These agreements establish obligations  governing how nuclear material and equipment subject to the agreements  are to be used. In addition, the United  States has an agreement with the International Atomic Energy Agency  (IAEA) on the safeguard of nuclear material, which requires the United  States to maintain a system of accounting and control over certain  nuclear material. 1). 2). NRC licensees told us they generally  conducted exchanges to meet customer demand for material with  obligations from certain countries and to avoid the need to physically  transport uranium. Exchanges Typically Involved Commercial Nuclear Facilities, and Numbers of Exchanges Have Decreased in Recent Years

According to NMMSS data, there were 817 exchanges of foreign  obligated nuclear material in the United States from October 1, 2003,  through November 30, 2015. Of the 817 obligation exchanges, 802 (98 percent) were conducted by  NRC-licensed commercial nuclear facilities; 14 were conducted by  DOE contractors; and 1 was conducted by an NRC licensee that  conducts work both for commercial purposes and for DOE. The remaining 1  percent involved facilities exchanging obligated material for obligated  material. They  stated that obligation exchanges allowed them to avoid the high  transportation costs and safety risks associated with physically shipping  nuclear material. DOE and NRC Have Procedures for Accurate Tracking and Reporting of Obligation Exchanges, but Conditions Exist That May Affect Agencies’ Abilities to Use NMMSS to Demonstrate Compliance With Nuclear Cooperation Agreements

DOE and NRC have three procedures designed to ensure accurate  tracking and reporting of transaction data in NMMSS, including data on  obligation exchanges. Foreign partners  provide advance notification, as well as a confirmation of shipment, to  the U.S. government when shipping nuclear material to the United  States. We tested elements of these procedures and analyzed certain NMMSS  data and found the data to be generally accurate with little evidence of  inaccuracies or other problems with NMMSS data on obligation  exchanges. Agencies Have Not Documented the Conditions under Which Facilities May Carry Negative Obligation Balances

Nuclear cooperation agreements and the administrative arrangements  that we reviewed do not address whether or to what extent facilities may  carry negative obligation balances but while DOE officials told us that the  practice is not prohibited, DOE and NRC have not documented the  conditions under which it is allowed. Negative obligation balances occur  when a facility conducts an obligation exchange without having enough of  a given nuclear material in inventory—similar to writing a check for an  amount that is not currently in one’s checking account, with the  assumption that enough funds will be deposited in time to cover the  cashing of the check. Specifically, DOE  and NRC officials said that they discourage this practice through  informational presentations that they provide to NRC licensees and DOE  contractors at trainings and conferences. NMMSS Does Not Have a Capability to Alert DOE When the Inventory of Unobligated LEU Is Particularly Low

NMMSS does not have a capability to alert DOE when the inventory of  unobligated LEU is low, placing facilities with negative obligation balances  at risk of not being able to reconcile them. Federal standards for internal control state that management should  establish and operate monitoring activities to monitor the internal control  system and evaluate the results. Nevertheless, while the U.S. national security inventory of unobligated  LEU could be used to correct any future negative obligation balances, if  the decline in this U.S. inventory of unobligated LEU continues, and if it is  possible to carry a negative obligation balance beyond reconciliation,  there is a risk that, at some point in the future, a facility may conduct an  exchange for nuclear material that it cannot fulfill—essentially bouncing a  check. Without DOE and NRC developing an early-warning  monitoring capability in NMMSS to alert senior DOE officials when the  inventory of unobligated LEU becomes low, DOE cannot know when  supplies of unobligated LEU are no longer available to correct negative  obligation balances, thereby putting the U.S. government at risk of  noncompliance with its nuclear cooperation agreements. Conclusions

Under terms of its nuclear cooperation agreements, the United States  must account for foreign obligated nuclear material, and NMMSS has  been designated as the system to track and report on that material as it  enters, leaves, and moves within the country. Without such an early- warning monitoring capability in NMMSS to alert senior DOE officials  when the inventory of unobligated LEU is particularly low, facilities  carrying negative balances could put the U.S. government in the position  of potential non-compliance with its nuclear cooperation agreements. 2.
Why GAO Did This Study

