ML20211K292

Accountability Report Fiscal Year 1998

ML20211K292
Person / Time
Issue date:	03/31/1999
From:	Dolinka C NRC OFFICE OF THE CONTROLLER
To:
References
NUREG-1542, NUREG-1542-V04, NUDOCS 9909070178
Download: ML20211K292 (103)

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1 Availability Notice l l

Availability of Reference Materials Cited in NRC Publications Most documents cited in NRC publications will be available from one of the following sources:

1. The NRC Public Document Room,2120 L Street, NW., Lower Level, Washington, DC 20555-0001 2.The Superintendent of Documents, U.S. Government Printing Office, P. O. llox 37082, Washington, DC 20402-9328

3. The National Technical Information Service, Springfield, VA 22161-0002 Although the listing that follows represents the majority of documents cited in NRC publications,it is not intended to be exhaustive.

Referenced documents available for inspection and copying for a fee from the NRC Public Document Room include NRC correspondence and internal NRC memoranda; NRC bulletins, circulars, information notices, inspection and investigation notices; licensee event reports; s endor reports and correspondence; Commission papers; and applicant and licensee documents and correspondence.

The following documents in the NUREG series are available for purchase from the Government Printing Office: formal NRC staff and contractor reports, NRC-sponsored conference proceedings, international agreement reports, grantee reports, and NRC booklets and brochures. Also available are regulatory guides, NRC regulations in the Code of Federal Regulations, and Nuclear Regulatory Commission issuances.

Documents available from the National Technical Information Service include NUREG-series reports and technical reports prepared by other Federal agencies and reports prepared by the Atomic Energy Com-mission, forerunner agency to the Nuclear Regulatory Commission.

Documents available from public and special technical libraries include all open literature items, such as books, journal articles, and transactions. Federal Register notices, Federal and State legislation, and con-gressional reports can usually be obtained from these libraries.

Documents such as theses, dissertations, foreign reports and translations, and non-NRC conference proceedings are available for purchase from the organization sponsoring the publication cited.

Single copies of NRC draft reports are available free, to the extent of supply, upon written request to the Office of the Chief Information Officer, Publishing Services llranch, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001.

Copies ofindustry codes and standards used in a substantive manner in the NRC regulatory process are maintained at the NRC Library, Two White Flint North, i1545 Rockville Pike, Rockville, MD 20852-2738, for use by the public. Codes and standards are usually copyrighted and may be purchased from the originat-ing organization or,if they are American National Standards, from the American National Standards Insti-tute,1430 llroadway, New York, NY 10018-3308.

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Availability Notice Availability of Reference Materials Cited in NRC Publications Most documents cited in NRC publications will be available from one of the following sources:

1.The NRC Public Document Room,2120 L Street, NW., Lower Level, Washington, DC 20555-0001 2.The Superintendent of Documents, U.S. Government Printing Office, P. O. Box 37082 Washington, DC 20402-9328 3.The National Technical Information Service, Springfield, VA 22161-0002 Although the listing that follows represents the majority of documents cited in NRC publications, it is not intended to be exhaustive.

Referenced d ents available for inspection and copying for a fee from the NRC Public Document Room include Nu ~ correspondence and internal NRC memoranda; NRC bulletins, circulers, information notices, inspection and investigation notices; licensee event reports; vendor reports and correspondence; Commission papers; and applicant and licensee documents and correspondence.

The following documents in the NUREG series are available for purchase from the Government Printing Office: formal NRC staff and contractor reports, NRC-sponsored conference proceedings, international agreement reports, grantee repons, and NRC booklets and brochures. Also available are regulatory guides, NRC regulations in the Code of Federal Regulations, and Nuclear Regulatory Commission Issuances.

Documents available from the National Technical Information Service include NUREG-series reports and technical reports prepared by other Federal agencies and reports prepared by the Atomic Energy Com-mission, forerunner agency to the Nuclear Regulatory Commission.

Documents available from public and special technical libraries include all open literature items, such as books, journal articles, and transactions. Federal Register notices, Federal and State legislation, and con-gressional reports can usually be obtained from these libraries.

Documents such as theses, dissertations, foreign reports and translations, and non-NRC conference proceedings are available for purchase from the organization sponsoring the publication cited.

Single copies of NRC draft reports are available free, to the extent of supply, upon written request to the Office of the Chief Information Officer, Publishing Services Branch, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001.

Copies of industry codes and standards used in a substantive manner in the NRC regulatory process are maintained at the NRC Library,Two White Flint North,11545 Rockville Pike, Rockville, MD 20852-2738, for use by the public. Codes and standards are usually copyrighted and may be purchased from the originat-ing organization or,if they are American National Standards, from the American National Standards Insti-tute,1430 Broadway, New York, NY 10018-3308.

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NRC Principles of Good Financial Management  !

l Those who handle public resources have a special responsibility to safeguard the res them and to use them properly. Poor financial management by NRC can undermine the confidence that we are effectively accomplishing our health and safety mission. NRC managers must ensure that public funds are used for authorized purposes only and that they are used economically, efficiently, and within established limits. Toward these ends, the NRC uses the following Principles of Good Financial Manage-ment.

PLANNING. Good financial management begins with good planning. NRC's strategic planning should be based on sound assumptions and accurate information and should provide the foundation for the entire fiscal process. Resource requests must be consistent with program goals, guidance, and planning assumptions, and must consider current financial status. Plans should be developed for commitment and obligation of funds based on program needs, procurement lead times, and the need for continuity of funding.

CONTROL. Good financial management requires good financial control. Appropriate effective cost controls throughout the financial management process ensure adequate accounting of funds expended, prevent over-obligation of funds and inappropriate expenditures, identify early instances where funds should be reallocated, and produce valuable information for the planning process.

COMMUNICATION. Good financial management requires good communication among those in-volved in the financial management process. Complete, accurate, and timely financial information must be readily available, and financial implications must be considered in decision making. Financial systems should be integrated and meet both agency and office data needs. New information and ideas must be shared throughout the organization.

COST EFFECTIVENESS. Gocd financial management balances expenditures and results. Managers at all levels must ensure that NRC gets ,vhat it pays for and that the results are what NRC needs to accom-plish its mission. Ongoing projects should be evaluated to ensure results justify continued funding. Appro-priate precautions ensure that waste is avoided. To ensure maximum utility of available resources, funds should be obligated as early as practicable during the fiscal year, and excess funds should be deobligated as soon as practical after project completion.

EVALUATION. Good financial management requires periodic evaluation of performance against meaningful financial and program performance measures. Such performance assessment should evaluate planned versus actual program results as well as the comparison of program costs with program accom-plishments.

PEI )NNEL. Good financial management is the product of competent and motivated people. Those who are ven financial management responsibility must have integrity, dedication, and be well trained and qualified. They must have authority commensurate with their responsibility, and they must be recognized when they achieve superior performance.

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(- U.s. MCt. EAR REGt'LAToRY Commission

Tab e of Contents Foreword...................................................................................................................v Th e N R C ' s M i s s i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v M e s sage From t h e C hai rm an . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Message From the Chief Financial Officer ............ ................................................. ix M a n ag e m e n t S u m m ary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x i 1

About the U.S. Nuclear Regulatory Commission .................................. ................. 1 I O rg a n i zat i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...........................1 l l

R eg u l a t o ry R e s po n s i b il i ty . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1 I S o u rce s o f Fu n ds . . . . . . . . . . . .. . . .. . . . . . . . . . . . . .. . . . . . . . . . .. . . . . ............................................2 U se s o f Fu n d s by Fu n c t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Fi n a n c i al Co n d i t i o n o f N R C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Pro g ra m Pe rfo rm a n c e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 S t ra t eg i c A re n a s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...........................6 M a n a g e m e n t Co n t rol s . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 6 N u c l e ar R eac t or S a fe ty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 N uclear M ate rials S afety .. ... . ... . .. . . .. . . . .. .. . .. . . ... .. ... .. . .. .. . . .. . .. . .. .. .. .. . . . . . .. .......8 N u c l e ar Wa s te S a fe t y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . 10 International Nuclear Safety Support .... ..... . .. .... ............... ...............................12 M an age ment A ccou n t ability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 The NRC's Management Control Program . .. . ... ........ . . .................. . . . . . . . . . . . . . ... 15 Status of Management Controls and Report on Material Weaknesses a n d No n - Con form a n ce s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Financial Management Systems . .. .... .... .......... ........ ..... ... .... .. . ............. .. . . . . . I6 Biennial Review of User Fees ..... ..... .. . .. . ... . ... .... .... .... .. . . . . . . . . . . . . . . . . . . . . . . . . . I6 (continued on page iv)

Ill 1998 ACCoUNTAHILITY REPORT b(h

Table of Contents (continued)

Management Decisions and Final Actions on OlG Audit Recommendations . ...... . .. . .. 17 Management Decisions Not Implemented Within One Year. . .. .. ...................18 De b t Col l ec t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... .. .. . . . . . . . . . . . . . . . . . . . . . . .... . .. 20 Prompt Payment ......... . . . . . . . . . ..............................................................20 C i v i l Pe n a l t i es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . . . . .............

....... . . 22 Progress on Year 2000 Issues ..... ..... ... ... .. ..... ................. ... ....... . . . ...............22 Continuity of Business, Contingency Plans and Risk . ..... ...... . .... . .... ... . ..... 23 FY I 99 8 Audi ted Fi n anei al S tate ment . . .. .. . . ..... .... .. . .. . . . . . .. .. . . . . .. . . . . . . . . ... .. . . . . .. . . . .. . . . . . . 25 Appendix N R C Org a n i zat i o n C h art . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . .. . . . . . . . . . . . ..................88 Figures i S o u rce s o f N R C Fu n d s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . . . . . . . . .......3 2 Uses of Funds by Function .. .... ... .. . ... .... ................... .. . .............................3 3 U.S. Commereial Reactors ............. .. ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..................6 4 DelinquentDebt..........................................................................................21 5 Pro m p t Pa y m e n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 21 Tables 1 Nuclear Reactor Safety Performance Goals and Metrics ..... . . . . . . . . . ...................7 2 Nuclear Materials Safety Performance Goals and Metrics . .. . . .. . .. ..... .. . ......9 3 Nuclear Waste Safety Performance Goals and Metrics... ....... . .......... .... .. .. . .. . . I1 4 International Nuclear Safety Support Performance Goals and Metrics ... .... . .... ... 13 5 Management Report on Office of the Inspector General Audits with Disallowed Costs . . . . . . . . .. ... . . ... . . . . .. . . . . . .. . .. . .. . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. I 7 6 Management Report on Office of the Inspector General Audits with Recommendations That Funds Be Put to Better Use ... .. .. .....................18 7 Fiscal Year Civil Penalties Collected Versus Fiscal Year Penalty Dollars Assessed ...... .. ..... ......... . ... .... ..... .. .....................22 a

U.s. NUCl. EAR REGl'I.AToRY CO%1%11ssioN

l Foreword 1

his is the fourth year that the U.S. Nuclear Regulatory Commission (NRC) has participated Tin a pilot project, along with several other Federal agencies, to streamli ,

I ment reporting. The goal of this project is to consolidate perfonnance-related reporting into a single accoantability report. The project, which is being carried out under the guidance of the Chief Financial Officers Council, was undertaken in accordance with the Government Manage-ment Reform Act of 1994 (GMRA). The GMR A permits the streamlining of financial manage-ment reports in consultation with the appropriate congressional committees through a liaison in the U.S. Office of Management and Budget.

This report consolidates the infonnation previously reported in the following documents:

• The NRC's annual financial statement, required by the Chief Financial Officers Act of 1990 (CFO Act)

• The Chairman's annu ' report to the President and the Congress, required by the Federal Managers' Financial .ntegrity Act of 1982

• The Chairman's semiannual report to the Congress on management decisions and final actions on Office of the inspector General audit recommendations, required by the Inspec-tor General Act of 1978, as amended This report also contains performance goals and measures, as required by the CFO Act and the Government Performance and Results Act of 1993, the Chairman's statement on the compli-ance of the agency's financial management systems with the Federal Financial Management Improvement Act of 1996, and a report on Year 2000 issues.

Comments on the content and presentation of this report are welcome and may be sent to:

Office of the Chief Financial Officer Mail Stop O-17 F3 U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 or l Internet Address: cfd@nrc. gov 1

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l Message From the Chairman l "-~ n l am pleased to present the U.S. Nuclear Regulatory Commission, NRC, i u accountability report for Fiscal Year (FY) 1998. This is the fourth year that the NRC has produced an accountability report in an effort to stream-line statutory perfonnance-related reporting in accordance with the Government Management Reform Act of 1994. In FY 1998, we again f N achieved our perfonnance goals for protecting public health and safety.

r Over the past several years, the focus of the Commission has been a careful re-evaluation of the NRC's approach to accomplishing its mission, making changes where necessary to (1) reaffinn nuclear safety as our highest priority,(2) to maximize NRC regulatory effectiveness and effi-ciency, and (3) to position the agency for the future. A critical factor to improve overall agency performance has been the application of business-like principles to achieve sound management l strategies, sensible and reliable processes for defining our goals, developing cost-effective strate- l gies to achieve those goals, detennining the resources needed to implement these strategies, and l measuring and assessing our own performance.

One significant achievement in this regard is our recent implementation of an integrated planning, budgeting, and perfonnance management system, a system designed around these principles, in which " programs follow policy and dollars follow programs." The foundation for developing such a system was the completion of the NRC Strategic Assessment and Rebaselining Initiative. Thus far, the Commission has used this integrated system to produce the NRC FY 1997-2002 Strategic Plan and FY 1999 and 2000 Performance Plans. In addition to meeting the requirements of the Government Performance and Results Act of 1993, these plans constitute a sensible, reliable framework that will guide future decision-making and ensure effectiveness as the NRC seeks to accomplish its mission.

The NRC evaluated its management control and financial management systems for FY 1998 as required by the Federal Managers' Financial Integrity Act (FMFIA) of 1982. The results of this evaluation provided reasonable assurance that the NRC achieved the objectives of this Act.

