By Roberta Rampton

WASHINGTON (Reuters) - A shocking security breach at what was supposed to be one of the most secure facilities in the United States has raised new questions about a plan to overhaul the way the government oversees its nuclear laboratories and weapons plants.

The Republican-controlled House of Representatives approved a plan to give more flexibility to the contractor-run facilities that make up the U.S. nuclear weapons complex, part of its annual defense policy bill passed in May.

The governance reforms were geared to address a long legacy of cost overruns and overly bureaucratic management highlighted in several bipartisan reports on the National Nuclear Security Administration, which is part of the Energy Department.

But Republicans and Democrats alike on the House Energy and Commerce committee said the plan needs a second look after three aging anti-nuclear activists, including an 82-year-old nun, in July cut through fences surrounding a facility where highly enriched uranium, a key component of nuclear bombs, is stored.

Unstopped until they walked up to a security guard's car and surrendered, the activists vandalized the exterior of the Y-12 facility in Oak Ridge, Tennessee. The contractor-run facility was built after the September 11, 2001, al Qaeda attacks on New York and Washington, and was once touted as "the Fort Knox of uranium" because of its security features.

"If she had been a terrorist, the Lord only knows what could have happened," Republican Representative Joe Barton said at a hearing of the House Energy and Commerce Committee on Wednesday. Barton thanked Sister Megan Rice, who was present at the hearing, for pointing out the slack security.

"If there's ever a time for more aggressive oversight, this is it," Barton said.

The incident and the broader issue of government oversight are in focus on Capitol Hill this week as top Energy Department and NNSA officials testified at the hearing on Wednesday and were slated to appear at the House Armed Services Committee on Thursday.

The changes proposed in the defense policy bill would give the NNSA more independence from the Energy Department, cut staff at the NNSA, and give more authority to contractors.

The reforms would ensure contractors have effective internal management systems, rather than having the government monitor individual items, said Linton Brooks, who led the NNSA for five years during the George W. Bush administration.

"Despite the caricature of opponents, this is not reduced oversight, but more effective oversight," said Brooks, now an adviser with the Center for Strategic and International Studies.

But the break-in likely will strengthen the hand of those who want to see more "intrusive" oversight, Brooks told Reuters, adding that the review of what went wrong is still under way.

The White House said in May that it "strongly objects" to the changes in the House version of the bill. The Senate Armed Services Committee did not include similar changes in its version of the bill, which is not expected to move through Congress until after the November 6 elections.

LEGACY OF POOR MANAGEMENT

The Energy Department's Inspector General Gregory Friedman found multiple failures of sophisticated security systems and "troubling displays of ineptitude" in a review of what happened at Y-12.

The incident is a prime example of how the Energy Department and NNSA are not as thorough as needed in overseeing contractors, Friedman told lawmakers.

The government budgeted about $150 million for security at the facility, which is run by Babcock & Wilcox Co with security provided by contractor WSI Oak Ridge, owned by international security company G4S.

The investigation into the Y-12 incident found that security officers failed to follow protocol, and also noted that a security camera that would have shown the break-in had been broken for about six months, part of a backlog of repairs needed for security systems at the facility.

The Energy Department has reassigned the NNSA's top security official, Deputy Secretary Daniel Poneman told the hearing.

Six top contractor executives and guards involved at the site were removed, and the plant's manager and chief operating officer have retired, Poneman said. The government told Babcock & Wilcox last month that its contract could be terminated.

"This incursion and the poor response to it demonstrated a deeply flawed execution of security procedures at Y-12," Poneman said.

The NNSA has had a long struggle with containing costs and managing safety and security, said Mark Gaffigan, a managing director at the Government Accountability Office.

"In our view, the problems we continue to identify in the nuclear security enterprise are not caused by excessive oversight, but instead result from ineffective oversight," Gaffigan said.

About 40 percent or $11 billion of the department's total budget goes to the NNSA, which oversees a network of eight government-owned laboratories and facilities run by contractors.

(Editing by Warren Strobel and Eric Walsh)