DOD Report Accounting for Cooperative Threat Reduction Assistance Needs Improvement GAO/NSIAD-95-191
Weapons of Mass Destruction: DOD Report Accounting for Cooperative Threat
Reduction Assistance Needs Improvement (Letter Report, 09/29/95,
GAO/NSIAD-95-191).

In 1991, Congress authorized the Defense Department (DOD) to help the
former Soviet Union (1) destroy nuclear, chemical, and other weapons of
mass destruction (including strategic missiles); (2) transport, store,
and safeguard such weapons in connection with their destruction; and (3)
prevent the proliferation of such weapons. Under the Cooperative Threat
Reduction program, DOD manages various projects to help Balarus,
Kazakhstan, Russia, and Ukraine--the four republics that inherited the
former Soviet Union's weapons of mass destruction.  This report examines
whether DOD had (1) mad progress in auditing and examining program aid;
(2) listed its planned audit and examination efforts to be carried out
during fiscal year 1995; (3) compiled a list describing the current
location and condition of program assistance; and (4) provided a basis
for determining whether the assistance was being used for the purposes
intended.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-191
     TITLE:  Weapons of Mass Destruction: DOD Report Accounting for 
             Cooperative Threat Reduction Assistance Needs
             Improvement
      DATE:  09/29/95
   SUBJECT:  Nuclear weapons
             Audits
             International relations
             International cooperation
             Advanced weapons systems
             Federal aid to foreign countries
             Chemical warfare
             Ballistic missiles
             Nuclear proliferation
             Arms control agreements
IDENTIFIER:  DOD Cooperative Threat Reduction Program
             Soviet Union
             Belarus
             Kazakhstan
             Russia
             Ukraine
             START
             Strategic Arms Reduction Treaty
             
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Cover
================================================================ COVER


Report to Congressional Committees

September 1995

WEAPONS OF MASS DESTRUCTION - DOD
REPORTING ON COOPERATIVE THREAT
REDUCTION ASSISTANCE CAN BE
IMPROVED

GAO/NSIAD-95-191

Weapons of Mass Destruction

(711106)


Abbreviations
=============================================================== ABBREV

  CTR - Cooperative Threat Reduction
  DOD - Department of Defense
  FSU - former Soviet Union
  INF - Intermediate-Range Nuclear Forces treaty
  OSIA - On-Site Inspection Agency
  START - Strategic Arms Reduction Treaty

Letter
=============================================================== LETTER


B-259294

September 29, 1995

The Honorable Strom Thurmond
Chairman
The Honorable Sam Nunn
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Floyd Spence
Chairman
The Honorable Ronald Dellums
Ranking Minority Member
Committee on National Security
House of Representatives

As called for in section 1203 of the National Defense Authorization
Act for Fiscal Year 1995, we reviewed the Department of Defense's
(DOD) report accounting for Cooperative Threat Reduction (CTR)
program assistance provided to the former Soviet Union (FSU) to
determine whether DOD had

  made progress in auditing and examining CTR aid,

  listed its planned audit and examination activities to be carried
     out during fiscal year 1995,

  included a list describing the current location and condition of
     CTR-provided assistance, and

  provided a basis for determining whether the assistance was being
     used for the purposes intended. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Since 1991, Congress has authorized DOD to help the FSU republics (1)
destroy nuclear, chemical, and other weapons of mass destruction
(including strategic nuclear delivery vehicles); (2) transport,
store, and safeguard such weapons in connection with their
destruction; and (3) prevent the proliferation of such weapons.  DOD
manages the various CTR projects aimed at assisting Belarus,
Kazakhstan, Russia, and Ukraine--the four republics that inherited
the FSU's weapons of mass destruction.\1 Congress authorized $1.25
billion for the CTR program through fiscal year 1995, and DOD plans
to request $735 million for fiscal years 1996 and 1997. 

Section 1203 of the National Defense Authorization Act for Fiscal
Year 1995 required that DOD (1) provide a report accounting for CTR
assistance no later than January 5, 1995, (2) list CTR assistance
provided before the date of the report, (3) describe the current
location and condition of the assistance, (4) determine whether the
assistance has been used for its intended purpose, and (5) describe
activities to be carried out during fiscal year 1995 for auditing and
examining CTR-provided assistance. 