The NRC also evaluated its financial management systems for compliance with applicable Federal requirements and accounting standards as required by the Federal Financial Management Improvement Act of 1996. This evaluation disclosed that overall the NRC's major financial management systems were in compliance with this Act except for full implementation of State-ment of Federal Financial Accounting Standards Number 4, Managerial Cost Accounting Con-cepts and Standardsfor the Federal Government and business continuity plans for major financial management systems that were found to be in substantial noncompliance. The lack of full implementation of the managerial cost accounting concepts and standards is also a signifi-l cant internal control weakness with respect to the FMFIA.

l (ccmtinued on page viii) imecocmim1rumm1 wp

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Messagefrom the Chairman (continued)

This weakness will be remedied by full implementation of managerial cost accounting as part of the larger agency initiative ofimplementing an agencywide resource management system, STARFIRE. This system will include cost accounting and labor-cost distribution modules which will provide the necessary tools for reporting costs and implementing cost accounting. We are currently working to put the managerial cost accounting processes and systems in place and expect that they will be fully implemented during FY 2000. The audit report on the agency's financial statement, provided at the end of this report, contains a discussion of these 'ssues and NRC's corrective action to attain compliance with the Act. As indicated in the plan, we are placing a high priority on correcting our weaknesses.

The NRC continues to improve its business practices by using sound fiscal management to accomplish the agency's critical mission. The issuance of this fourth annual Accountability Report,'which includes the results of our FY 1998 performance, confirms our commitment to provide accountability for agency programs and financial management.

LA i aM Shirley Ann Jackson Chairman U.S. Nuclear Regulatory Commission i

l U.S. NUCI. EAR REGULATORY Co%INIIssioN

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Message From the Chief Financial Officer

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am pleased to report that the U.S. Nuclear Regulatory Commission p, (NRC) has completed a most productive and successful year in p performance ofits financial management responsibilities. The NRC

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has made significant progress to improve its financial management

[ systems and integrate program performance with resource manage-

[ ment. We have also received an unqualified opinion on our Fiscal Year

[ (FY) 1998 financial statement. The NRC issued its first audited financial statement in FY 1992 and has received an unqualified opin-ion for the fifth successive year.

At the Chainnan's request and in coordination with the NRC Execu-tive Council, where members include the Executive Director for Operations, the Chief Informa-tion Officer, and the Chief Financial Officer, we have undertaken a multi year effort to implement a new planning, budgeting, and performance management process. The process is j designed (1) to establish a sensible, reliable process for defining agency goals; (2) to develop  ;

cost-effective strategies for achieving those goals;(3) to determine the resources needed to l implement this strategic direction; and (4) to measure and assess our own progress and overall performance. During the past year, major progress was made to establish the agency's strategic direction and performance expectations, and then to determine the programs, resources, and planned accomplishments that would meet those expectations. This progress is reflected in our FY 2000 budget which integrates NRC's Performance Plan, required by the Government Perfor-mance and Results Act of 1993, with the budget request. During the coming year, we will complete the cycle by measuring, monitoring, and assessing our performance and make other changes that improves our performance based planning, budgeting, and operations.

In the financial systems area, NRC completed a solicitation for a new integrated resource management system (STARFIRE) by awarding contracts for a suite of software that will provide for the automation and integration of systems critical to the support of financial management functions which,in turn, support the programs to carry out the NRC mission. In addition to the  ;

core financial system, systems will be available for automated procurement, budget formulation, travel management, cost accounting, payroll and personnel functions, labor cost distribution, I

performance measurement, and property management functionality. Current plans call for phased implementation of STARFIRE beginning in FY 1999.

We also continue to improve financial management in other ways. NRC was successful at increasing the number of payments made electronically. Employee participation in direct deposit is at 99 percent and expanded to include payment of travel vouchers and performance awards.

In addition, unliquidated obligations were reduced by 15 percent more than in the previous fiscal (continued on page x) h

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Alessagefrom the Chief Financial officee (continued) year and the NRC carryover funds were reduced by 47 percent since 1993. The agency's delin-quent debt has steadily declined since FY 1994 through concerted debt management, and this timely payment of amounts subject to the Prompt Payment Act has increased while the amount of interest penalties has decreased.

We look forward to another productive year in FY 1999 and continue to strive for excellence in financial management. Our goals are to continue to maintain the standards we have achieved and to continually seek improved methods to carry out our fiscal responsibilities.

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r Jesse L. Funches Chief Financial Officer U.S. Nuclear Regulatory Commission l

TN U.s. NOCl EAR REGl't.AToRY CO\l%IISSloN

Management Summary l Program Performance in this report we are making the transition to reporting against outcome measures that have been developed in Fiscal Year (FY) 1999 Performance Plan as required by the Government Performance and Results Act of 1993. The NRC's FY 1999 Performance Plan was revised and included in the agency's FY 2000 budget request. The next four paragraphs summarize NRC l perfonnance related to the outcome goals in the revised FY 1999 Performance Plan. I Nuclear Reactor Safety The strategic goal is to prevent radiation-related deaths and illnesses and protect the environ-ment in the use of civilian nuclear reactors. In FY 1998, the NRC met the associated performance goals and had (1) no civilian nuclear reactor accidents; (2) no deaths resulting from radiation or ,

radioactivity releases from civilian nuclear reactors; (3) no substantiated breakdown of physical l protection that significantly weakened protection against radiological sabotage, or theft or diver-sion of special nuclear materials; and (4) no offsite releases of radioactive material from civilian nuclear reactors that had the potential to cause a serious adverse impact on the environment. Data for the fifth goal, environmental impacts are considered through the National Environmental Policy Act (NEPA) process before regulatory action is taken, will be available for FY 1999.

Nuclear Materials Safety The strategic goal is to prevent radiation-related deaths and illnesses, protect the environment, and safeguard special nuclear material and facilities in the civilian use of source, byproduct, and special nuclear materials. In FY 1998, the NRC met the associated performance goals and had (1) l no radiation-related deaths resulting from civilian use of source, byproduct, and special nuclear materials; (2) no increase in the number of significant radiation exposures resulting from loss or use of source, byproduct, and special nuclear materials; (3) no offsite releases of radioactive material from operating facilities that had the potential to cause an adverse impact on the environ-ment; (4) no significant accidental releases of radioactive material from the storage or transporta-tion of nuclear material or nuclear waste; and (5) no loss, theft, or diversion of formula quantities of o~-9 ;;M;l x&ar materials or unauthorized enrichment of special nuclear material regulated by the NRC. Data for the sixth goal, environmental impacts are considered through the NEPA process before regulatory action is taken, will be available for FY 1999.

Nuclear Waste Safety The strategic goal is to prevent adverse impacts to the current and future public health and safety and the environment as a result of uranium recovery, facilities decommissioning, cleanup of contaminated sites, and disposal of radioactive wastes. In FY 1998, the NRC met (continued on page xii) xi IW8 ACCoONTAIHLITY REPORT bh-

Afanagement Summary (continued) the associated performance goal and had no radiation exposures or releases of radioactive material that are likely to occur now or in the future that will have significant adverse impacts on the health and safety of the public, and the environment, resulting from uranium recovery, facility decommissioning, clean-up of contaminated sites, and disposal of radioactive wastes.

The NRC's target for the FY 1999 performance goal to establish the regulatory framework for high-level waste disposal, consistent with current national policy, is to issue a final rule after promulgation of the standard by the end of FY 1999 or early FY 2000.

International Nuclear Safety Support The strategic goal is to support U.S. national interests in the safe and secure use of nuclear materials and in nuclear non-proliferation. In FY 1998, the NRC met the associated perfor-mance goal to strengthen international nuclear safety and safeguards through leadership and participation in intemational nuclear policy formulation and exchange activities by providing assistance ti rough international agreements and to support nuclear non-proliferation interests through export and import licensing and other activities.

Management Accountability Management Controls The NRC's annual evaluation of management controls and financial systems identified no material weaknesses in NRC programs or administrative activities and no material non-con-formances with governmentwide requirements in the NRC's financial systems. However, our evaluation did identify that additional work needs to be done to fully comply with Statement of Federal Financial Accounting Standards Number 4, Managerial Cost Accounting Concepts and Standan/sfor the Federal Government. (SFFAS 4). While the agency does not consider this to rise to the level of a material weakness, the agency feels this deficiency is a significant weakness that warrants focus by senior management. The implementation of a new integrated resource management system (STARFIRE) will include cost and labor distribution modules, which will I I

provide the necessary capability to report costs at the appropriate level and, therefore, comply with SFFAS 4.

The NRC's evaluation of its fm' ancial management systems disclosed that, overall, NRC's major financial management systems were in compliance with applicable Federal requirements and accounting standards, except for full implementation of SFFAS 4 and its business continuity plans that were found to be in substantial noncompliance.

Audits

.At the end of FY 1998, the NRC had three audits with outstanding actions over 1 year old. l The status of these actions are discussed on page 17 in the section titled " Management Deci-sions Not Implemented Within One Year."

l l

I

@a U.S. NUCLEAR REGULATORY CoMMISSloN

r-f FY 1998 Audited Financial Statement For the fifth successive year, the NRC received an unqualified opinion on its principal state-ments. Two reportable conditions were carried over from FY 1997. One involved segregation of incompatible duties which the auditors found to be resolved and closed. The other involved business continuity plans which was partially addressed in FY 1998 and is expected to be closed in FY 1999. The auditors also identified four new reportable conditions that are discussed on page 15 under Management Accountability.

Progress on Year 2000 Issues The NRC completed its internal program to remedy Year 2000 (Y2K) issues related to systems internal to the agency on February 5,1999.

I A

1998 ACCOUNTAllILITY REPORT I-

About the U.S. Nuclear Regulatory Commission he U.S. Nuclear Regulatory Chairman serves as the principal executive officer

+ j o aro g %

Commission (NRC)is an and official spokesman for the Commission.

f. independent regulatory agency of e the Federal Government that was

% * * * * * / created by the U.S. CongressRegulatory to Respons.bility i regulate the Nation's civilian use The NRC regulates civilian nuclear reactors; of byproduct, source, and special nuclear materi- fuel cycle facilities; medical, academic, and als to ensure adequate protection of the public industrial uses of nuclear materials; and the health and safety, to promote the common defense transport, storage, and disposal of nuclear materi-and security, and to protect the environment. Its als and wastes. The NRC carries out its mission purposes are defined by the Energy Reorganiza- through a licensing and regulatory system com-tion Act of 1974, as amended, along with the prising the following activities:

Atomic Energy Act of 1954, as amended, which .

a provide the foundation for regulating the Nation's licensing the design, construction, operation, civilian uses of nuclear materials, and decomm,ss_omng i i of nuclear reactors and other nuclear facilities (such as nuclear fuel '

cycle facilities, uranium enrichment facili-Organization ties, and test and research reactors)

The NRC is headed by a Chairman and four

• licensing the possession, use, processing, Commissioners appointed by the President and handling, and exporting of nuclear materials confirmed by the Senate for 5-year terms. The (continued on page >>

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About the U.L ,%uclear Regulatory Comminion (continued)

- licensing the siting, design, construction, Sources of Funds operation, and closure of low-level radioac-The NRC has two appropriations, and funds tive waste disposal sites under NRC juris-f r both are available until expended. One appro-diction and the construction, operation, and pn u n is for agency salaries and expenses, closure of geologic repositories for high- ,

nd the other is earmarked for the Office of the level radioactive waste Inspector General (OIG). The NRC's total new a licensing the operators of civilian nuclear FY 1998 budget authority that includes $4.0 reactors million from the U.S. Department of Energy Nuclear Waste Fund to license a multi-purpose a inspecting licensed facilities and activities canister design was $476.8 million, including

- conducting the principal U.S. Government $472.0 million for the Salaries and Expenses research program on light-water reactor appropriation, and $4.8 million for the OIG safety appropriation. Additionally, available to obligate

. . in FY 1998 were $31 million from prior-year a conducting research to gam mdependent

. . . appropriations, $4.4 milh.on from prior-year expertise and infonnation for making timely .

. .. . reimbursable work, $4.2 milh.on from prior-year regulatory. judgments and for anticipating nsfer of funds from other Federal agencies, problems of potential safety sigmficance and new re,mbursable i work to be performed for

• developing and implementing rules and others totaling $8.9 million. The sum of all regulations that govern licensed nuclear funds available to obligate (excluding transfers) activities for FY 1998 was $525.3 million. (See Figure 1.)

- investigating nuclear incidents and allega-tions concerning any matter regulated by Uses of Funds by Function the NRC As previously stated, the total budgetary

= enforcing NRC regulations and the condi- resources available (excluding allocation account tions of NRC licenses transfers from others) for use by the NRC in FY 1998 was $525.3 million. Of that amount, the a conductmg public hearings on matters of NRC incurred obligations of $490.1 million, with nuclear and radiological safety, environ- .

approximately 56 percent used for salaries and mental concern, common defense and .

benefits. An additional 44 percent was used to security, and antitrust matters .

obtam techm. cal assistance for the NRC,s princi-

• developing effective working relationships pal regulatory programs, to conduct confinnatory with the States regarding reactor operations safety research, to cover operating expenses, (e.g.,

and the regulation of nuclear material building rentals, transportation, printing, security se ces, suppHes, omcy automadon, and tmin-

= maintaining the NRC Incident Response ing), staff travel, and reimbursable work. (See Program, .meluding the NRC Operations F gure 2.) The remaining $35.2 million in budget Center authority that was not obligated in FY 1998 will

• collecting, analyzing, and disseminating be available to fund critical needs in FY 1999, infonnation about the operational safety of commercial nuclear power reactors and certain nonreactor activities a

f U.s. srci. EAR REGrLAToRv Co\l\llssioN I

l Figure 1 Sources of NRC Funds Total Funds Available $525.3M New Budget Authority

$476.8M Reimbursable Work and Direct Transfers

$17.5M Budget Authority from Prior Years $31.0M l

4 Figure 2 Uses of Funds by Function Total Obligations $490.1M Salaries and Benefits $272.1M Reimbe., die Work and Direct Transfers

$8.4M Travel $12.8M Contract Support

$196.8M r -

I 1998 ACCOUNTAlllLITY REPORT - -

About the U.S. Nuclear Regulatory Commission (continued)

Financial Condition of NRC Over the past few years, the NRC has made a concerted effort to increase the effectiveness and As of September 30,1998, the financial condi- efficiency of program financing by eliminating tion of the NRC is sound with respect to having unnecessary financial reserves pending contract sufficient funds to meet program needs and suffi- closcout, recovering funds on dormant contracts, cient control of these funds to ensure that NRC exercising closer scrutiny of the need for planned obligations do not exceed budget authority. The projects, and more closely monitoring obligation Balance Sheet shows a net position (assets minus and expenditure rates. This prudent approach to liabilities) of $125.8 million. Consistent with the financial management over the past several years requirements of the Omnibus Budget Reconcilia- has resulted in a 55 percent decrease in unobli-tion Act of 1990, the NRC collected and offset 100 gated appropriated funds in FY 1998 compared to percent ofits new budget authority, excluding FY 1994. NRC will continue its efforts to closely amounts derived from the Nuclear Waste Fund and monitor its financial condition and planning poli-for certain activities performed in support of the cies to ensure its unobligated balance does not Department of Energy and other offsetting receipts. increase to undesirable levels in future years.

l@I U.S. Nt:ct.1:AR REGt1AToRv co31311SSloN

Program Performance his section highlights key aspects of the found in NRC's Budget Estimates for Fiscal Year TNRC's programs, including strategic2000, goals NUREG-1100, Volume-15.

and performance goals and measures. Consistent

\Vhile the structure f.or performance reporting with the requirements of the Government Perfor- .

is consistent with the structure contained in mance and Results Act of 1993 (GPRA), the NRC NRC's proposed strategic plan and the agency's has developed a strategic plan, which was submit-FY 2000 Performance Plan and Budget to Con-ted to the Office of Management and Budget gress, these plans are still in an evolutionary (OMB) and Congress in September 1997. Since that time, the NRC ha.s conducted an internal development phase. Further changes will be implemented as we complete the transition to a review of that plan, and the resultant proposed

. . . . results-oriented environment. The structure for strategic plan is the basis of the agency's Fiscal the FY 1998 financial statement reflects the Year (FY) 2000 budget request to Congress, the FY

. budget structure executed for FY 19s 5. F,or 2000 Performance Plan, and the revised FY 1999 .