The United States must generally account for nuclear material it has obtained under nuclear cooperation agreements with foreign partners. The agreements generally impose certain conditions, including that the material be used for peaceful purposes. Material subject to such conditions is called “obligated.” The United States relies on NMMSS to track obligated material and to help demonstrate U.S. compliance with agreements. Material not subject to agreement conditions is called “unobligated.” Some forms of uranium, such as LEU, are used to maintain the nuclear weapons in the U.S. stockpile, but the U.S. inventory of unobligated LEU is declining.
GAO was asked to review the practice of obligation exchanges and the reliability of certain NMMSS data. This report examines (1) the number of obligation exchanges in the United States since 2003, and the reasons for them, and (2) how DOE and NRC ensure such exchanges are accurately tracked and reported through NMMSS. GAO analyzed NMMSS data and agency documents and interviewed agency officials, DOE contractors, and NRC licensees, among other steps.

What GAO Found

In the United States, from October 1, 2003, through November 30, 2015, there were 817 exchanges of nuclear material that carried obligations to foreign partners under nuclear cooperation agreements. These exchanges allowed the obligated nuclear material to be transferred between U.S. facilities without physically moving it. For example, if a facility had a certain amount of obligated nuclear material and another facility had at least the same amount and type of unobligated material (which is not subject to the same conditions as obligated material), the facilities could exchange the obligations on their material so that each facility had a portion of both types of material without physically moving it.
Numbers of exchanges. Of the 817 exchanges, 802 were conducted by Nuclear Regulatory Commission (NRC)-licensed facilities—private companies and other entities involved in commercially producing nuclear energy. Of the remaining exchanges, 14 were conducted by contractors that run Department of Energy (DOE) laboratories and weapons-production sites, and 1 by an NRC licensee that does both commercial and DOE work.
Reasons for exchanges. NRC licensees said they conducted exchanges primarily to meet their utility customer demand, as well as to avoid the high costs and safety risks associated with physically transporting nuclear material. DOE contractors said they conducted exchanges primarily to avoid physically moving nuclear material stored at a specific site.
DOE and NRC have procedures to ensure accurate tracking and reporting of data on obligation exchanges through the Nuclear Materials Management and Safeguards System (NMMSS). GAO tested elements of these procedures and generally found them to be reliable. But, GAO identified two issues that may impact the agencies' ability to effectively monitor nuclear material inventories.
First, some facilities have carried negative obligation balances for extended periods. A negative obligation balance occurs when a facility conducts an exchange without having enough of a given material in its physical inventory to cover the exchange. In certain circumstances, negative balances may place the United States at risk of noncompliance with nuclear agreements. Negative balances have occurred because DOE and NRC have not addressed this issue in documented guidance on when facilities may carry such balances, which is inconsistent with federal internal control standards.
Second, while unobligated low-enriched uranium (LEU) could be used to correct any future negative obligation balances, the U.S. inventory of it is declining and NMMSS does not have an early-warning monitoring capability to alert DOE when the inventory is particularly low. Federal internal control standards state that agencies should establish activities to monitor internal control systems and evaluate the results, but DOE officials said that the LEU inventory is currently sufficient and no early warning capability is needed. Without developing such a capability in NMMSS, DOE officials cannot know when the inventory of unobligated LEU becomes so low that supplies may not be available to correct negative obligation balances, thereby putting the United States at risk of not complying with its nuclear agreements.

What GAO Recommends

GAO recommends that DOE and NRC (1) clarify in guidance when facilities may carry negative obligation balances and (2) develop an early-warning monitoring capability in NMMSS to alert DOE when the inventory of unobligated LEU is particularly low. DOE and NRC neither agreed nor disagreed with GAO's recommendations but stated that they have ongoing efforts that may address GAO's recommendations.