonproliferation (DNN), which implements nuclear  nonproliferation programs worldwide. In recently completed reviews of  DNN programs, we have identified several challenges NNSA faces in how  it measures performance and conducts program management of these  efforts. Specifically,  In September 2017, we found that four DNN programs did not have  schedule and cost estimates covering their planned life cycles and did  not measure performance against schedule and cost baselines as is  recommended by program management leading practices. NNSA  officials explained that in general this is due in part to high levels of  uncertainty in planning the selected programs’ work scope or  schedules, particularly in working with partner countries; however, we  noted that uncertainty should not prevent these programs from  establishing more complete or longer-term estimates to account for  the time and resources they need to achieve their goals and track  their performance. In addition, we observed that DOE’s cost  estimating guide, which applies to NNSA programs, describes  approaches for programs to incorporate risk and uncertainty in  estimates. But we found that DNN’s program management policy,  which was updated in February 2017, did not outline requirements for  programs to establish life-cycle estimates or measure performance  against schedule and cost baselines. We recommended that DNN  revise its program management policy to require DNN programs to  follow life-cycle program management, such as requiring life-cycle  estimates and measuring against baselines. Updating the DNN policy  to include requirements and guidance on cost estimating and tracking  performance against schedule and cost baselines could help ensure  that NNSA managers and Congress have better information on (1)  how much DNN programs may cost, (2) the time they may need to  achieve their goals, and (3) how effectively they are being executed  compared to plans. Although NNSA neither agreed nor disagreed with  the recommendation, it indicated that it plans to take action to revise  its policy to address the recommendation.

In February 2017, we found that NNSA was unable to demonstrate  the full results of its research and development technology for  preventing nuclear proliferation. Specifically, we reported that DNN’s  Research and Development program did not consistently track and  document projects that result in technologies being transitioned or  deployed. Furthermore, we found that DNN’s Research and  Development project performance was difficult to interpret because  the program’s performance measures did not define criteria or provide  context justifying how the program determined that it met its targets.  We concluded that this, in turn, could hinder users’ ability to determine  the program’s progress. NNSA officials said that final project reports  did not document their assessment of performance against baseline  targets and that there was no common template for final project  reports. We noted that documenting assessments that compare final  project performance results against baseline targets for scope of work  and completion date could enhance NNSA’s ability to manage its  programs in accordance with these standards. We also concluded  that more consistently tracking and documenting the transitioned and  deployed technologies that result from DNN’s projects could also  facilitate knowledge sharing within DNN. This would also provide a  means by which to present valuable information to Congress and  other decision makers about the programs’ results and overall value.  We recommended that NNSA consistently track and document results  of DNN Research and Development projects and document  assessments of final project results against baseline performance  targets. NNSA agreed to take actions in response to both  recommendations.

In June 2016, we found that the Nuclear Smuggling Detection and  Deterrence (NSDD) program had developed a program plan but that  the plan did not include measurable goals and performance measures  aligned to the goals. As a result, we concluded that the NSDD  program may not be able to determine when it has fully accomplished  its mission and risked continuing to deploy equipment past the point of  diminishing returns. We recommended that NSDD develop a more  detailed pr ogram plan that articulates when and how it will achieve its  goals, including completing key activities, such as the deployment of  radiation detection equipment to partner countries. NNSA agreed with  this recommendation.

Chairman Upton, Ranking Member Rush, and Members of the  Subcommittee, this completes my prepared statement. I would be  pleased to respond to any questions you may have at this time.

If you or your staff members have any questions about this testimony,  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 statement. GAO staff who made key  contributions to this testimony are Nico Sloss, Assistant Director; Nathan  Anderson; Allison Bawden; Natalie Block; Mark Braza; Antoinette  Capaccio; Jenny Chow; Ricki Gaber; Jonathan Gill; William Hoehn;  Cristian Ion; Amanda Kolling; and Diane LoFaro.

The following is a selection of GAO’s recent work assessing the  Department of Energy’s management efforts, including at the National  Nuclear Security Administration and at the Office of Environmental  Management:  Nuclear Weapons: NNSA Should Adopt Additional Best Practices to  Better Manage Risk for Life Extension Programs. GAO-18-129.  Washington, D.C.: January 30, 2018.

Nuclear Weapons: NNSA Needs to Determine Critical Skills and  Competencies for Its Strategic Materials Programs. GAO-18-99.  Washington, D.C.: November 14, 2017.

Nuclear Nonproliferation: NNSA Needs to Improve Its Program  Management Policy and Practices. GAO-17-773. Washington, D.C.:  September 28, 2017.