FY 1999, the financial reporting structure will Performance Plan, both of which were integrated

. be consistent with the structure reflected in the mto the FY 2000 budget request. The perfor-strateg.ic and performance plans.

mance goals contained in th.is section reflect the FY 1999 perfomiance goals and measures reflected in the revised FY 1999 Performance Plan. The (continued on page 61 NRC has determined that it will report on these goals for FY w-~ -

-wym 1998 in an effort to support the

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each performance goal can be p g }Z

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Byron Nuclear Power Reactors (l! nit I and 2), Illinois

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L 1998 ACCoLNTAltli.lTY REPoRF b

u Prograin l'erforrnance (continued)

Strategic Arenas Management Controls The NRC's Strategic and Performance Plans The NRC identified no management control are organized into strategic arenas. This section is weaknesses in any of the strategic arenas. (See organized into the same four strategic arenas: page 15 for a complete discussion of NRC's

= Nuclear Reactor Safety ""E"' *"'~' "E '" d

= NuclearMaterials Safety -

Nuclear Reactor Safety

• Nuclear Waste Safety STRATEGIC GOAL: Prevent radiation-related

• InternationalNuclear Safety Support deaths and illnesses andprotect the environment For each strategic arena, we state the strategic in the use ofcivilian nuclear reactors.

goal from the Strategic Plan, provide a brief intro. A major part of the NRC's mission is to ensure duction to the arena, and delineate the performance that its licensees' safely design, construct, and goals for measuring results toward meeting our operate, civilian nuclear reactor facilities. The strategic goals. In reviewing the following perfor. NRC regulates 103 civilian nuclear power reactors mance goals, one must be aware that the safe and that are licensed to operate and another 19 that secure use of nuclear materials for civilian pur- are undergoing decommissioning. (See Figure 3.)

poses is the responsibility of NRC licensees and i " Licensees" include persons required to be licensed (as Agreement State licensees, and the regulatory defined in Section lls of the Atomic Energy Act) as well oversight oflicensees is the responsibility of NRC as, where appropriate, applicants for licenses; certificate holders and applicants for certificates; contractors and the AEreement States. Thus, achievinE these (including suppliers and consultants), subcontractors, and goals requires the collective efforts of the NRC, the vendors of licensees or certificate holders; and all other Agreement States, and their licensees. persons subject to the NRC'sjurisdiction.

Figure 3 U.S. Commercial Reactors

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U.S.NL' CLEAR REGUI.AToRY CoNDilssloN

The Atomic Energy Act of 1954, as amended, and protects against radiological sabotage and theft or the Energy Reorganization Act of 1974, as diversion of special nuclear materials. These amended, provide the foundation for regulating the efforts include reactor licensing; operator licens-Nation's civilian nuclear power industry. The ing; financial assurance; inspection; performance Atomic Energy Act of 1954, as amended and the assessment; identification and resolution of safety National Environmental Policy Act (NEPA), and issues; reactor regulatory research; regulation other environmental legislation provide the statu- development; operating experience evaluation; tory authority and responsibilities for NRC activi- incident investigation; threat assessment; emer-ties related to protecting the environment. gency response; investigation of alleged wrongdo-ing by licensees, applicants, contractors, or Reactor safety encompasses all NRC efforts to vendors; imposition of enforcement sanctions for ensure that civilian nuclear power reactor facili- violations of NRC requirements; and reactor ties, as well as non-power reactors, are operated technical and regulatory training. See Table 1 for in a manner that provides adequate protection of nuclear reactor safety performance goals and public health and safety and the environment, and related performance metrics Table i Nuclear Reactor Safety Performance Goals and Metrics ERFORNIANCE GOAL FY 1999 TARGET FY 1998 PERFORMANCE h

Zero civilian nuclear reactor accidents. Zero accidents. Zero accidents.

Maintain a low frequency of events that No more than one event per year. Final analyses will not be completed could lead to a nuclear reactor accident. until the end of FY 1999.

Zero deaths resulting from radiation or Zero deaths. Zero deaths.

radioactivity releases from civilian nuclear reactors.

Zero significant radiation exposures Zero significant radiation exposures. Zero significant radiation exposures.

resulting from civilian nuclea reactors.

No substantiated breakdown of physical Zero substantiated breakdowns. Zero substantiated breakdowns.

protection that signincantly weakens protection against radiological sabotage, or theft or diversion of special nuclear materials.

Zero offsite releases of radioactive material Zero offsite releases with a potential to cause Zero offsite releases with a potential from civilian nuclear reactors that hase the serious adverse impact on the environment. to cause serious adverse impact on potential to cause a serious adverse impact the environment.

on the environment.

No increase in the number of offsite releases The five-year average (FY 1995-1999) is less Fis e-year average per year w as of radioactive material from civilian than three per year. .08 offsite releases per year nuclear reactors that exceed 10 CFR based on preliminary data.

Part 20 limits.

Environmental impacts are considered Zero environmental impacts identined Data for this measure will be reviewed through the National Environmental and substantiated each year by external in FY 1998 and reported for FY 1999.

Policy Act (NEPA) process before sources which were not identified as regulatory action is taken. part of the NRC's NEPA process.

(continued on page 8) f r a macowwmm wn Nn

Program Performance (continued)

Nuclear Materials Safety l

STRATEGIC GOAL: Prevent radiation-related deaths and illnesses, protect the environment, j ,

I and safeguard special nuclear neaterial and ,

facilities in the civilian use ofsource, byproduct, k and special nuclear materials.

Nuclear material safety encompasses NRC I efforts to ensure that all NRC-regulated aspects of j #

nuclear fuel cycle facilities and nuclear materials

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activities are handled in a manner that provides [

adequate protection of public health and safety. <

Nuclear materials safety encompasses more than . . ._

20,000 specific and 100,000 general licensees Nuclear Gauge on a Process Linefor Areasuring the which are regulated by the NRC and 30 Agree- Density of a Liquid in a ripe ment States2 and covers a wide range of nuclear material uses ranging from very low-risk smoke ties carried out by the NRC and the Agreement detectors to potentially high-risk irradiators, States to ensure that nuclear materials and facili-chemical processing of special nuclear material, ties are used in a manner that protects public and storage and transportation of spent nuclear health and safety and the environment, and pro-reactor fuel. It also includes all regulatory activi- tects against radiological sabotage and theft or diversion of special nuclear materials. The Atomic Energy Act of 1954, as amended, and the 2

Under Section 274 of the Atomic Energy Act of 1954, as Energy Reorganization Act of 1974, as amended, i amended, a State may assume and the NRC discontinue regulatory jurisdiction for certain uses of byproduct, Erovide the foundation for reEulatinS the Nation's source, and limited quantities of special nuclear materials civilian uses of nuclear materials. The Atomic within the State. The assumption in authority is accom- Energy Act of 1954, as amended, and the National plished through an agreement with the State upon an NRC finding that the State's program is adequate to Env.ironmental Poh.ey Act (NEPA), and other protect public health and safety, and is compatible with environmental legislation provide statutory the NRC regulatory program.

authority and responsibilities for NRC activities

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related to protecting the environment. 1

% ,i The scope of regulatory activities in-cl ,

iff

'T[y cludes regulation and guidance develop-ment; nuclear materials research; licensing /

I certification, inspection, and enforcement

!! activities; identification and resolution of

1. safety and safeguard issues; certification of

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4 packages; operating experience evaluation; incident investigation; threat assessment; emergency response; technical training; and investigation of alleged wrongdoing by i;Q licensees, applicants, certificate holders, y"7 "

contractors and vendors. See Table 2 for nuclear materials safety performance goals Atedical Procedure using Radioactive Staterial and related perfom1ance metrics.

c.s. wcu:An urct i.Aroav cosistissins

1 Table 2 Nuclear Materials Safety Performance Goals and Metrics PERFORMANCE GOAL FY 1999 TARGET FY 1998 PERFORMANCE Zero radiation-related deaths resulting from Zero radiation-related deaths resulting from Zero radiation related deaths due to civilian use of source, byproduct, and cisilian use of source, byproduct, and civilian use of source, byprmluct, and special nuclear materials. special nuclear materials. special nuclear materials were identified.

No increase in the number of significant The combined five-year average for the NRC The combined five-year average was radiation exposures resulting from loss and Agreement States (FY 1995-1999) will 1.6 exposures per year.

or use of source, byproduct, and special not exceed two per year.

nuclear materials.

No increase in the number of losses of The combined five-year average for the NRC The combined five-year average was licensed material as reported to and Agreement States (FY 1995-1999) will 0.6 losses per year.

. Congress annually. not exceed two per year.

No accidental criticality (an inadvertent Zero occurrences of accidental criticality. Zero incidents of accidental criticality self-sustaining nuclear chain reaction) invol ing licensed material.

involving licensed material.

No increase in the number of The combined five-year averaFe for the NRC The combined five-year average was 3.4 misadministration events w hich and Agreement States (FY 1995 1999) misadministration events per year.

cause significant radiation exposures. will not exceed six per year.

Zero offsite releases of radioactive material Zero offsite releases annually with a Zero offsite releases with a potential from operating facilities that have the potential to cause a severe adverse impact to cause a serious impact on the potential to cause an adverse impact on the environment. environment.

on the em ironment.

No increase in the number of offsite The combined five-year average for the NRC The combined five-year average releases of radioactive material from and Agreement States (FY 1995-1999) was .06 operating facilities that exceeds the will not exceed one per year.

limits specified in 10 CFR Part 20.

No significant accidental releases of Zero accidental releases of radioactive Zero releases of radioactive material i radioactive material from the storage or material from the storage or transportation from the storage or transportation of transportation of nuclear material or of nuclear waste or nuclear material. nuelcar waste or nuclear material.

nuclear waste.

Zero loss, theft, or diversion of formula Zero incidents of loss or theft or diversion Zero incidents of loss or theft or quantities of strategic special nuclear material, of formula quantites of strategic special diversion of formula quantities of or unauthorized enrichment of speQd nuclear material. strategic special nuclear material.

nuclear material regulated by the NRC.

No substantiated case of actual or attempted Zero substantiated cases of attempted Zero substantiated cases of attempted theft or diversion of formula quantities of thefts or dis ersions of strategic special theft or diversion.

strategic special nuclear material. nuclear material.

No substantiated breakdown of physical Zero substantiated breakdow ns of Zero substantiated breakdowns of protection or material control and accounting physical protection or material control physical protection or material systems (i.e., detection, assessment, access and accounting systems, control.

control, containment, or accounting systems) that significantly weakens protection against theft or diversion of formula quantities of strategic special nuclear material.

(ctmtinued on page 10) 1998 ACCOLM\lill.IlY RI PORI 4

Program Performance (continued)

Table 2 Nuclear Materials Safety Performance Goals and Metrics (continued)

PERFORMANCE GOAL FY 1999 TARGET FY 1998 PERFORMANCE No substantiated case of unauthorized Zero substantiated cases oi unauthorized Data is not available for FY 1998.

enrichment of special nuclear material. enrichment of special nuclear material. Performance will be reponed for FY 1999.

No substantiated case of unauthorized Zero substantiated cases of unauthorized Zero substantiated cases of unauthorized disclosure or compromise of classified disclosure or compromise of classified disclosure or compromise of classified information concerning security measures information or documents concerning information.

for protection of special nuclear material security measures.

or plant equipment vital to the safety of production or utilization facilities which causes damage to the national security.

Environmental impacts are considered Zero environmental impacts identified and Data for this measure will be reviewed in through the NEPA process before regulatory substantiated each year by external sources FY1998 and reponed for FY 1999.

action is taken. which were not identined as part of the NRC's NEPA process.