Although the act required that DOD issue a report only for 1995,
Congress is now considering legislation requiring DOD to provide an
annual report accounting for CTR aid.\2 In October 1994, we reported
that DOD had not yet begun implementing an audit and examination
process for the CTR program,\3

but in June 1995 we were able to report that DOD had made some
initial progress toward auditing and examining CTR aid.\4


--------------------
\1 Beginning in fiscal year 1996, DOD will transfer management and
oversight responsibilities of nine CTR projects to other executive
branch agencies.  Specifically, those projects designed to improve
nuclear material protection, control, and accountability will be
transferred to the Department of Energy.  The Department of State
will assume responsibility for the International Science and
Technology Center and, in conjunction with the Department of
Commerce, will manage the projects for improving export controls. 

\2 Section 1107 of H.R.  1530 as passed by the House of
Representatives in June 1995. 

\3 Weapons of Mass Destruction:  Reducing the Threat From the Former
Soviet Union (GAO/NSIAD-95-7, Oct.  6, 1994). 

\4 Weapons of Mass Destruction:  Reducing the Threat From the Former
Soviet Union--An Update (GAO/NSIAD-95-165, June 9, 1995). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

DOD made some progress in the CTR program's first year of audit and
examination activities.  DOD has worked to resolve recipient nations'
concerns over audit and examination implementing procedures;
conducted five audits at sites in three countries as of July 1995,
which indicated that the CTR-provided assistance at these sites was
accounted for and was being used for the purposes intended; and
planned an audit every month of other CTR-provided assistance through
the end of fiscal year 1995.  However, in reviewing DOD's report to
Congress, we found the following shortcomings: 

  The report does not fully present all of DOD's audit and
     examination activities for fiscal year 1995, as required, and
     does not describe how DOD plans such activities. 

  The report does not describe the condition of the assistance, as
     required, and contains outdated and inaccurate listings of CTR
     assistance deliveries.  While the report is dated January 5,
     1995, it was not issued until May 31, 1995.  Moreover, the list
     of CTR deliveries that the report includes is dated February 2,
     1995.  After that date and through May 1995, DOD delivered CTR
     aid worth over $38 million. 

  The limited number of projects DOD reviewed raises questions about
     the basis for DOD's programwide determination that CTR
     assistance--with one classified exception--has been accounted
     for and used for its intended purpose.  According to DOD's
     report, this determination was based on information on 9 of the
     23 projects for which CTR-provided assistance was being used. 
     Of these nine projects, only three had actually been audited. 
     Other sources of information for the projects included random
     observations by U.S.  technical teams, recipient-provided data,
     and national technical means. 


   DOD HAS MADE PROGRESS IN
   AUDITING AND EVALUATING CTR AID
------------------------------------------------------------ Letter :3

DOD has made progress in auditing and evaluating CTR aid and is
addressing recipient concerns regarding the implementation of its
audit and evaluation rights.  Agreements with each of the four
recipient nations give the United States the right to examine the use
of any CTR-provided material, training, or other services and to
inspect any related records or documents.  DOD has the right to audit
and examine each CTR project upon 30 days advance notice.\5

In commenting on our draft report, DOD noted that discussions are
continuing with both the Russians and the Ukrainians to ensure the
smooth conduct of CTR audits and examinations.  While acknowledging
the fundamental right of DOD to conduct audits, Russia and Ukraine
have recently recommended that additional arrangements be agreed upon
with DOD. 

Personnel from DOD's On-Site Inspection Agency (OSIA), along with
relevant DOD technical and policy experts, will conduct the audits
and examinations for most CTR projects.  The DOD Under Secretary for
International Security Policy, the Defense Nuclear Agency, and CTR
program managers are to review the results of the audits. 


--------------------
\5 Implementing agreements with Russia specify that CTR projects can
be audited up to three times each calendar year. 


      AUDIT AND EXAMINATION PLAN
---------------------------------------------------------- Letter :3.1

DOD's report also refers to a DOD CTR audit and examination plan
prepared in mid-1994.  This plan outlines the process and support
requirements for a planned audit of armored blankets in Russia. 
Devised as a template for conducting future audits, the plan
establishes the composition and operation of audit and examination
teams and details the administrative procedures for implementing the
examinations. 

Although the plan sets specific criteria for an audit of the armored
blankets, it does not establish overall evaluation criteria for all
audits and examinations.  The plan states that DOD shall establish
criteria for each audit of CTR-provided assistance.  DOD did not
prepare written audit plans establishing criteria for the audits and
examinations conducted in Belarus, Russia, and Ukraine.  DOD
indicated that a primary goal of the audit and examination process
was to determine if the assistance was being used for the purposes
intended and that it was unrealistic to devise a written plan for
each audit.  DOD program officials told us that DOD policy officials
had given them oral guidance regarding the criteria for these
examinations.  DOD explained that in preparing for each audit and
examination, criteria developed among the CTR program office,
technical representatives, and OSIA are discussed during team
preparation and briefings.  However, there is no record of what
specific criteria were to be used. 

