Defense intelligence agencies have allowed contract employees fired for misconduct to regain access to classified information, posing a threat to national security, according to a new report by the Defense Department's inspector general.

"Top Secret information — if compromised — could reasonably be expected to cause exceptionally grave damage to the national security," the IG said.

Decades-old and nonexistent security policies have left major holes in intelligence agencies' recordkeeping and sharing, particularly contractor misconduct and IG investigations not being recorded in agency personnel databases and not being shared with other intelligence agencies.

"DoD personnel security policy is dated, unclear, or entirely absent. Since no system can function in the absence of adequate direction, it is imperative that this situation be resolved as soon as possible," the report said.

DOD IG reviewed cases of 128 contractors at the Defense Intelligence Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office and National Security Agency who were the subject of investigations by their agency IGs. Most involved misconduct such as time and attendance fraud.

Contractors are responsible for firing employees, and DOD doesn't pursue adjudication after an employee is fired, meaning contractor employees found guilty of misconduct could get off without formal punishment by DOD and without notes in agencies' databases about security clearance revocation or misconduct findings.

In almost half the cases, the employees ultimately kept or recovered their security clearance, and none resulted in debarment, suspension or prosecution, according to the report. Most of the contractors had the highest levels of security clearance, giving them access to top secret information.

Across all four intelligence agencies, the IG found none consistently update their personnel security databases when an employee is found guilty of misconduct or has a security clearance revoked. For instance, of the 57 contractors in the IG's review who retained their security clearances after the investigations, only 10 had exceptions listed in one of the agency databases.

That means contractors whose security clearances were revoked at one agency could be hired at another without any red flags popping up during a background check.

"Contractor employees with previous, adverse/questionable, and closed intelligence agency IG investigations were being inappropriately granted security clearance/access with other [intelligence community] elements," the IG said.

Another major issue with security processes is that agencies frequently choose to block a contractor's physical access to a site or informally deny clearance instead of going through a formal adjudication process, the IG said. Without the formal process, the employee often appears eligible for clearance in the database.

The informal route "appears to be a deliberate effort to avoid personnel security adjudication and the due process requirements for contractor employees," the IG said.

The informal process also means contractors can get jobs elsewhere in government after being found guilty of misconduct and even having their clearance revoked, because agencies don't pursue suspension or debarment.

"In our research we determined that absent suspension and debarment there was no policy to preclude individuals involved in misconduct investigated by Agency IGs from working on unclassified government contracts, even if they had lost their security clearance and Sensitive Compartmented Information access," the report said.

The IG made several recommendations for the agencies to strengthen their policies on record-keeping, information sharing and pursuing formal adjudication even after an employee is fired to ensure unsuitable contractors aren't hired at another agency.