I Nuclear Waste Safety industrial, and other commercial uses, and gener-ally contains relatively limited concentrations of ST,RATEGIC GOAL: Prerent adverse u.npacts to . ..

radioactivity.

the current andfuture public health and safety and the environment, as a result of uranium The NRC's regulatory activities associated with recorcry', facilities deconunissioning, clean-up high-level radioactive waste storage and high-level i of contaminated sites, and disposal of radioactive waste disposal at Yucca Mountain are radioactive wastes, mandated by the . Nuclear Waste Policy Act of 1982, Nuclear waste is a byproduct of the use of the Nuclear Waste Policy Amendments Act of radioactive materials. Such waste is produced by 1987, and the Energy Policy Act of 1992. The nuclear reactors that generate electric power, as NRC's low-level radioactive waste activities associ- l well as fuel processing plants, uranium recovery ated with the disposal of waste are conducted in )

operations, and institutions such as r- - -

hospitals and research facilities. It also y results from decommissioning nuclear j facilities that are permanently shut down. High-level radioactive waste results primarily from the fuel used by i reactors to produce energy. Low-level i d

radioactive waste results from reactor f;gl . - Xf .

operations, and from medical, academic, 'g i ggg  ! ? # M%i 2 p ^Y c Wi- O li p;

f}*Lpslj

' " Uranium recovery" means the removal of , ,

uranium from ore and the stabilization of l]lj ' ggnawa yy tailings irom this process. ) _

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U.S. Nt'CI. EAR REGtflATORv Co\1slissioN

accordance with the Low-Level Radioactive Waste Policy Act of 1980, as amended in '

1985. NRC regulatory and oversight activi- 4 ties for the regulation of uranium recovery is 1

, y directed by the Uranium Mill Tailings Radia-ITYf E  ?.i ~

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• A-tion Control Act of 1978, as amended. The Atomic Energy Act of 1954, as amended, and j)

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.e the National Environmental Policy Act .

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(NEPA), and other environmental legislation -. -

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provide the statutory authority and responsi-bilities for NRC activities related to protecting 99 T(( - PJ[.?;-*-

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~ J the environment. See Table 3 for nuclear waste safety perfonnance goals and related "N- N' '

performance metrics.  ;

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Calvert Cliffs Nuclear Power Plant, Maryland ..

Table 3 Nuclear Waste Safety Performance Goals and Metrics PERFOR51ANCE GOAL FY 1999 TARGET - FY 1998 PERFOR51ANCE No radiation exposures or releases of radioactis e material are likely to occur now or in the future that will have significant adverse impacts on the health and safety of the public, and the environment, as a result of uranium recosery, facility decommissioning, clean-up of contaminated sites, and disposal of radioactive wastes. The performance indicators and targets for FY 1999 are established under the following performance goals.

hiinimize the number of radiation exposures The five-year average (FY 1995-1999) will Data is not as ailable for FY 1998 or offsite releases that exceed the regulatory not exceed two pet 3 ear. Performance will be reported in fY 1999.

requirements for operational activities.

Estimated post-operational offsite releases Zero post-operational offsite releases that Data for this measure will be resiewed will not exceed regulatory requirements. exceed regulatory requirements. in FY 1998 and will be reported in FY 1999.

Potential environmental impacts will be Zero environmental impacts identified and Data is not available for FY 98. Perfor-considered in accordance with NEPA substantiated each year by external sources mance will be reported in FY 1499.

before regulatory action is taken. w hich were not identified as part of NRC's NEPA process.

The regulatory framework for high-level Publish a proposed site-specific, Progress made on the publication of a waste disposal u ill be established consistent performance-based, regulation applicable site-specific, performance-based uith current national policy. to the proposed repository at Yucca hiountain. regulation will be reponed in FY 1999.

Develop guidance to address key technical Resolution of the subissues that make up the Progress made on the resolution of five issues most important to the performance key technical issues. subissues that make up the key technical of a high-level w aste repository during the issues will be reported in FY 1999.

pre-licensing period.

Participate in developing a high-level waste Deselop an initial Yucca htountain review Progress made to develop an initial Yucca radiation safety standard and implement the plan format and content. hlountain resiew plan format and content standard through a site-specific, will be reponed in FY 1999.

performance-based regulation and Yucca 51ountain review plan.

kontinued on page 12) 1998 KrotM tiut.1l'y Ri{l'oR r - -

Program Perfortnance (continued)

International Nuclear Safety i Support l STRATEGIC GOAL: Support 4 the U.S. nationalinterests in M the safe and secure use of nuclear materials and in nuclear non-proliferation.

The NRC maintains a program ofinternational coop- -

.,r eration to help ensure the safe, H'b g

secure, and environmentally acceptable uses of nuclear -

energy. As the regulator of the -

I world's largest civilian nuclear . ,j program, the NRC has exten- _ g ~^9-L sive regulatory experience to Proposed High-Level Waste Disposal site at Yucca Mountain, Nevada contribute to international programs in areas such as nuclear reactor safety, f

radiation protection, nuclear materials safety ind safeguards4 , waste management, and decommis-sioning of nuclear facilities.

International nuclear safety support encom-passes international nuclear policy formulation, export-import licensing for nuclear materials and equipment, treaty implementation, international information exchange, international safety and safeguards assistance, and deterring nuclear proliferation. NRC international activities sup-port broad U.S. national interests, as well as the

+ NRC's domestic mission. The primary founda-tion for these activities is the Atomic Energy Act of 1954, as amended, the Energy Reorganization Act of 1974, as amended, the Nuclear Non-Proliferation Act of 1978, Executive orders,

. treaties, and conventions. See Table 4 for the

[ international nuclear safety support performance goal and related performance metric.

+

Chairman Jackson and the other Members of the International Nuclear Regulatory Association in Front

• Safeguards include physical protection as sell as of the Tunnel Boring Machine at Yucca Mountain material control and accounung.

[

' , 12 '

t'.S.NL:CIIAR REGl'lXioRv Co\l\tissioN

Table 4 International Nuclear Safety Support Goals and Metrics

. PERFORMANCE GOAL' FY 1999 TARGET FY 1998 PERFORMANCE l Strengthen international nuclear safety Complete significant program outputs

• Negotiated / reviewed seven bilateral and safeguards through leadership and related to international nuclear safety exchange agreements between the NRC participation in international nuclear policy and safeguards, international agreements, and appropriate foreign counterparts. ,

formulation and exchange activities by export / import licensing, and other providing assistance through international actisities.

• Completed ninety staff reviews for agreements. Support U.S. nuclear non- import / export authorization (NRC licenses proliferation interests through export / import or amendments).

licensing and other activities.

• Completed thirty-four staff reviews of Excutive llranch proposed Part 810  ;

licenses.

l

'4 1998 ACCot'NTAltil.lTY RI' PORT - -

Management Accountability The NRC's Management implementation of Statement of Federal Financial Centrol Program ^" ""th18 Standards Number 4 (SFFAS 4),

Managen.al Cost Accountmg Concepts and Individual assurance statements from NRC Standardsfor the Federal Government which office directors and regional administrators served became effective October 1,1998. SFFAS 4 as a primary basis for the Chairman's FY 1998 requires Federal agencies to accumulate and statement of assurance on management controls- report the cost of its activities on a regular basis These individual statements were based on vari- for management decision purposes. As such, this ous sources, including the managers' knowledge also represented an instance of substantial non-of day-to-day operations and existing controls, compliance with the Federal Financial Manage-management reviews of these controls, program ment Improvement Act of 1996 (FFMIA). The reviews and other management evaluations, OlG implementation of STARFIRE, a new integrated and GAO reports, and reviews of financial man- resource management system, which will include agement systems. cost accounting and labor cost distribution mod-Each year, regional administrators and direc- ules, will provide the necessary system to report tors of offices with the highest risk with respect to e sts at the appropriate level and therefore put the programmatic and administrative activities submit agency in full compliance with SFFAS 4. A plan an annual management control plan to the Execu- will be developed in coordination with other NRC tive Council. These plans, combined with the ffices during FY 1999 to better implement cost individual assurance statements as discussed in accounting at the NRC. Also, current plans are j the previous paragraph provide the framework for f r STARFIRE to be implemented begmmng m '

monitoring and improving the agency's manage- FY 1999.

ment controls on an ongoing basis. For FY 1998, the auditors identified the incomplete implementation of managerial cost St;:tus of Management Controls and accounting as a material internal control weak-Brport on MaterialWeaknesses and ness. The auditors also identified six reportable Non-Conformances conditions concerning financial reporting struc-The NRC evaluated its management control ture, contract obligations, revenue on reimburs-and financial management systems for the fiscal able agreements, and development of license fee year ending September 30,1998. This evalua- rates; and two substantial noncompliances with tion provides reasonable assurance that the the Federal Financial Management Improvement objectives of the Federal Managers' Financial Act involving managerial cost accounting and Integrity Act of 1982 (FMFIA) were achieved in accounts receivable classifications. The agency FY 1998. The NRC identified no material has already begun to take corrective actions on the weaknesses in its programs or administrative audit findings and is developing the required activities under FMFIA. remediation plans for the Federal Financial However, a significant weakness under Management Impmvement Act. Except for FMFIA was identified with respect to incomplete (continued on page 16) p ib

- - - - - w

Management Accountability (continued) managerial cost accounting, the agency expects by FMS for NRC, is efficient and effective; to implement corrective action during FY 1999. contains necessary controls; and conforms with (See the OIG audit of the FY 1998 Financial the principles, standards and related require-Statement, page 25.) ments prescribed by the Comptroller General

. with one exception. The FMS is unable to The NRC reported no material weaknesses in FYs 1994,1995,1996, and 1997. Two material demonstrate the FFS'. ability to perform data recovery and backup in the event of a disaster weaknesses were reported in 1993, and five and this exception is considered a material non-material weaknesses were reported in the years e nf rmance. The necessary disk storage capac-before FY 1993. All of these material weak-ity was acquired to perform a simulated disaster nesses have been corrected.

recovery data test, but testing has been delayed because of higher priorities imposed on the data Financial Management Systems center by FMS. Testing of the FFS application The NRC evaluated its financial management will occur during FY 1999, but this is contingent systems for compliance with applicable Federal on the data center successfully completing its requirements and accounting standards as re- other high priority tasks, quired by FFMIA. This evaluation disclosed that, overall, the NRC's major financial manage- Biennlat Review of User Fees ment systems were in compliance with this Act, During FY 1997 to FY 1998, the NRC re-except for full implementation of SFFAS 4 and . .

viewed each type of fee subject to the b.ienmal business continuity plans for major financial

. review of fees requirement of the Chief Fmanc,al i management systems that were found to be in Officers (CFO) Act of 1990. Licensing,inspec-substantial noncompliance. The NRC has six

. . tion, and annual fees charged to applicants and financial systems: the Federal Financial System li vised annually; the hourly rate for (FFS), Payroll System, Personal Property PC licensing and inspection fees are revised and the System, License Fee Bill Generator System, annual fees are adjusted to recover the agency's Allotment Financial Plan System, and a Budget current fiscal year budget authority less the Formulation System. amount to be collected through licensing and The Chairman's statement of assurance with inspection fees. The most recent changes to the respect to the agency's financial systems is sup. licensing, inspection and annual fees are de- ,

ported by management evaluations. Additionally, scribed in the Federal Register (63 FR 31840, the OIG performs an annual audit of the agency's June 10,1998). Fees under the Material Access principal statements. The OlG issued an unquali. Authorization Program (-10 CFR Part 11) and the fled audit opinion on the NRC's FY 1998 Finan. Information Access Authorization Program for cial Statement. Licensee Personnel (10 CFR Part 25) were re-vised to more appropriately recognize actual The Federal Financial System (FFS) is a costs. Reviews of other types of fees concluded system that the NRC uses through an interagency that fee revisions were not warranted at this time.

agreement with the Department of the Treasury However, as part of the FY 1998 financial state-(Treasury). This system is reviewed annually by ment audit, the auditors reviewed the agency Treasury's Financial Management Service (FMS) process for determining license fee hourly rates.

for its client agencies that utilize the system. While the auditors have not concluded their work, FMS performed a cursory vulnerability assess- a separate, more comprehensive agency audit has ment that disclosed no material or nonmaterial been initiated to evaluate the overall process for weaknesses. Their limited review of FFS pro- determining 10 CFR Part 170 and Part 171 hourly vided reasonable assurance that FFS, as operated rates and annual fee amounts.

N( 16

(- U.S. St'cIEA R REGl'l,AToRY co\lillNstoN

Management Decisions and Agency (DCAA). " Questioned Costs" are those i Final Actions on OlG Audit c sts that are questioned as to whether they are  !

allowable. " Unsupported Costs" represent costs R commendations challenged because or a lack of adequate support- l The agency has established and continues to ing data. Because of the sensitivity of contractual l maintain an excellent record in resolving and negotiations, details of these contract audits are implementing open audit recommendations not furnished as part of this report.

presented in OIG reports. Section 5(b) of the Table 6 gives the dollar value of funds that inspector General Act of 1978, as amended, audits showed could be put to better use. As of requires the Chairman to report on management September 30,1998, no outstanding audits recom-decisions and final actions taken on OIG audit niended that funds be put to better use.

recommendations. Table 5 gives the dollar value of disallowed costs determined through contract audits conducted by the Defense Contract Audit (continued on page is)

Table 5 Management Report on Office of the Inspector General Audits with Disallowed Costs For the Period October 1,1997 - September 30,1998 Number'of . Questioned Unsupported -

Category Audit Reports Costsi  : Costs

($) ($) ,

l A. Audit reports with management 1 $ 13,319 $0 j decisions on which final action had l not been taken at the beginning of this reporting period B. Audit reports on which management 10 $ 475,078 $0 decisions were made during this reporting period C. Audit reports on which final action 10 $484,897 $0 was taken during this reporting period (i) Disallowed costs that were 10 $484,897 $0 recovered by management through collection, offset, property in lieu of cash, or otherwise (ii) Disallowed costs that were written 0 $ 0 $0 off by management D. Audit reports on which no final 1 $ 3,500 $0 action had been taken by the end ,

of this reporting period. l J,.,

y 17, 1

1998 AccOUM Alutt tv REPORT I(k

l Management Accountability (continued)

• Table 6 Management Report on Office of the Inspector General Audits with Recommendations That Funds He Put to lletter Use For the Period October 1,1997, through September 30,1998 Recommendations that

funds he put to better use by management agreed Number of to in a management decision

. Category  : Audit Reports' ($)'

A. Audit reports on which final 0 $0 action had not been taken by the beginning of this reporting period B. Audit reports on which manage- 2 $359,682 ment decisions were made during this reporting period C. Audit reports on which final 2 $359,682 action was taken during this reporting period (i) Recommendations that were 2 $359,682 actually completed (ii) Recommendations that manage- 0 $ 0 ment subsequently concluded should not or could not be implemented or completed D. Audit reports on which no final 0 $ 0 action had been taken by the end of this reporting period M _.

