UC to Pay Damages for Mismanaging Lab Funds

The University of California agreed Thursday to pay $3 million in civil damages and costs for what the U.S. Justice Department called “reckless disregard” for how it managed funds at a nuclear weapons laboratory.

Although there have been contract disputes with the government in the past, the damage award is the largest stemming from the university’s more than four decades of operating Lawrence Livermore National Laboratory in Berkeley, where the mismanagement occurred.

The university has a $1-billion contract with the Energy Department to operate the lab, where nuclear weapons are designed and studied. The lab also does work for other federal agencies, and a 1993 Energy Department audit turned up accounting irregularities in those projects.

A university spokesman described those projects as defense-related but said further details were classified.

According to Anne-Christine Massullo, assistant U.S. attorney for the northern district of California, investigations found sloppy record-keeping, shifting of as much as $1 million in costs from one project to another, unauthorized loans from one account to another and unused funds that had not been returned to the federal government.

“It was our position that there was reckless disregard by UC . . . which was the cause of the mismanagement of these funds,” she said.

Even so, it will be the federal government that pays the penalty, in effect, because the money will come out of a $14-million fund set aside by the Department of Energy to cover unusual costs associated with operating the lab, a university spokesman said. Normally, those funds are available to the lab for discretionary research.

David Schwoegler, a spokesman for UC’s office of laboratory administration, said managers who were involved in the financial mismanagement were “removed from the program and placed in other positions.” But he said he was prevented from saying whether the personnel actions were disciplinary in nature.

The Justice Department notified the university last April that it planned to sue the institution under a federal law prohibiting agencies from filing false claims against the government. The university and the Justice Department then began discussing a settlement.

Schwoegler said the university conducted its own 14-month audit in response to the accounting problems identified by the Energy Department.

That audit found that in some cases lab employees worked on one project while being paid by another, but that “the federal government as a whole had zero loss.”

“This work was done for the benefit of the [government] sponsors and no university or lab employee benefited in any way,” Schwoegler said.

The university’s investigation found irregularities totaling about $700,000 and the institution agreed to repay that amount to federal agencies that had been overcharged, he said. The federal investigation found another $800,000 in costs that were either misallocated or could not be documented.

In addition, the Justice Department added $1.2 million in damages. Schwoegler said that is neither a fine nor a penalty, however, because the university, in its settlement with the Justice Department, admitted no wrongdoing.

The university also will pay $200,000 in auditing and legal expenses.

To prevent a recurrence of the problems, the university has initiated 26 changes in how it audits its books, trains its employees and analyzes its business practices, Schwoegler said.

The university also operates the Lawrence Berkeley lab, which does energy research, and the Los Alamos nuclear weapons lab in New Mexico. It is negotiating with the Energy Department for a five-year renewal of its contract to operate all three labs.

Since the end of the Cold War, the nuclear weapons labs have diversified into other areas of science, including environmental research, laser applications and biotechnology. But the majority of their work still involves nuclear weapons.