ML20149H910

Ofc of Ig,Nrc,Review of NRC Implementation of Federal Manager Finincial Integrity Act for 1994

ML20149H910
Person / Time
Issue date:	12/19/1994
From:	David Williams NRC OFFICE OF THE INSPECTOR GENERAL (OIG)
To:
Shared Package
ML20149H913	List: ML20149H910 ML20149H952
References
OIG-94A-36, NUDOCS 9501030120
Download: ML20149H910 (13)

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! OFFICE OF THE INSPECTOR GENERAL LI U.S. NUCLEAR l REGULATORY COMMISSION il REVIEW OF NRC'S IMPLEMENTATION OF THE FMFIA FOR 1994 l

OlG/94A-36 December 19,1994 lI I

' AUDIT REPORT I

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Review of NRC's implementation of the FMFIA for 1994 l REPORT SYNOPSIS Continuing disclosures of Federal waste, loss, unauthorized use, and l misappropriation of funds or assets associated with weak internal controls and accounting systems resulted in the passage of the Federal Managers' Financial Integrity Act (FMFIA) in September 1982. The FMFIA requires Federal managers to establish a continuous process for evaluating, improving, and reporting on the internal controls and accounting systems for which they are I responsible.

Our review was conducted to determine whether the U.S. Nuclear Regulatory

.I Commission (NRC) has complied with the requirements of the FMFIA, and included discussions with cognizant NRC Headquarters personnel and assessments of applicable documentation.

We determined that NRC complied with the requirements of the FMFIA during l Fiscal Year (FY) 1994. We also found that changes have been proposed in the agency's management control program. An Executive Committee for Management Controls was established to oversee these changes. We followed up on the four I material management control weaknesses which were included in NRC's FY 1993 FMFIA report to the President and Congress to determine their status. For three I of the weaknesses, the agency considers the related corrective actions to be complete and the material weaknesses closed. A decision was made to discontinue reporting the remaining item as a material weakness since it is appropriately being reported by another Federal agency. However, until this latter weakness is corrected, it will continue to be reported as a scope restriction on the annual financial statement audit required by the Chief Financial Officers Act. No I additional material weaknesses were identified during 1994.

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'l i Review of NRC's implementation of the FMFIA for 1994 l TABLE OF CONTENTS I REPORT SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i I INTROD UCTI ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 BACKGROUND................................ 2 I FI N D I N G S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 STATUS OF FOUR MATERIAL WEAKNESSES INrLUDED IN NRC'S 1993 FMFIA REPORT . . . . . . . . . . . . 3 I

CONCLU S I ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 I

APPENDICES I Objectives, Scom, and Methodology II U.S. NRC Functional Organization Chart I III Major Contributors To This Report I

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'I Review of NRC's implementation of the FMFIA for 1994 I INTRODUCTION The Federal Managers' Financial Integrity Act (FMFIA) was enacted on September 8,1982, in response to continuing disclosures of waste, loss, I unauthorized use, and misappropriation of funds or assets associated with weak internal controls and accounting systems. Congress felt such abuses hampered the effectiveness and accountability of the Federal Government and eroded the public's confidence. The FMFIA requires Federal managers to establish a continuous process for evaluating, improving, and reporting on the internal controls and accounting systems for which they are responsible.

I Office of Management and Budget (OMB) Circular A-123, Revised, " Internal Control Systems" provides that an agency's Inspector General or senior audit I official may advise the head of the agency on whether the agency's internal controls and financial management systems evaluation processes were conducted in accordance with OMB guidelines. Accordingly, the U.S. Nuclear Regulatory Commission's (NRC) Office of the Inspector General (OIG) annually performs a limited review of the process used by the NRC to evaluate its internal controls and l financial management systems. This review provides the OIG with a basis for advising the Chairman whether the agency has conducted the internal controls and I financial management systems evaluation processes in a reasonable and prudent manner.