Four reports containing six recommendations Improvement Needed in Agency Oversight are more than a year old and are described in the ofInformation Resources Management Activi-next section titled " Management Decisions Not ties, September 24,1996 Implemented Within One Year."

The OlG recommended that the agency Management Decisions Not Implemented develop a process to improve NRC's oversight of Within One Year information resources management activities.

Management decisions were made before The Information Technology Management Re-September 1997 for the OIG audit reports dis- form Act of 1996 (ITMRA) required each Fed-cussed in the following paragraphs, but as of eral agency head to design and implement a September 30,1998, NRC had not taken final Capital Planning and Investment Control (CPIC) action on some of the issues in the reports. The process for evaluating information technology OIG did not recommend that funds be put to (IT) projects. The NRC has developed a compre-better use for any of these reports. hensive approach to comply with ITMRA's h IN

-[- U.S. NUCI. EAR REGLI.AToRv Co\l\llNNioN

requirements. During the FY 1999 budget cycle, "T"]

three major proposed IT projects were reviewed, k y using a prototype CPIC process. The CPIC ,

~

,h j process has been finalized based on lessons J ,a l learned and has been forwarded to the Commis- ~D~l 7 sion for infonnation. This recommendation will 43C

. j- g be closed with the issuance of Management i . _ .

Directive 2.2, IT Capital Planning and Budgeting, g / .

NRC's Decommissioning Financial Assur-ance Requirements for Federal Licensees mar M i %% .'

m- '

not be Sufficient, April 3,1996  : S The OIG report recommended that the staff reevaluate the basis for allowing Federal licensees

.T L .y ,

who operate nuclear power reactors to use a .

[ '.

g, statement of intent for decommissioning financial

.1f

~'-

dy ,' MjKg l assurance. As a result of the OIG report, the b hiM/ .

fs Commission directed the staff to include some

.h $;2N?. J questions on decommissioning funding assurance - [T C for a Federal Government licensee in the Advance Q;3 -

Notice for Proposed Rulemaking (ANPR) for i'

" Financial Assurance Requirements for Decom-missioning Nuclear Power Reactors"(April 8, 1 -

k.2 : --

1996,61 FR 15427). The ANPR was published in response to the potential deregulation of the power generating industry. After the Comment Decommissioning and Dismantlement of Trojan Nuclear period for the ANPR expired, a proposed rule was l'"" l'l""' l" #'"I""#' U"K""

published on September 10,1997,(62 FR 47588).

In the proposed rule, the NRC staff provided a reduce the time needed for discovery during the new definition of" Federal licensee"in response license hearing process. The rule requires that to the OIG report. The final rule, containing a DOE design and develop the system and that definition of" Federal licensee" was approved by NRC operate and maintain it.

the Commission on September 2,1998, and The OlG reported that the program had stalled published in the Federal Register on September for the past 5 years for several reasons. Many of 22,1998,(63 FR 50465). Actions on all recom-the delays were attributed to an inadequate system mendations are now complete.

definition and agreement on the roles and respon-NRC Needs To Provide Strong Direction for sibilities of DOE and NRC. As a result, the OIG the Licensing Support System, March 17,1995 recommended that NRC obtain a formal commit-ment from DOE in the form of an Interagency The Nuclear Waste Policy Act of 1982 re-Agreement or Memorandum of Understanding quires that NRC approve or disapprove the con-(MOU) on key aspects of the Licensing Support struction of a high-level nuclear waste repository System (LSS).

within 3 to 4 years of receiving a DOE construc-tion license application. To meet this deadline, In response to the OIG report, the EDO ap-NRC enacted a rule requiring the development of pointed a senior management team to reevaluate an electronic information management system to (continued on pare 20; Or ,

g a

imccocmunm mmr to

Management Accountability (continued) the purpose of and need for the LSS, and to address meets management needs for producing reliable the issues affecting the LSS program. As a result information for overseeing and tracking inspector of congressional budget action related to DOE's training. In a second audit titled " Inspector high-level nuclear waste program, LSS activities Training Program: Improved Coordination and were not resumed and all of DOE's LSS-related Communication Needed," dated August 4,1995, activities have been delayed, including the finaliza- the O!G recommended that the EDO evaluate the tion of an MOU with DOE. merits of an integrated schedule or other measure to provide NRC offices with early notice of A proposed rule that would amend the upcoming inspector training requirements. Th.is Commission's Rules of Practice for the licensing rec mmendation has been closed and the corree-proceeding on the disposal of high-level radioac- tive action has been mcorporated into the correc-

!ive waste at a geologic repository was published tive action agreed to in the OlG's November 4, in the Federal Reg,ister on November 13,1997, ;99  ; g7 ;  ; gg; (62 FR 60789). The proposed amendments are requirements. The NRC has determined that its mtended to allow application of technology current system does not meet the needs of the advances that have occurred since the ongmal agency and that the system needs to be totally rule was adopted in 1989. The proposed rule achieves the ongm, al goal of facilitating the redesigned. Because oflimited resources and .

competing agency priorities, the new system will Commission's ability to comply with the schedule n t W operadonal until FY 2002. In the mean-for decision on the construction authorization for ne, training requirements are tracked manually the repository contained in Section 114(d) of the .

with reliance on the direct involvement of indi-Nuclear Waste Policy Act. Additionally, the viduals and their supervisors.

proposed rule provides for a thorough technical review of the license application and equitable access to information for the parties to the hear- Debt Collection ing. The comment period for the proposed rule As shown .in Figure 4, the NRC has reduced closed on January 27,1998. The proposed rule .

its deh,nquent debt since FY 1994. The agency will restructure the LSS and alleviate the fiscal has accomplished a steady decline m dehnquent pressures working against significant progress by debt through a concerted debt management DOE. As a result,it would not be necessary for strategy. The strategy meludes activities such as the NRC to establish an MOU with DOE.

license revocations, referral to the Department of The final rule, Part 2, Subpart J. " Procedures the Treasury's Debt Management Services Applicable to Proceedings for the issuance of through a cross-servicing arrangement, credit Licensees for the Receipt of High-Level Radioac- reporting, and referral to the U.S. Department of tive Waste at a Geologic Repository", was ap- Justice for enforced collection.

proved by the Commission on November 24, 1998. Actions on all recommendations are now complete. Prompt Payment The percentage of on-time payments subject Review of NRC's Implementation of In-spection Manual Chapter 1245 Training Re- to the Prompt Payment Act has increased as quirements, November 4,1994 shown m Figure 5. The amount of interest penal-ties incurred has decreased from $15,000 in FY The O!G recommended that the EDO ensure 1994 to under $6,100 in FY 1998.

that the agency's new training tracking system (continued on page 22)

I

~

20 i'.s. M?Cl. EAR REGUI.AToRY CoMMISSloN

Figure 4 Delinquent I)ebt 25 20 ----- " "---- -~ "-- ---"- - - -------- -----------"------ -~ -" ---- -- "-- "--------.--

l l

j$ ..... ........ ....... ...... .........................................................

O 1 1

._2 2 10 ""- - - - " - " -"--"- " - " "--" ----- "- ----------" " "------ "----------

g

"""" " " " " " - " - - - ~ ~ " " " - " " - " " - " - - - " " - " " "

5 "" """"

0 FY 1993 FY 1994 FY 1995 FY 1996 FY 1997 FY 1998 ,

$19.9 M $16.5 M $9.7 M $3.8 M $2.1 M $2.1 M i l

Fiscal Year l l

l Figure 5 )

Prompt Paynient 100

$C O

E-80 * - - - " - ~ - " - - - - - - -"--- --"" *"" - - " - - * ---"

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ce 60 O

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• 20 "" """ --" """ """ "-" "-"

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Q.

O FY 1993 FY 1994 FY 1995 FY 1996 FY 1997 FY 1998 Fiscal Year

) a 1998 ACCOUNTAlllLITY REPORT bkh

Management Accomntability (continued)

Civil Penalties address any system failures (including Y2K related failures) and cover any business The NRC imposes enforcement sanctions t continuity concerns.

encourage prompt identification and comprehen-sive correction of violations to deter violations.

• Remediated all non mission-critical systems and to emphasize the importance of compliance (NRC's business-essential and non-critical with requirements. One enforcement sanction is categories),

the imposition of a civil penalty. Table 7 shows * ** IVed all issues related to exchanging the amount of civil penalties assessed and the .

data with outside entities.

amount collected in FY 1994-1998, distributed according to the year in which the civil penalty Replaced all non-compliant hardware to was collected. The amount of each civil penalty address the embedded chip problem.

assessed reflects the amount that the NRC ulti-

= Tested all NRC owned telecommum. cations mately decides is appropriate in each case through equipment and replaced non-Y2K compli-its enforcement or hearing process.

ant components. All of NRC s telecommu-nications service providers have stated they Progress on Year 2000 issues will be compliant by the middle of 1999.

The NRC completed its internal program to Verified that the Y2K problem will not remedy Year 2000 (Y2K) issues related to sys- affect systems related to the operation and tems internal to the agency on February 5,1999. maintenance of NRC buildings.

The NRC has The NRC's Office of the Inspector General

• Remediated all mission-critical systems and (OlG) is conducting ongoing reviews to verify verified that existing contingency plans the effectiveness and accuracy of the agency's Table 7 Fiscal Year Civil Penalties Collected Versus Fiscal Year Penalty Dollars Assessed' Fiscal-Year. Assessed - Collected Percent Collected lg 1994 $3,867,675 . $3,867,675 100 l 1995 $2,289,285 $2,289,285 100 1996 $3,106,000 $3,014,000 2 97.04 1997 $6,343,550 $5,957,736 93.92 1998 $5,206,600 3 $6,493,573 124.7

' There is no direct correlation between the amounts assessed and collected in a particular fiscal year because civil penalties may be assessed in one fiscal year and collected in another for a variety of reasons, such as an assessment made in the last month of the fiscal year which is not due for 30 days, or unti! & next fiscal year.

2 This amount reflects payments that have been made in two cases where installment payments are being made.

3 This amcont reflects $145.000 in penalties that were withdrawn.

s U.S. NUCLEAR REGUI.AToRY CoMMISSloN

The cost to repair or replace the NRC's systems is shown in the table below:

' Fiscal Year .1996i :1997J 1998: 1999- 2000  ? Total i Current Cost $0.0* $2.4 $4.0 $3.9 $0.0 $10.6

($ Millions)

• - Item is $45,000. Shaded areas are actual cost.

The NRC has no third-party relationships that could impact its mission capability.

Y2K program. The OlG has reported that ensure that contingency business continuity plans for NRC's external efforts related to licensee Y2K its mission-critical systems specifically addressed issues were appropriately aggressive and NRC's failures resulting from the Y2K problem.

internal Y2K management program was thor-ough and effective. NRC,s seven mission-critical systems support three core functions. One system supports the interchange of information agencywide and is our Continuity of Business, administrative local area network. Three systems supp n ur msp nse c p bility in the event of a Contingency Plans, and Risk nuclear emergency and reside m NRC s Emer-The NRC's objective for this program is to gency Operations Center. The remaining three ensure that appropriate business continuity plans systems support tracking and inspecting nuclear are put in place for all of the NRC's general materials.

purpose systems and major applications that .

include the mission-critical applications identified These three groups of systems are independent in the agency's Y2K program. The process of f each other and have no complex interrelation-developing the plans entails several steps: ships with any other systems except for dependen-cies on the U.S. telecommun,i cations

. Conduct a business impact analysis and infrastructure.

risk assessment.

Only one of the NRC's mission-critical sys-a Develop a security plan. tems relies on electronic data provided by other Test the security plan. automated systems, so failures of external or internal systems will not affect the agency s Certify and accredit the system. mission-critical systems. This mission-critical Develop a disaster and business system is one of the three systems in the Emer-continuity plan gency Operations Center. It receives real-time data from nuclear reactor sites m the event of a

• Train pe u nnel and test the disaster and declared emergency. The Center has its own business continuity plan, backup generator to provide power to its elec-tronic components in the event of a power outage, By their nature, business continuity plans cover as well as contingency plans dealmg with the loss a wide range of possible events, ranging from of any ofits electronic, telecommunications, or softwam and hardware problems to major natural e mputerized functions.

disasters. These plans also take amount of time to prepare. Because of the immediacy associated with the Y2K problem, NRC made a special effort to uondnued on pose 2.s>

h2

_c_,mm _ w

Management Accountability (continued)

In all cases, NRC's mission-critical systems administrative local area network (LAN). The are non-complex, stand alone systems that support LAN supports NRC's electronic mail and com-a separate area within one of our three core mon document storage functions, and makes functions. NRC's mission-critical systems are administrative software available to users. Ad-relatively simple and deal with a volume of ministrative software is also present on each

' information that is small enough to manage by user's workstation as a contingent redundancy.

manual means if necessary or if automation is Complete unavailability of the LAN for any temporarily unavailable. protracted period is considered very unlikely.

NRC's contingency plans are commensurate With respect to the risks of Year 2000 issues with the nature of our mission-critical systems on agency operations, NRC's mission-critical and have been prepared by the functional area systems are relatively simple and deal with a business people. In all but one case, these plans volume of information that is small enough to have an option that assumes total automation manage by manual means if necessary or if unavailability, thus requiring reverting to manual automation is temporarily unavailable in contrast methods to continue support of the mission- to large complex applications dealing with mil-critical functional area. These manual methods lions of records and complex real-time processes, have been successfully used in the past when Our contingency plans are commensurate with the systems did not exist or were temporarily out of nature of our mission-critical systems. Therefore, service. The exception to this option relates to the risks to the agency from Year 2000 issues are low.

4 U.S. Nt'CI. EAR RI Gt'l.AToRY CoMMisSloN

q i

1 i

FY 1998 Audited Financial Statement I

l 4

Limitations of Principal Statements The principal statements have been prepared to report the financial position and results of opera-tions of the NRC, pursuant to the requirements of the Chief Financial Officers Act of 1990.

These statements have been prepared from the books and records of the NRC in accordance with the formats prescribed by OMB. However, these statements differ from the financial reports used to monitor and control budgetary resources that are prepared from the same books and q records. The principal statements should be read with the realization that they are for a sovereign entity, that liabilities not covered by budgetary resources cannot be liquidated without the enact- '

I ment of an appropriation, and that the payment of all liabilities other than for contracts can be abrogated by the sovereign entity. Other limitations are included in the footnotes to the principal  ;

statements.