Furthermore, the plan stipulates that DOD shall establish criteria
for judging whether or not assistance has been used exclusively for
its intended purpose.  According to a DOD official, the standard of
exclusive use refers to the language in various CTR implementing
agreements, which state that the assistance provided is to be used
only for its intended purpose.  While the plan cites specific
criteria and indicators for determining whether the armored blankets
have been used (for example, worn spots, folds, and rips), the
criteria and indicators do not appear sufficient to support a
determination of exclusive use of the blankets or other CTR-provided
assistance.  DOD officials also told us that the oral criteria
provided for conducting the audits and examinations described below,
as well as future audits, were not directed toward establishing
exclusive use of the CTR-provided assistance. 


      RUSSIA
---------------------------------------------------------- Letter :3.2

After a 10-month delay, DOD officials audited CTR-provided assistance
in May 1995.  DOD had planned to conduct its first CTR audit and
examination in Russia in July 1994.  However, after DOD notified
Russia of its intended audit and examination, the Russians raised
questions over U.S.  implementation procedures.  In March 1995, DOD
officials met with the Russians to clarify how DOD would conduct the
audits and examinations and provided assurances that the audits
differed from arms control verification measures.  DOD then scheduled
and conducted the May audit of CTR-provided railcar conversion kits,
which are designed to enhance the safety and security of transporting
nuclear weapons and material.  During this audit, DOD officials
observed 8 modified railcars and 32 uninstalled kits, inventoried a
sample of items, and reviewed documents accounting for all 115 kits
delivered. 

In the interim, the Defense Contract Audit Agency conducted a
financial audit of the International Science and Technology Center in
Moscow in March 1995.  This audit concluded that the Center's
financial reports accurately reflected its financial condition. 


      UKRAINE
---------------------------------------------------------- Letter :3.3

Although Ukraine also objected to DOD's proposed audit and
examination implementing procedures, DOD officials met with Ukrainian
officials in May 1995 to address their concerns.  In June 1995, DOD
officials audited (1) the government-to-government communications
link used to transmit notification data under the Intermediate-Range
Nuclear Forces (INF) treaty and the Strategic Arms Reduction Treaty
(START) and (2) initial support assistance used to help deactivate
and return nuclear warheads to Russia.  The audit included an
examination of fuel usage and accountability, issues of concern to
DOD in 1994.  The audit team concluded that the assistance was
accounted for and that it was used for the purposes intended. 


      BELARUS
---------------------------------------------------------- Letter :3.4

DOD conducted its first CTR audit and examination in Belarus in
January 1995.  DOD audit and examination team members examined the
continuous communication link equipment designed to relay
notification data, as required under the INF treaty and START, and
found that all equipment was accounted for. 


   REPORT DOES NOT INCLUDE ALL
   PLANNED AUDIT ACTIVITIES
------------------------------------------------------------ Letter :4

DOD's report refers to three planned audits and examinations for the
remainder of fiscal year 1995--two in Ukraine and one in Kazakhstan. 
However, at the time the report was issued, DOD officials had planned
and budgeted for more audits through the end of fiscal year 1995 and
even through the end of fiscal year 1996.  Their plan includes
several more audits and examinations than are mentioned in the report
for the remainder of fiscal year 1995, including audits of training
centers in Belarus and communications link equipment in Kazakhstan,
and considerably more audits before the end of fiscal year 1996.  The
projected schedule details what projects are to be audited, when the
audits will occur, and estimates how much the audits will cost.  DOD
officials stated that the schedule could be modified to accommodate
additional audits, if warranted. 


   REPORT LACKS INFORMATION ON
   EQUIPMENT CONDITION AND CURRENT
   DELIVERIES
------------------------------------------------------------ Letter :5

While DOD's report states where CTR-provided equipment is to be used,
it does not provide information, as required, on the condition of
CTR-provided equipment and contains an outdated and inaccurate
listing of CTR assistance deliveries.  Information on the condition
of CTR-funded hardware could be important because equipment
maintenance is provided as part of CTR assistance.  For example, if
the cranes used for dismantlement efforts in Russia and Ukraine are
not maintained, they will not function properly.  DOD officials
acknowledged that the report lacks the required condition information
but provided no explanation.  In commenting on a draft of this
report, DOD indicated that equipment condition would be addressed in
the future by each audit and examination team. 