Modernizing the Nuclear Security Enterprise: A Complete Scope of Work  Is Needed to Develop Timely Cost and Schedule Information for the  Uranium Program. GAO-17-577. Washington, D.C.: September 8, 2017.

Space Exploration: DOE Could Improve Planning and Communication  Related to Plutonium-238 and Radioisotope Power Systems Production  Challenges. GAO-17-673. Washington, D.C.: September 8, 2017.

Nuclear Waste: Opportunities Exist to Reduce Risks and Costs by  Evaluating Different Waste Treatment Approaches at Hanford.   GAO-17-306. Washington, D.C.: May 3, 2017.  2017 Annual Report: Additional Opportunities to Reduce Fragmentation,  Overlap, and Duplication and Achieve Other Financial Benefits.   GAO-17-491SP. Washington, D.C.: April 26, 2017.

National Nuclear Security Administration: Action Needed to Address  Affordability of Nuclear Modernization Programs. GAO-17-341.  Washington, D.C.: April 26, 2017.

Department of Energy: Use of Leading Practices Could Help Manage the  Risk of Fraud and Other Improper Payments. GAO-17-235. Washington,  D.C.: March 30, 2017.

High-Risk Series: Progress on Many High-Risk Areas, While Substantial  Efforts Needed on Others. GAO-17-317. Washington, D.C.: February 15,  2017.

Nuclear Nonproliferation: Better Information Needed on Results of  National Nuclear Security Administration’s Research and Technology  Development Projects. GAO-17-210. Washington, D.C.: February 3,  2017.

Nuclear Waste: Benefits and Costs Should Be Better Understood Before  DOE Commits to a Separate Repository for Defense Waste.   GAO-17-174.Washington, D.C.: January 31, 2017.

National Nuclear Security Administration: A Plan Incorporating Leading  Practices Is Needed to Guide Cost Reporting Improvement Effort.   GAO-17-141. Washington, D.C.: January 19, 2017.

Program Management: DOE Needs to Develop a Comprehensive Policy  and Training Program. GAO-17-51. Washington, D.C.: November 21,  2016.

Department of Energy: Actions Needed to Strengthen Acquisition  Planning for Management and Operating Contracts. GAO-16-529.  Washington, D.C.: August 9, 2016.

DOE Project Management: NNSA Needs to Clarify Requirements for Its  Plutonium Analysis Project at Los Alamos. GAO-16-585. Washington,  D.C.: August 9, 2016.

Orion Multi-Purpose Crew Vehicle: Action Needed to Improve Visibility  into Cost, Schedule, and Capacity to Resolve Technical Challenges.  GAO-16-620. Washington, D.C.: July 27, 2016.

Department of Energy: Whistleblower Protections Need Strengthening.  GAO-16-618. Washington, D.C.: July 11, 2016.

Combating Nuclear Smuggling: NNSA’s Detection and Deterrence  Program Is Addressing Challenges but Should Improve Its Program Plan.  GAO-16-460. Washington, D.C.: June 17, 2016.

Modernizing the Nuclear Security Enterprise: NNSA’s Budget Estimates  Increased but May Not Align with All Anticipated Costs. GAO-16-290.  Washington, D.C.: March 4, 2016.

Weapons System Acquisitions: Opportunities Exist to Improve the  Department of Defense’s Portfolio Management. GAO-15-466.  Washington, D.C.: August 27, 2015.

Hanford Waste Treatment: DOE Needs to Evaluate Alternatives to  Recently Proposed Projects and Address Technical and Management  Challenges. GAO-15-354. Washington, D.C.: May 7, 2015.

DOE and NNSA Project Management: Analysis of Alternatives Could Be  Improved by Incorporating Best Practices. GAO-15-37. Washington, D.C.:  December 11, 2014.

Modernizing the Nuclear Security Enterprise: NNSA’s Budget Estimates  Do Not Fully Align with Plans. GAO-14-45. Washington, D.C.: December  11, 2013.

Commercial Nuclear Waste: Effects of a Termination of the Yucca  Mountain Repository Program and Lessons Learned. GAO-11-229.  Washington, D.C.: April 8, 2011.

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The Department of Energy's (DOE) National Nuclear Security Administration (NNSA) manages the U.S. nuclear weapons stockpile and supports nonproliferation efforts. DOE's Office of Environmental Management addresses contamination at nuclear weapons production sites. We testified that

NNSA’s plans to modernize its nuclear weapons do not align with its budget, raising affordability concerns

DOE's environmental cleanup liability may cost billions more than anticipated

DOE continues to face challenges managing its contracts, projects, and programs

NNSA has faced management challenges implementing its nonproliferation programs