I The NRC's FY 1998 financial statement was audited by R. Navarro and Associates under con-tract to the NRC's Office of Inspector General. This section contains the results of the audit, the ,

financial statements, and footnotes. g 3

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INDEPENDENT AUDITORS REPORT AND F PRINCIPAL STATEMENTS FOR THE i YEAR ENDED SEPTEMBER 30,1998  !)

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• I 1998 ACCOUNTAllILITY REPORT h

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OFFICE OF THE I.NSPECTOR GENERAL U.S. NUCLEAR ,

REGULATORY COMMISSION i

INDEPENDENT AUDITOR'S REPORT AND j PRINCIPAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30,1998 OlG/98A-09 MARCH 1,1999  :

ALDIT REPORT  :

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1998 ACCOl'NTAllII.ITY REl' ORT

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panoo p g UNITED STATES s E NUCLEAR REGULATORY COMMISSION ,

WASHINGTON, DC 20555-0001 March 1,1999 MEMORANDUM TO: Chairman Jackson FROM: Hubert T. Bell aN <

Inspector General

SUBJECT:

RESULTS OF THE AUDIT OF U.S. NUCLEAR REGULATORY COMMISSION'S FISCAL YEAR 1998 FINANCIAL STATEMENTS

. Attached is the independent auditors' report on the U.S. Nuclear Regulatory Commission's (NRC) Fiscal Year 1998 financial statements. The Chief Financial Officers Act requires the Office of the Inspector General (OlG) to annually audit NRC's Principal Financial Statements.

The report contains (1) the principal statements and the auditors' opinion on those statements, (2) the auditors' opinion on management's assertion about the effectiveness ofinternal controls, and (3) a report on NRC's compliance with laws and regulations. Written comments were  ;

obtained from the Chief Financial Officer (CFO) and are included as an appendix to the indepen- l dent auditors' report.

Audit Results i The independent auditors issued an unqualified opinion on the Balance Sheet, the Statements of l Changes in Net Position, Net Cost, Budgetary Resources, and Financing. I in the opinion on management's assertion about the effectiveness of internal controls, the audi-tors concluded that management's assertion is not fairly stated. The auditors reached this con-clusion because management did not identify the lack of managerial cost accounting as a l material weakness.'

The auditors identified four new reportable conditions and closed one prior-year reportable condition. The new conditions concern -(l) the lack of managerial cost accounting, (2) the lack of fully aligned strategic, budget, and performance plans for financial reporting, (3) inadequate funds control for NRC's Comprehensive Information System Support Contract (CISSCO), and 1

(continued im page 3h

' OlG's annual assessment of NRC's implementation of the Federal Managers Financial Integrity Act will also report the lack of managerial cost accounting as a material weakness.

e 31 1998 ACCotiNTAlui.IIT REPOR r lhd

o3 k ' Audit of FY 1998 FinancialStatement (continued).

1M

'f.  ; (4) improper revenue recognition for reimbursable agreements. The reportable condition closed l

( g;j concerned inadequate segregation of duties. ,

t y

gg. The report on NRC's comphance with laws and regulations disclosed three noncomphances with ly laws and regulations. The first is that NRC's 10 CFR Part 170 license fee rates are not based on j . full cost. The second is that managerial cost accounting was not implemented, as required, and

, };j the third is that accounting information was not properly classified to suppon reporting of j governmental and public information. Issues two and three are considered substantial

}- .

noncompliances with the Federal Financial Management Improvement Act of 1996 (FFMIA).

'$ Further, the prior year's reportable condition relating to business continuity plans for the general ledger system and fee systems remains in substantial noncompliance with FFMIA. Tests of jl

( $lj compliance with selected provisions of other laws and regulations disclosed no other instances

' qi of noncompliance.

g Performance Reporting ls

. l, Office of Management and Budget Bulletin No. 98-08, Audit Requirementsfor Federal Financial Statements, requires us to "obtain an understanding of the components of internal control relat-

. d, ing to the existence and completeness of assertions relevant to the performance measures in- ,

1 cluded in the Overview of the Reporting Entity." The Bulletin states that the objective of this

• work is to report deficiencies in the design ofinternal control, rather than plan the financial 1 statement audit. With this requirement and objective in mind, OIG examined the control process fl for several performance measures. Our examination concluded that there were no deficiencies to O report.

( , Comments of the Chief Financial Officer f,; The CFO disagreed with the auditors' conclusion that management's assertion about internal j controls is not fairly stated. The CFO explained that the agency's management representation 9 letter identified managerial cost accounting as a "significant weakness." However, as stated above, the auditors identified this issue as a " material weakness."

' q. E .

4 g The CFO also disagreed with the auditors' conclusion that the fiscal year 1998 license fee rates

]. were not developed in accordance with applicable laws and regulations. However, in his re-i sponse to the attendant recommendation, the CFO advised that his office "will initiate a study to j analyze those activities currently characterized as ' generic activities' for license fee development 1 purposes." The CFO agreed with the remaining recommendations and indicated that corrective

1. 3 action is underway.

m i We appreciate NRC staff's cooperation and continued interest in improvir.g financial manage-1 ment within NRC.

3 j Attachmentt As stated id

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m-i U.S. NUCLF.AR REGULATORY CoMMISSloN ph- w

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p REPORT OF 1NDEPENDENT A UDITORS .. ........ . . .......... . ...... ........ .... .... .........35 Ie

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Independent Auditors' Report on the Principal Statements .. ..... ...... .. . . ..............35 i Report on Management's Assertion About the Effectiveness of Internal Control........ . .. 37 Independent Auditors' Report on Compliance with Laws and Regulations. ..... ........... .. 47 h I

u P RI N C I PA L STATE M ENTS . . . .. . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 l B al a n c e S h e e t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..............57 S t ate m e n t o f Ne t Cos t . . .. . . . . . . . . ... . . .. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........59 o L

Statement of Changes in Net Position ... ........... ....... ........ ................................. .... .... . 60 7 S tate ment o f B udgetary Resou rces ................................. ........................... . . . . . . . . . . . .61 i

S tat e me nt o f Fi n an c i n g . . . . . . .. . . .. . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .. 62 ,

Notes to Principal S tate men ts ..... ..... .... ... ... . . . .. .. .. .. . .... .. .... . . . .... . . .. .. ... ... .. .. . .. .. ...... . .... 63 i y

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APPENDIX...........................................................................................................81 3 Comments of the Chief Financial Officer .... ............. ..... ..... ............ ..... .. .......... .. .. . 83 I

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199tl ACCoLNTAIllIJrY REPoHI bY

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R. Navarro & Associates, Inc. V 0

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Chairman Shirley A. Jackson U.S. NUCLEAR REGULATORY COMMISSION p]'

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Washington, DC b]

REPORT OFINDEPENDENT AUDITORS

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In our audit of the U. S. Nuclear Regulatory Commission for the year ended September 30,1998, .

we found: O

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The principal statements were fairly stated in all material respects; e

Management stated, except for a significant deficiency related to managerial cost ac-counting, that NRC's systems of accounting and the internal controlin place as of September 30,1998 are in compliance with the internal control objectives in Of0ce of  ;

Management and Budget Bulletin No. 98-08, Audit Requirementfor Federal Financial y Statements, requiring that transactions be properly recorded, processed, and summarized .

to enable the preparation of the principal statements in accordance with Federal account- [

ing standards, and safeguarding of assets against loss from unauthorized acquisition, use P or disposal. Management did not identify the significant deficiency related to managerial cost accounting as a material weakness, therefore, management's assertion on intemal

,U controls is not fairly stated.

=

Our audit identified four reportable conditions, Comment A, Managerial Cost Account-ing, is considered a material weakness. We also identified three conditions relating to compliance with laws and regulations, two of which are in substantial non-compliance (

with the Federal Financial Management Improvement Act (FFMIA).

The following sections outline our conclusions.

INDEPENDENT AUDITORS' REPORT ON THE PRINCIPAL STATEMENTS We have audited the U.S. Nuclear Regulatory Commission's (NRC) balance sheet, statements of net cost, changes in net position, budgetary resources, and financing as of and for the year ended September 30,1998, herein referred to as the principal statements. The principal statements are the responsibility of NRC's management. Our responsibility is to express an opinion on the principal statements based on our audit.

SCOPE We conducted our audit in accordance with generally accepted auditing standards; Govermnent Auditing Standards, issued by the Comptroller General of the United States; and, Office of Management and Budget (OMB) Bulletin No. 98-08, Audit Requirementsfor Federal Financial  ;

Statements. Those standards require that we plan and perform the audit to obtain reasonable (continued on page 36) 6TM L 1998 ACCoCNTAllll.ITY REIORT lh ]

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Audit of FY 1998 Financial Statement (continued)

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assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and signifi-

, cant estimates made by management, as well as evaluating the overall financial statement pre-sentation. We believe that our audit provides a reasonable basis for our opinion.

MATTERS l'OR EMPIIASIS 4

FinancialReporting by Program OMB Bulletin No. 97-01, Form and Content ofAgency Financial Statements, provides guidance to federal agencies for preparing the principal statements which are the subject of this audit.

Consistent with the requirements of the Government Performance and Results Act (GPRA) of

^

1993, the bulletin requires agencies to prepare the Statement of Net Cost (for a description of the principal statements refer to Note 1.B., in the Notes to Principal Statements) using programs that fully align to the agency's strategic, budget and performance plans. The NRC is in the process of moving to fully aligned strategic, budget and performance plans, therefore, the i Statement of Net Cost in the current year includes programs as executed against the budget plan and not the strategic or performance plans. (Refer to the Report on Management's Assertion About the Effectiveness ofInternal Control, Comment B, Financial Reporting,for additional information on this condition.)

Exchange Revenues Matched To Programs The Federal Accounting Standards Advisory Board (FASAB) issued Statement of Federal Financial Accounting Standards (SFFAS) No. 7, Accountingfor Revenue and Other Financing i Sources and Conceptsfor Reconciling Budgetary and Financial Accounting, whereby agencies l were directed to record and present exchange revenues matched against program costs on the Statement of Net Cost. NRC cannot readily match exchange revenues by program in the current year. Therefore, NRC, with OMB concurrence, included on the Statement of Net Cost only the fee for services exchange revenue matched against its regulatory program. The exchange revenue generated by annual fees was presented on the Statement of Net Cost as "not directly assignable to programs." Although, this presentation does not fully incorporate the guidance in ,

SFFAS No. 7, the Statement of Net Cost, as a whole presents fairly the net cost of NRC pro-l' grams. (Refer to Note 1.E. in the Notes to Principal Statementsfor the agency's policy on revenues and otherfinancing sources.)

G Classification of Costs

, OMB Bulletin No. 97-01, Form and Content ofAgency Financial Statements, provides guidance to federal agencies for presenting program costs classified by intragovernmental and public components. The basis for classification relies on the concept of who received the benefit of the j cost incurred (e.g. private sector licensees versus Federal licensees) rather than who was paid.

L However, following the advice of OMB, NRC classified the costs on the Statement of Net Cost using an underlying concept of who was paid. This presentation does not entirely incorporate the guidance in the Bulletin, however, it enables the agency to transition to the presentation h lf.S.NtTI, EAR REGl'IAToRv co%1%IlssioN w

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required in the current year. (Refer to Note 1.B., Basis ofPresentation, in the Notes to Principal {l Statementsfor a discussion of the principal statements in the current year;) )

U.S. Department of Energy Expenses l

NRC's principal statements include reimbursable expenses of the U.S. Department of Energy (DOE) National Laboratories. The NRC's Statement of Net Cost includes approximately $61 ,

q million of reimbursed expenses, which represent approximately 12% of total expenses. Our L1 audit included testing these expenses for compliance with laws and regulations within NRC. a l

The work placed with DOE is under the auspices of a Memorandum of Understanding between <

NRC and DOE. The examination of DOE National Laboratories for compliance with laws and l regulations is DOE's responsibility. This responsibility was further clarified by a memoran- '

dum of the GAO's Assistant General Counsel, dated March 6,1995, where he opined that

"... DOE's inability to assure that its contractors' costs [ National Laboratories) are legal and proper...does not compel a conclusion that NRC has failed to comply with laws and regula-tions." DOE also has the cognize.nt responsibility to assure audit resolution and should provide the results of its audits to NRC. {

OPINION g In our opinion, the principal statements referred to above present fairly, in all material respects, the financial position of the NRC as of September 30,1998, and its net cost of programs, changes in net position, budgetary resources, and financing for the year then ended in conformity with generally accepted accounting principles.

L As discussed in Note 1.B., Basis of Presentation, the form and content of the current year princi-pal statements noticeably differ from the principal statements issued in the prior year. The change to the principal statements is required by OMB Bulletin No. 97-01, Form and Content of Agency FinancialStatements.

t REPORT ON MANAGEMENT'S ASSERTION ABOUT THE EFFECTIVENESS OF INTERNAL CONTROL h We have examined management's assertion that NRC's systems of accounting and internal control in place as of September 30,1998 are in compliance with the internal control objectives in OMB Bulletin No. 98-08, Audit Requirementsfor Federal Financial Statements. The Bulletin j requires that transactions be properly recorded, processed, and summarized to enable the prepa- (

ration of the principal statements in accordance with Federal accounting standards, and safe-  !

guarding of assets against loss from unauthorized acquisition, use or disposal.  !

q Our examination was made in accordance with the standards established by the American Insti- :l tute of Certified Public Accountants; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and, .

OMB Bulletin No. 98-08. Accordingly, we considered NRC's internal control over financial 1 (continued on page 38) ;f r.

l 37 E 1998 AccoUNTABilfrY REPORT Y[

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' Audit of FY 1998 Financial Staternent (continued) y R. Navarro & Associates, Inc.

]NW reporting by obtaining an understanding of the agency's internal controls, determined whether these internal controls had been placed in operation, assessed control risk, and performed tests of I]b controls and other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion.- Our examination was of the rm

$ internal control in place as of September 30,1998.

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Because of inherent limitations in internal' control, errors or fraud may occur and not be detected. Also, projections of any evaluation of the internal control over financial reporting to

<d future periods are subject to the risk that the internal control may become inadequate because

,@ of changes in conditions, or that the degree of compliance with the policies and procedures y may deteriorate.