The term " internal controls," as envisioned by the FMFIA, is synonymous with

" management controls" and encompasses program and administrative areas, as well as the accounting and financial management areas. OMB defined internal controls in Circular A-123 as the plan of organization and all of the methods and measures adopted within the agency to safeguard its resources; assure the accuracy and I reliability ofits information; assure adherence to applicable laws, regulations and policies; and promote operational economy and efficiency. Internal controls are inherent in the management function and are integral to all systems used by g management to achieve the objectives of programs or functions. See Appendix I for the objectives, scope, and methodology of our review.

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I Review of NRC's implementation of the FMFIA for 1994 BACKGROUND The FMFIA specifies that by December 31, 1983, and by each succeeding g December 31, the head of each executive agency subject to the Act shall submit a report to the President and Congress stating whether the evaluation ofinternal controls was conducted in accordance with the Internal Control Guidelines issued by OMB and whether the agency's system of internal accounting and administrative controls complies with the standards established by the Comptroller g General. 5 The Executive Director 'for Operations (EDO), who has also been designated the agency's Chief Financial Officer (CFO), is responsible for establishing and l maintaining a system ofinternal controls within NRC. In addition, the CFO Act of 1990 requires an independent assessment of the agency's systems of internal controls be performed. The results of this independent assessment must be coordinated with the results of the FMFIA assessment.

OMB is currently revising Circular A-123 to be less prescriptive in accordance with the goals of the National Performance Review (NPR). In response to the NPR and the anticipated Circular A-123 revision, NRC has established an l Executive Committee for Management Controls. This committee, chaired by the g EDO, is studying the current management control program, identifying 3 enhancements and possible significant revisions. The committee proposes to shift the agency's focus from merely identifying and correcting weaknesses annually to improving efficiency and effectiveness through continuous attention to management controls. The revised Circular A-123 is expected to be issued during calendar year 1995.

FINDINGS We found that NRC has complied with the requirements of the FMFIA during Fiscal Year (FY) 1994. We also found that changes have been proposed in NRC's management control program during the past year in anticipation of the revised Circular A-123. An Executive Committee for Management Controls has been g established to oversee changes to the program and to provide continuous attention 5 to efficiency and effectiveness through management controls.

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g I Review of NRC's implementation of the FMFIA for 1994 The agency has taken corrective actions on recommendations made by the OIG to correct three material management control weaknesses identified in our report

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I entitled " Review of NRC's Implementation of the Federal Managers' Financial Integrity Act for 1993," dated December 20,1993. The fourth material weakness is considered to be closed since it is being reported, appropriately, by another Federal agency. Details of the disposition of all the material weaknesses are noted below.

g STATUS OF FOUR MATERIAL WEAKNESSES INCLUDED 4 {4j IN NRC'S 1993 FMFIA REPORT 1 y L

1. Computer Security - As a result of a computer security review performed in 1991 by the Los Alamos National Laboratory for NRC's Office of Information Resources Management (IRM), the agency's I computer security program was determined to be in noncompliance with the minimum security requirements of OMB Circular A-130, " Management of Federal Information Resources."

I IRM developed an action plan to remedy these weaknesses. Although the original estimated time of completion to implement corrective actions was September 1995, IRM accelerated this plan and by the conclusion of our audit, indicated that corrective actions had been fully implemented. As I part of our audit follow-up work, we plan to determine the adequacy of IRM's corrective actions.

2. Management of U.S. Department of Energy (DOE) Projects - A 1991 internal NRC review of DOE agreements irentified project management practices that required improvements to e' . iately protect the agency's business interests. Deficiencies identified using this internal review were attributed to the lack of an agency-wide standard for contract management.