The CTR delivery information in the report is dated February 2, 1995,
although the report was not issued until May 1995.  DOD officials
told us that internal delays prevented the timely release of the
report.  However, between February and May 1995, DOD delivered CTR
aid worth over $38 million.  This aid represents nearly half the
dollar value of all CTR assistance delivered through May 31, 1995. 
Further, the report does not include all items that were delivered by
February 2, 1995.  Among the deliveries omitted were items that DOD
alluded to elsewhere in the report.  For example, DOD cites the audit
and examination of the continuous communications link in Belarus and
the railcar modification kits in Russia as examples of how it
accounts for CTR-provided assistance.  This equipment, however, does
not appear on DOD's list of CTR assistance deliveries. 

Program officials told us that they had more recent and informative
data available to them than when the report was provided to Congress
on
May 31.  CTR officials maintain and update a database that includes
current and more detailed information than is in the report,
including the dollar value of the CTR equipment being provided. 
According to DOD officials, a conscious policy decision was made not
to update the report before its release on May 31.  However, the
report was modified somewhat to include the three audits and
examinations conducted between January 5, 1995, the date on the
report, and May 31, 1995, when the report was issued.  Appendixes I
through IV contain a list of CTR assistance deliveries through June
8, 1995, to Belarus, Kazakhstan, Russia, and Ukraine. 


   END-USE DETERMINATION BASED ON
   LIMITED EVIDENCE
------------------------------------------------------------ Letter :6

DOD determined and reported that it is reasonably confident that CTR
assistance is being properly accounted for and used for the purposes
intended, with one exception.\6 According to its report, DOD believes
that it has confirmed the delivery and appropriate use of a
significant portion of assistance through two audits and examinations
of delivered assistance, one financial audit, observations by U.S. 
technical teams, and classified sources.\7

However, we question how DOD could determine that assistance had been
accounted for and used for its intended purpose given the limited
information in its report. 

As of May 31, 1995, when DOD provided its report to Congress, DOD had
delivered equipment for 23 CTR projects in the FSU.  By that date, it
had completed only two audits and examinations of CTR-provided
assistance--a mid-January 1995 audit of the continuous communications
link equipment in Belarus and a May 1995 audit of railcar conversion
kits in Russia.  Also, a financial audit of the International Science
and Technology Center in Russia was completed in March 1995.  None of
these audits had been completed by January 5, 1995, the report's due
date. 

In its report, DOD also cites as a basis for its determination the
observations of U.S.  technical teams charged with defining project
requirements, delivering equipment, providing services, and
monitoring contractors' performance.  Although DOD notes several
examples of technical team observations, the report says that such
random observations are not a systematic means of accounting for CTR
aid.  In addition, although the DOD report provides a variety of
information sources, it cites fewer than half of the 23 projects for
which CTR-provided assistance was being used and does not connect the
source with the assistance. 


--------------------
\6 Details of this one incident are classified. 

\7 DOD notes that it has also used data gathered from FSU official
sources and national technical means.  This data is classified and
cannot be discussed in this report. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

The National Defense Authorization Act for Fiscal Year 1995 required
that DOD issue a report in 1995.  If Congress decides to require the
Secretary of Defense to submit similar reports in the future, we
recommend that the Secretary of Defense take steps to ensure that
such reports (1) contain current and complete data on CTR assistance
deliveries, including the current condition of the equipment
provided; (2) integrate available sources of information on CTR
assistance to show what assistance is accounted for and is used for
its intended purpose; (3) link this information to its overall
determination as of a specific date; and (4) detail planned audit and
examination activities for the year ahead. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

In commenting on our draft report, DOD agreed with our recommendation
and provided technical corrections, which we have incorporated where
appropriate.  DOD's comments are presented in appendix V. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

To respond to our legislative mandate, we reviewed DOD's audit and
examination report to Congress, DOD's audit and examination plan for
the CTR program, and reports detailing the results of actual audits
and examinations.  We also reviewed other documents and met with
officials from the Office of the Secretary of Defense, the Defense
Nuclear Agency, OSIA, the Department of State, the Department of
Energy, and the Arms Control and Disarmament Agency.  DOD's report
contains classified information concerning national technical means. 
We cannot assess or validate such data and did not include it in this
report. 

We conducted our review between October 1994 and June 1995 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Secretary of Defense and
other interested congressional committees.  We will also make copies
available to others upon request. 

Please contact me on (202) 512-4128 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix VI. 

Joseph E.  Kelley
Director-in-Charge
International Affairs Issues


COOPERATIVE THREAT REDUCTION
EQUIPMENT DELIVERIES TO BELARUS
THROUGH JUNE 8, 1995
=========================================================== Appendix I