4 d In our opinion, management's assertion that NRC's systems of accounting and the internal p control in place as of September 30,1998 are in compliance with the internal control objectives M in OMB Bulletin No. 98-08, requiring that transactions be properly recorded, processed, and

]y_ summarized to enable the preparation of the principal statements in accordance with Federal accounting standards, and safeguarding of assets against loss from unauthorized acquisition, use

'j]i or disposal, is not fairly stated, because management did not identify the lack of managerial cost accounting as a material weakness.

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@ Our consideration of management's assertion on internal control over financial reporting p would not necessarily ' disclose all matters in the internal control over financial reporting that might be reportable conditions.' Under standards issued by the American Institute of Certified J)){

Public Accountants, reportable conditions are matters coming to our attention relating to significant deficiencies in the design or operation of the internal control that,in ourjudgment,

.could adversely affect the agency's ability to record, process, summarize, and report financial HQ' data consistent with the assertions by management in the financial statements. Material weaknesses are reportable conditions in which the design or operation of one or more of the

%j _ internal control components do not reduce to a relatively low level the risk that misstatements  ;

y in amounts that would be material in relation to the financial statements being audited may j occur and not be detected within a timely period by employees in the normal course of per-6@ forming their assigned functions, w

~y We noted certain matters, discussed in the following paragraphs, involving the internal control J and its operation that we consider to be reportable conditions. Comment A, Managerial Cost

% Accounting, was considered a material weakness and a substantial non-compliance with Federal j Financial Management Improvement Act (FFMIA).

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%d Current Year Comments

"? A. Managerial Cost Accounting J

d In 1995, the Federal Accounting Standards Advisory Board (FASAB) established require-ments in Statement of Federal Financial Accounting Standards (SFFAS) No. 4, Managerial

@j. Cost Accounting Concepts and Standants, whereby agencies were to develop and implement g-

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cost accounting practices and techniques by fiscal year 1997. In 1997, the FASAB, based on ,

( input from a variety of sources including the Chief Financial Officers' Council, delayed the implementation of this standard until fiscal year 1998. NRC did not implement this standard during fiscal year 1998.

SFFAS No. 4, Paragraph 4, states," Managerial cost accounting should be a fundamental part of the financial management system and, to the extent practicable, should be integrated with other parts of the system." Paragraph 5, further states,"Each reporting entity should report the costs ofits activities on a regular basis for management information purposes."

Statement of Recommended Accounting Standards No. 9 Deferral of the Effective Date of Managerial Cost Accounting Standardsfor the Federal Government in SFFAS No. 4, states in paragraph 9, "The Board thus urges Federal entities to give implementation of SFFAS No. 4 a high priority and take immediate actions to define and structure responsibility segments and develop costing methodologies."

The Federal Financial Management improvement Act, Section 803(a) states,"Each agency shall implement and maintain financial management systems that comply substantially with Federal financial management system requirements [OMB Circular Nos. A-127 A-130 and Joint Financial Management Improvement Program (JFMIP) requirements], applicable ,

Federal accounting standards [ Statements on Federal Financial Accounting Standards issued by FASAB], and the United States Government Standard General Ledger (SGL) at the transaction level." [ Criteria clarifications provided in brackets].

Cost accounting standards and concepts, as described in SFFAS No. 4, are designed to complement the financial accounting practices already in place at NRC. Managerial cost accounting focuses on the information needs of agency managers in order to support agency functions for planning, controlling costs, decision making and evaluating perfor-mance. Cost accounting is the process for tracing various input costs (i.e. direct labor, contract and indirect costs) to the outputs and outcomes realized by the agency. Implemen-tation of cost accounting techniques and practices is essential to an agency's ability to <

prepare cost performance evaluations under the Government Performance and Results Act (GPRA)in fiscal year 1999, in fiscal year 1998, the agency continued to use obligation data for decision making and assessment of the adequacy of managers' use of federal resources. A report detailing the allowance holders oblig ud, unobligated and liquidated amounts is produced monthly to enable managers to understand how they performed throughout the most current month end and year-to-date against their respective financial operating plans. During fiscal year 1998, cost finding techniques, studies or other methodologies were not used to provide agency managers routine, reliable and timely information on the full costs of NRC programs, activities or functions. Management did, however, employ cost finding techniques and allocation methodologies at year end to compile the data needed to prepare the current year's Statement of Net Cost.

(continued on page 40) 6 4 199M ACroONTAHII,ITY REPORT /-

Audit ofIT I990 Financial Statement (continued)

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During fiscal year 1998, NRC began a process for replacing its core financial management system. Implementation of the core system is planned for late fiscal year 1999. A cost accounting module is contemplated for the new core system (STARFIRE) as an integral part c,f the NRC's overall financial management system. At the end of fiscal year 1998, the agency contracted for services to begin an assessment of the needs of agency managers for cost accounting information.

Recommendation The Chief Financial Officer (CFO) should assess the immediate needs of NRC managers to receive reliable and routine cost accounting information in light of performance and results mandates included in GPRA. Additionally, the CFO in preparing a remediation l plan should develop a strategy, including milestones, to incorporate cost management standards and concepts throughout the agency. The plan developed could serve to identify, develop and implement those metrics that managers need now in order to best manage f resources and assess performance against the agency's strategic and performance plans.

CFO's Comments i '

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" Implementation of managerial cost accounting has been incorporated into a larger agency

! initiative ofimplementing an integrated, agency wide resource management system, j STARFIRE. STARFIRE will include cost accounting and labor-cost distribution modules l L which will provide necessary tools for reporting costs and implementing cost accounting.

[ Corrective action concerning the implementation of managerial cost accounting will be f addressed in the remediation plan required by FFMIA. OCFO expects to complete this I

plan by July 1,1999. An agency manager responsible for implementation will be an-nounced at that time."  !

Auditors' Position We disagree with the CFO's position that "...the lack of managerial costs accounting i system did not have a material impact on the NRC's ability to perform its mission and to {

provide managers with the financial information they needed to manage.. " The approach i taken by the CFO precludes agency managers from having the tools to make informed decisions on the usage of resources and improvements needed to gain operating economies and efficiencies. NRC is a service organization, funded by its regulated community, that provides rulemaking, regulatory licensing, and inspection services. Therefore, it is essential that NRC management recognize the importance of " Reliable and timely costs information that helps them ensure that resources are spent to achieve expected results and outputs, and alerts them to waste and inefficiency..." [ Cited excerpt from SFFAS No. 4, Paragraph 19]

The underlying premise stated by the FASAB in its concepts and standards is that m f' ancial ,

managers should develop processes and systems to provide routine, reliable information to all managers. The NRC has not made significant progress in identifying the needs of '

managers, nor discussing what should be tracked and measured, nor what metrics will be I

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used for measuring costs. Therefore, it seems premature for the CFO tojudge implementa- 1 tion of this standard [SFFAS No. 4] as not having "...a material impact on the NRC's ability ,  !

to perform its mission..." as indicated in his response. We firmly believe the lack of agency j wide cost information or costs finding techniques to support agency managers' needs, j causes the NRC to lose step with mandated financial management improvements for fed- .,

eral agencies. Additionally, we reiterate that the lack of cost accounting infonnation -)

i undermines the agency's ability to demonstrate its readiness to fully comply with the requirements of GPRA in FY 1999.

However, we commend the CFO's STARFIRE initiative since it may provide the founda- j tion to develop cost accounting and labor cost distribution. The CFO should assure that the <

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new system has the flexibility to incorporate those metrics which will be necessary to 1 provide managers routine, relevant and reliable data in future years. The remediation plan ]

provided by the CFO should include the milestones planned for implementing the new system and the related modules, along with a discussion of the strategy that will be used to define the needs of managers and the capacity of the new system to be responsive to such j needs. During a subsequent audit, OIG will assess the adequacy of the agency's actions.

]

B. Financial Reporting j OMB Bulletin No. 97-01, Form and Content ofAgency Financial Statements, provides guidance to federal agencies for preparing the principal statements. Consistent with the  ;

requirements of the Government Performance and Results Act (GPRA) of 1993, the l bulletin requires agencies to prepare the Statement of Net Cost using programs that fully  ;

align to the agency's strategic, budget and annual performance plan. During fiscal year 1998, NRC did not have fully aligned strategic, budget and performance plans. OMB Bulletin No. 97-01, states on page 26, Instructions for the Preparation of the Statement of Net Cost, " Preparers...should decide the exact classification of... major programs based on the missions and outputs described in its GPRA strategic and annual plans, the entity's budget structure...." ,

NRC management understood that the requirement for having the three plans fully aligned  ;

would come into effect for fiscal year 1999, in accordance with the GPRA. The guidance in l OMB Bulletin No. 97-01, was not considered, by NRC management, sufficiently clear to  !

I move the requirement for full alignment of the plans into fiscal year 1998. Therefore, the agency executed and classified transactions along budget plan programs without consider-ation for mission based programs which more closely align with the strategic plan and/or with the planned resource usage described in the annual performance plan.

For example, the budget plan was developed using five programs; the fiscal year 1998 initial strategic plan had seven programs; a subsequent proposed strategic plan had four programs; and the perfonnance plan had eight programs. This lack of congruity between plans made it challenging for the agency to use one streamlined approach for planning, executing and reporting transactions.

(continued on page D) b IW8 Acco0NTAlui.ITY REPORT h

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Audit of FY I990 Financial Statement (continued)

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The Statement of Net Cost, for the current year, was prepared using the budget plan pro- l grams. Recorded transactions and other financial information available dictated using this approach. Additionally, using a variety of cost finding techniques (e.g. surveys, alloca-tions, data mapping) at year end, the agency assigned two budgetary programs--manage-ment and suppon and inspector general--to the remaining three budgetary programs. The allocations facilitated the agency's development of costs by budget plan program included on the Statement of Net Cost.

Recommendation The Chief Financial Officer should assure that the budget, strategic and performance plans are fully aligned. Employing such a concept would present one cohesive philosophy for agency managers to plan, record, process, and summarize financial activities; thus, en-abling managers to evaluate their performance against financial operating plans, strategic goals and perfonnance plans.

CFO's Comments "The NRC's structure for budgeting and strategic and perfonnance planning have been in an evolutionary development phase over the past 2 years as the agency has been transitioning to full alignment as required by GPRA for FY 1999. While the agency was in this transition period, it was not possible to implement the guidance in the Office of Man-agement and Budget Bulletin No. 97-01, which required the full alignment of budget, strategic plan, and performance plan earlier than required by GPRA. As planned for FY 1999, NRC has fully aligned its budget, strategic plan, and performance plan. The Budget ,

Estimates and Performance Plan - Fiscal Year 2000 contains the budget and performance l plan structure that the agency is executing for FY 1999 which is aligned with the current ]

working draft of the strategic plan."

]

Auditors' Position While we commend the CFO for moving forward with his planned action to align the agency's budget, strategic and performance plans, we re-emphasize the need to incorporate I the results ofits plan into the financial reporting model that will be used for the FY 1999 I financial statements. During a subsequent audit, OIG will assess the adequacy of management's actions. j C. CISSCO Obligations The Information Technology Management Reform Act of 1996 provided authority to OMB to designate an agency (General Services Administration (GSA) was selected) to procure government-wide contracts which other federal agencies could use. The NRC, through a Basic Agreement (BA) with GSA, gained access to the services of an information technol-ogy (IT) contractor. The NRC program used for IT services is known as the Comprehen-sive Information System Support Contract (ClSSCO).

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Management Directive 4.2, Financial Management Administrative Ccmtrol of Fimds, Part IV, states, "The NRC's funds control system is based on complementary and integrated fiduciary responsibilities for both the Chief Financial Officer (CFO) and the NRC officials who receive allowances of agency funds. OCFO is responsible for maintaining the NRC accounting system that contains the official balances of funds ... committed, obligated and paid. NRC allowance holders are responsible for internal records and controls in their organizational units." Part VI further states,"An ' obligation of funds'is an action that creates a liability or definite promise on the part of the Government to make payment a, .

some later date.... Obligations must be supported by appropriate documentation, such as written binding agreements.. " q NRC did not follow established fund control policy and issued obligations to GSA without recording them in the NRC's general ledger system. Additionally, fund controls were set )

at the job code level, thereby precluding effective management control at the lowest fune-tional level. The lowest functional level in the CISSCO program is known as a Task As-signment Control (TAC). Examples follow: i Representations to GSA The CISSCO program used by NRC, within the Office of the Chief Information Officer (OCIO), included providing GSA Basic Agreement Amendments (BAA). These docu-ments amended, as necessary, the obligation ceiling of the agreement. Internally, however,

.NRC considered the BAA a commitment. Although the documents provided to GSA stated that an obligation was being provided, no corresponding obligations were recorded in the Federal Financial System (FFS). Based on these documents, GSA directed their contractor to provide cost estimates and/or other services. This practice put the NRC at risk ofincur-ring expenses without a valid obligation.

Funds Control During fiscal year 1998 the OCFO reconciled obligations and costs and reclassified trans-actions from job codes to TAC numbers in order to gain accounting control over the pro-  !

gram at the lowest functional level. While performing the reconciliation, OCFO identified the following funds control conditions in 30 of the 43 job codes reviewed with fiscal year 1996 and 1997 obligations:

Percent of -

Condition Encountered No. of - TotalJob Job Codes Nos. Amount of Variance Obligations by job number which 18 41.8% $ 1,187,404 exceeded the related TACs Obligations by job number which 12 28.0 % $ (1,275,525) underfunded the related TACs Icontinued on page 44) h u a

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1998 Accot3TAnil.ITv REPORI LD-l l

Audit ofIT 1998 Financial Staternent (continued)

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Approximately 70r7e of the job codes included in the CISSCO reconciliation were either over or underobligated. However, the exceptions identified do not rise to an antideficiency exception since the appropriations, allotments and allowances in total for the agency were not exceeded.

For example, one job code (J 1075) required approximately $238,000 in fiscal year 1998 )

funds to cover $480,000 that was overexpended. The $242,000 balance was made up by fiscal year 1996 and 1997 job codes that had excess obligations.

The Office of the Inspector General has an audit of the CISSCO program underway, which will assess the adequacy of funds control.

Recommendation The Chief Financial Officer (CFO) should reaffirm to senior managers that funds control policies are critical elements for managing agency resources. At a mini. mum all appropri-ate obligating documents should be provided to OCFO for recording obligations.

