Fraud Confirmed at Los Alamos Laboratory

Employees stole or lost at least $1.5 million in government property at Los Alamos National Laboratory, and lab supervisors later warned their staff to “resist the temptation to spill your guts� about the wrongdoing, according to an Energy Department investigation released Thursday .

The probe by the Energy Department’s Office of Inspector General represents the first official confirmation of widespread financial fraud at the New Mexico nuclear weapons research lab and management’s failure to address it. The facility is operated by the University of California under contract with the Energy Department.

The report corroborates the concerns about weak internal controls and property management issues first raised by two whistle-blowing investigators, Glenn Walp and Steven Doran, who were fired by the lab in November after reporting the thefts. The report terms their dismissals “incomprehensible.�

The two men were reinstated by UC this month after their allegations of a cover-up were made public.

The report comes as the Energy Department is reviewing whether it should break UC’s contract to manage Los Alamos and Lawrence Livermore National Laboratory, the nation’s two nuclear weapons labs with combined annual budgets of more than $3 billion.

In addition, the FBI is conducting a criminal investigation at the lab and in November executed a search warrant to look for missing property. Two congressional committees and the General Accounting Office also are looking into the business operations of both Los Alamos and Livermore.

The report heightened concern about the lab’s management among lawmakers and lab critics in Washington.

“It confirms that the culture at the lab is one that fostered a sense of entitlement by certain employees that they could get away with stealing from the taxpayer,� said Rep. James Greenwood (R-Pa.), who heads an oversight subcommittee investigating the lab’s problems.

George Nanos, named by UC as interim director of the lab this month, said he accepts the findings and is moving as quickly as possible to strengthen business management at Los Alamos.

Energy Secretary Spencer Abraham is expected to decide by April whether UC is qualified to continue running the labs.

“The report says: ‘You guys did some really dumb things,’ � Nanos acknowledged. “We are not in the mode of saying ‘We didn’t do dumb things. Our job is to fix them.’ �

The University of California said the findings of the inspector general were similar to those of its own preliminary investigations and said the university has taken steps to address the problems, including the appointment of a new director at Los Alamos, a shakeup of other top management and the rehiring of the two fired investigators.

UC spokesman Michael Reese also said the university “couldn’t agree more� with the report’s findings regarding the whistle-blowers’ dismissals.

The report published the lab’s official inventory of missing and stolen property, though it did not corroborate the accuracy of the list. In the last three years, the property included 204 desktop computers, 42 laptops, 12 cameras, 80 telephones and 127 printers, among other equipment, the Inspector General said.

The listed value of those items is about $1.5 million, though the Inspector General did not independently verify that tally.

Not addressed in the report were other theft allegations, including reports by Walp and Doran that a lab employee used a credit card issued by the lab to buy a $30,000 Ford Mustang and another employee used her lab credit card to obtain $2,500 in cash at a casino.

Counterintelligence officials have raised concerns that the missing computers may contain sensitive or classified information, a risk that was not addressed by lab officials before the problem became public, the Inspector General said.

Not until December, after Walp and Doran’s firings, did the laboratory issue a memo that concluded that no classified information was contained on the lost or stolen computers.

That finding was not addressed by the Inspector General.

Systemic Weaknesses

The report detailed systemic weaknesses at the lab in accounting for property and properly controlling government funds. For instance, Los Alamos permits outside deliveries to numerous “drop points� around the massive campus, including “open spaces with little or no security� that do not allow equipment to be properly inventoried.

Investigators also found the lab had created a culture that failed to hold employees accountable. Indeed, just before an annual Energy Department inspection lab officials issued a so-called survival guide to employees that warned “handwritten notes can be especially damaging ... they are not easily disavowed.� It also contained the warning to employees not to “spill your guts.�

Another document told the lab’s internal auditors “to not use information in a manner that could be perceived as detrimental to the University of California,� the lab or the audit office.

The whistle-blowers fired in November viewed the investigation’s findings as a vindication.

“We’ve been saying the lab is riddled with theft and mismanagement and that certain mid- and high-level managers had taken a very cavalier and nonchalant approach to this crime and mismanagement,� Walp said.

“The report overwhelmingly confirms everything we’ve been saying. We also felt there were blatant efforts to cover up some of this activity, including intimidation of employees, and all for the protection of this contract, the golden calf.�

Walp, former head of the Pennsylvania State Police, and Doran, former Idaho City police chief, were rehired by UC this month to assist with its continuing investigation into the theft and financial fraud.Separately, the Energy Department has suspended Christopher Steele, a senior government safety official at the lab, after he pushed an investigation into improper storage of plutonium and what he considered other unsafe handling of radioactive material.

Steele’s suspension was disclosed this week and was not addressed in the new report.

The Inspector General said it did not offer evidence that top management at the lab deliberately hid criminal activity, which interim director Nanos said was an important finding. But the report did find they took a number of actions that “obscured serious property management and security problems.�

“It is devastating,� said Peter Stockton, an investigator with the watchdog group Project on Government Oversight, which has made many of the disclosures about the lab’s problems. “It is a nail in the coffin of the contract.