An agency-wide standard, Management Directive 11.7, entitled "NRC Procedures for Placement and Monitoring of Work with the Department of l Energy," was issued to establish procedures for negotiating, managing and administering agreements with DOE labs. After reviewing the I

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Review of NRC's implementation of the FMFIA for 1994 management directive, we determined that it addressed the deficiencies identified. As part of our audit follow-up work, we plan to assess the adequacy of the new procedures and NRC's progress in implementing them.

3. Interagency Responsibilities Over Reimbursement to DOE -

Approximately twenty percent of the agency's total costs for FYs 1992 and 1993 were incurred by DOE or its contractors under a Memorandum of g Understanding between NRC and DOE. NRC is responsible for 5 maintaining a system ofinternal controls to assure the agency is compliant with accounting and program specific regulations. However, because of a lack of audit coverage at the DOE labs, the DOE IG was unable to provide NRC assurance that the monies spent by DOE and DOE l Management and Operating Contractors on NRC's behalf meet applicable laws and regulations. The DOE IG has developed an audit strategy to l

address this problem. The DOE, for the past two years, has reported this g material weakness in its annual FMFIA report. Since this is appropriately 3 the responsibility of the DOE, and since the NRC has taken corrective actions for those controls that could be strengthened internally, NRC believes that this material weakness should be eliminated from the NRC's l FMFIA report. We concur with this assessment. However, until this

! weakness is corrected, it will continue to be reported as a scope restriction I on the annual financial statement audit required by the Chief Financial Officers Act.

4. Timely Billing of Fees - NRC full cost recovery fees for all routine and non-routine inspections are assessed on a per inspection basis, but are billed to licensees on a quarterly basis. Consequently, NRC was in violation of Treasury Financial Manual Chapter 8000, Section 8025.10,

" Timeliness of Billings and Collections," which states that agencies responsible for the preparation ofinvoices to individuals and organizations outside the U.S. Government will adhere to the following:

Ensure that an invoice, for either an actual or estimated amount, is prepared and mailed within five business days after the day that the goods have been shipped or released, services have been rendered, or payment is otherwise due, o cmA.M Pap 4 I

'I Review of NRC's implementation of the FMFIA for 1994 Agencies may prepare and mail an invoice later than the five day time frame if they can demonstrate that it is cost effective to do so.

We advised agency management that it should seek relief from the five day time frame if NRC can show that meeting the requirement is not cost effective. The agency subsequently requested and was granted a temporary waiver from the 5 day requirement, and was advised to adhere to a thirty I day billing schedule. This new schedule was successfully implemented during the final quarter of FY 1994.

I CONCLUSION I NRC has complied with the requirements of the FMFIA during FY 1994. We also I found the agency has closed previously reported material management control weaknesses, with no additional such weaknesses being identified during FY 1994.

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I Appendix I Review of NRC's implementation of the FMFIA for 1994 I OBJECTIVES, SCOPE, AND METHODOLOGY The objective of our review was to determine whether the U.S. Nuclear Regulatory Commission (NRC) has complied with the provisions of the Federal Managers' Financial Integrity Act, which requires Federal managers to establish a continuous process for evaluating, improving, and reporting on the internal I control and accounting systems for which they are responsible. We conducted our review at NRC Headquarters from September to November 1994 and included an assessment of:

o The documentation supporting the agency's management control evaluation process, including the management control plans and risk assessments.

o I The management control and financial management system reviews conducted by NRC for Fiscal Year (FY) 1994.

o The status of material weaknesses identified during FY 1993.

Our review was conducted in accordance with generally accepted Government auditing standards and included such tests of the data and records and other auditing procedures as we considered necessary.

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I Appendix 11 Review of NRC's Implementation of the FMFIA for 1994 l U.S. NRC FUNCTIONAL ORGANIZATION CHART I

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'I Appendix ill Review of NRC's implementation of the FMFIA for 1994 I MAJOR CONTRIBUTORS TO THIS REPORT I i William L. Glenn, Team Leader I Gary S. Janosko, Senior Auditor Doris A. Martin, Contract Auditor I i I

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