The CFO should ensure that new programs managed by the agency conform to established funds control practices embodied in the agency's respective management directives.

Furthermore, the CFO should clarify to senior managers agency policy for making funds control representations to other agencies. At a minimum, the information provided exter-nally should be consistent with the official transactions recorded to the agency's accounting records. l CFO's Comments "The agency's administrative control of funds policies and procedures are depicted in Management Directive and Handbook 4.2, Administrative Control of Fimds. In addition, /

senior managers responsible for funds management are required to take two NRC devel-oped training courses (1) Introduction to Federal Financial Management which reviews the l concepts, processes, and procedures for Federal financial management and (2) Administra-tive Control of Funds w hich covers the NRC's system of administrative control of funds that is defined in Management Directive and Handbook 4.2. However, the OCFO will reaffirm to senior managers the agency's funds control policies and the necessity to provide  !

to OCFO all appropriate obligating documents. Corrective action in the form of a memo- {

randum to allowance financial managers is expected to be completed by April 1,1999." i l

7 "The OCFO will ensure that new programs managed by the agency conform to established agency funds control guidance by requiring the program manager of the new activity to attend the two .NRC training courses, Introduction to Federa! Financial Management and i Administrative Control [of] Funds. Allowance financial managers will be advised of this new requirement by memorandum by April 1,1999."

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1 "OCFO will clarify with senior managers the agency policy for making fund control repre- j sentations to other agencies. Corrective action in the form of a memorandum to allowance I financial managers is expected to be completed by April 1,1999. In addition, future ses-sions of the Administrative Control of Funds training course will address this issue."

Auditors' Position  ;

The actions described by the CFO should raise the awareness of agency personnel over the importance of funds control. During a subsequent audit, OIG will assess the improve-ments made by the agency.

D. Revenue from Reimbursable Agreements Reimbursable agreements are a component of exchange revenue included in the Statement of Net Cost. These agreements are between NRC and other federal agencies, licensees and foreign governments. The services performed include inspections, research, and serving as a conduit for obtaining criminal and background checks on behalf of licensees.

Statement of Federal Financial Accounting Standards (SFFAS) No. 7, Accmmtingfor Revenue an l Other Financing Sources, and Conceptsfor Reconciling Budgetary and Financial / -ounting, provides the standards to account for inflows of resources from revenues other financing sources. SFFAS No. 7, states in paragraph 34, " Revenue from excha..ge transactions should be recognized when goods or services are provided to the public or another Government entity at a price." In other words, on the accrual basis of accounting.

The revenue from reimbursable agreements was not consistently recorded using accrual based revenue recognition principles. In some cases, revenue was recorded as contract support expenses were paid. In other cases, such as agreements with DOE, revenue was recorded as NRC employees performed services on the related projects, which is appropri-ate. Additionally, revenue from the foreign cooperative research program was recorded as research expenses were paid. Generally, revenue was recognized at the time when the 1 related expenses were paid, on the cash basis of accounting. Examples of the revenue j recognition practices follow: 'j 1

Cooperative Agreements In fiscal year 1998, revenue related to the foreign cooperative agreements was originally recorded as $3.5 million based on payments made to DOE laboratories and other contrac-tors for research. At year-end, the balance sheet reflected advances of $2.7 million consist-ing of payments received in prior years and not applied to research costs. However, this treatment was not appropriate because there is no connection, using accrual based revenue recognition principles, between incurring research expenses and earning revenue.

(continued on page 16) r z

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( , R. Navarro & Associates, Inc.

" The revenue from cooperative agreements should have been recognized based on the annual contributions specified in the agreements, net of an allowance for uncollectible amounts. .As a result, we proposed a prior period adjustment of $3.9 million to adjust fiscal year 1998 revenue and to reclassify contributions recorded as advances in prior years.

- Other Reimbursable Agreements The exchange revenue from other agreements, such as the criminal history and information programs was also improperly recognized. Revenue was recorded as payments to the FBI,

OPM and other contractors were made rather than as the services were provided. Also, the surcharges imposed by NRC to recover administrative costs were recorded when payments were made to the contractor rather than when the background checks were completed.

.) .

l Recommendation a The Chief Financial Officer should implement procedures to ensure that revenue from reimbursable agreements is reflected on the principal statements on the accrual basis of accounting.

CFO's Comments "OCFO will perform an analysis ofits reimbursable work and revenue recognition and establish the necessary procedures to ensure that revenue is appropriately recognized on the financial statements. Corrective action will be implemented by June 1,1999."

Auditors' Position The actions described by CFO appear appropriate. During a subsequent audit, OIG will assess the adequacy of actions taken.

Status of Prior Year Comments t

Segregation of Duties - FFS In the prior year, we found that employees holding " lead accountant" profiles and prepar-ing reconciliations were performing incompatible functions in their normal duties. In his response, the CFO indicated that compensating controls would be instituted by requiring additional supervisory review and certification of data reconciliations performed by lead accountants. The described controls were implemented. This condition is resolved and

, closed.

3 Assurance on Performance Measures With respect to internal controls related to performance measures, the Office of the Inspector General performed those procedures and will report this issue separately. Our procedures were

not designed to provide assurance over reported performance measures, and, accordingly, we do not provide an opinion on such information.

I

',I.

e.,___ __

r 9 L

I- e

R. Navarro & Associates, Inc.

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS V We conducted our audit in accordance with: generally accepted auditing standards; the standards applicable to financial audits contained in Govermnent Auditing Standards, issued by the Comp-troller General of the United States; and, OfDee of Management and Budget (OMB) Bulletin No.

98-08, A udit Requirementsfor Federal Financial Statements.

NRC management is responsible for complying with laws and regulations applicable to the agency. As part of obtaining reasonable assurance about whether the agency's financial state-  ;

ments are free of material misstatement, we performed tests ofits compliance with certain provisions oflaws and regulations. Noncompliance with these provisions could have a direct and material effect on the determination of financial statement amounts and certain other laws and regulations specified in OMB Bulletin No. 98-08, and the Federal Financial Management Im- g provement Act (FFMIA) of 1996. Providing an opinion on compliance witii certain provisions of ,

laws and regulations was not an objective of our audit and, accordingly, we do not express such an opinion.

( ~'

The results of our tests of compliance with the laws and regulations described in the preceding paragraph exclusive of FFMIA, disclosed instances of noncompliance with the following laws and regulations that are required to be reported under Govermnent Auditing Standants and OMB Bulletin No. 98-08, are described below.

Current Year Comment - Non-FFMIA Part 170 Hourly Rates The Omnibus Budget Reconciliation Act (OBRA) of 1990 requires the NRC to recover approxi-mately 100% ofits budget authority by assessing fees. Accordingly, NRC assesses two types of fees to its licensees and applicants. One type, specified in 10 CFR Part 171, consists of annual fees assessed to power reactors, materials and other licensees. The other type, specified in 10 CFR Part 170 and authorized by the Independent Offices Appropriation Act (IOAA) of 1952, is assessed to specine licensing actions, inspections and other services provided to licensees and applicants.

The IOAA in 31 U.S.C. Section 9701(b) states "...each charge shall be (I) fair and (2) based on (A) the costs to the Government.. " OMB Circular A-25, User Charges, provides guidance for assessing fees under the IOAA. Circular A-25 states in paragraph 6(a)(2)(a), "... user charges will be sufficient to recover the full cost to the Federal Government of providing the service, resource, or good when the Government is acting in its capacity as sovereign..." and paragraph (6)(d)(1) states,"... full cost includes all direct and indirect costs to any part of the Federal Government of providing a good, resource, or service."

Each year, the Office of the Chief Financial Officer (OCFO) computes the hourly rates used to charge for the time incurred by NRC personnel in providing Part 170 services. The rates are (continued on page JM)

IWM ACCoUNTAHu. fry REPORT bD-)

LJ

h  ;

Audit of FY 1999 Financial Statement (continued) l R. Navarro & Associates, Inc.

based on budgetary data and are used to price individually identifiable Part 170 services. The following table displays the basis for the fiscal year 1998 hourly rates.

Components of Part 170 Hourly Rates .  ! Reastors . Materials Direct salaries and benefits - program offices $ 103.9 $20.5 Overhead salaries, benefits and support costs - program offices 55.3 14.8 Alkeated indirect management and support costs JDL2 _2221 Total budgeted program costs (in $000s) 260.9 57.3 Divided by direct program FTEs 1,186.4 267.3 Costs by FTE $219,900 $214,400 Divided by productive annual hours 1,776 1,776 Part 170 hourly rates - effective 08/10/98 The fiscal year 1998 rates were not developed in accordance with applicable laws and regula-tions because they are not based on the full cost of providing Part 170 services. For example, the calculations did not include certain contract support costs of approximately $70 million, net of contract support costs directly billable to licensees and applicants. The excluded contract support costs, $70 million, primarily consisted of research projects. The $70 million represents approxi-mately 15% of the fiscal year 1998 NRC appropriation of $472.8 million.

The contract support costs were excluded because, based on the OBRA conference agreement, the OCFO classified these costs as " generic activities" that benefit licensees generally. Thus, NRC recovered these costs through the Part 171 annual fees.

Recommendation l

The Chief Financial Officer should initiate an analysis of all contract support costs that were classified as " generic activities" and were excluded from the rate. The analysis should seek to determine the portion of those costs that benefit specific classes of licensees (i.e. power reactor l or materials) and should, therefore, be included in the computation of Part 170 hourly rates. l CFO's Comments "While OCFO believes its development of the license fee rates is compliant with applicable laws and regulations, it will initiate a study to analyze those activities currently characterized as

" generic activities" for license fee development purposes. A multi-office team will be estab-lished by May 1,1999, to conduct a study to determine whether the costs currently identified as  !

" generic" continue to meet the definition contained in the Conference Report to the Omnibus Budget Reconciliation Act. The results of this analysis will be incorporated in the development of the FY 2000 fee rule."

4 U.s. NUClf3 R RIMllATORv CO\l%llSslON

_ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ . s

1

!4 i

R. Navarro & Associates, Inc.

Auditors' Position On the first page of his comments, the CFO indicated disagreement with this condition. The j condition remains as initially stated. j o

Our review disclosed that in response to OBRA 1990, the agency developed the methodology used for the current Part 170 fee structure. That methodology, among other things, had exclu-sions consistent with the Conference Report, such as generic, OlG and Commission costs. Since I that time NRC has studied and included in the rate previously excluded costs, thus moving away from the initial interpretation adopted in the Conference Report. However, no initiatives have been undertaken to study the agency's practice for blankel exclusion of generic costs from the rate. Our point is that a complete review of the pricing policy is necessary to assess whether the costs included assure compliance with the full costs provisions of OMB A-25. Generic costs, like any other cost, may impact the computation of a full cost rate and enable NRC to define a more compliant methodology than the blanket exclusion practice currently in place.

We believe that the steps described by the CFO relating to the multi-office team to study this policy will enhance the agency's pricing practices. During a subsequent audit, OIG will assess

{'

the adequacy of the actions taken. Presently the OIG has a review of this process underway. ,

Current Year Comments - FFMIA i Under FFMIA, we are required to report whether the agency's financial management systems substantially comply with the Federal financial management systems requirements, Federal accounting standards, and the United States Government Standard General Ledger at the transac-tion level. l To meet this requirement, we performed tests of compliance using the implementation guidance for FFMIA included in Appendix D of OMB Bulletin No. 98-08.The results of our tests dis-closed instances, described below, where the agency's financial management systems did not substantially comply with the three requirements discussed in the preceding paragraph.

A. Managerial Cost Accounting i

Refer to the Report on Atanagement's Assertion About the Effectiveness ofInternal Control, Comment A, Afanagerial Cost Accounting,for a detailed discussion of the condition, reconunendation. This condition was considered a material weakness and a Federal Financial Afanagement Improvement Act substantial non-compliance.

H. Accounts Receivable Classifications The agency's billing system is dependent on a series of interfaces to assure that information maintained in subsidiary data bases and systems is properly recorded at the transaction level and uploaded to the general ledger (FFS). We noted that information being uploaded for posting to the general ledger was not properly classified, thereby precluding the core accounting system from properly capturing, at the transaction level, information to support (continued on page 50)

( 7, ,

(

1998 AccoCNTABn.ITY REPORT

G m J

Audit ofIT 1999 Financial Statement (continued) the intragovernmental and public infonnation necessary to prepare the balance sheet at September 30,1998.

Section 803(a) of the Federal Financial Management Improvement Act (FFMIA), states, "Each agency shall implement and maintain financial management systems that comply c substantially with Federal financial management system requirements [OMB Circular A-127, A-130 and Joint Federal Management Improvement Program (JFMIP) requirements),

applicable Federal accounting standards [ Statements on Federal Financial Accounting i Standards issued by FASAB], and the United States Government Standard General Ledger (SGL) at the transaction level." [ Criteria clarifications provided in brackets].

At our request, the Office of the Chief Financial Officer personnel performed an assess-ment of transaction level classifications and found a technical error in the interface's " file transfer protocols." Apparently when data interfaced with the general ledger, the program i protocol which triggers the system to set the correct classification from the data files was inoperable. The amounts on the balance sheet, however, have been adjusted to reflect the  !

proper financial line item classifications.

The lack of edits to detect errors in the data transfer protocols and the lack of proper transaction level review of the resulting uploaded data results in a substantial noncompli-ance as it relates to both the financial management system requirements under JFMIP and the U.S. Standard General Ledger at the transaction level.

Recommendation The Chief Financial Officer should pursue technical enhancements to the file transfer protocols that are in place. The enhancements should be tested to ensure that the change j made properly addresses the file transfer protocols between the subsidiary transactions and information uploaded to the core accounting system.

CFO's Comments "The technical enhancements to the file transfer protocols have been completed and are in the process of being tested. We expect the enhancements to be implemented and operational by April 1,1999; therefore, a remediation plan will not be developed for this finding."

Auditors' Position I We commend the CFO for the interim steps taken since the issue was brought to his atten-tion. Additionally, we concur that if resolution of the condition is reached prior to the development of the July 1,1999 remediation plan, that this item should not be included.

During a subsequent audit, OIG will assess the adequacy of the actions taken.

Prior Year Status - FFMIA Business Continuity During the prior year, our assessment of NRC's management control program included a review of the agency's business continuity practices for major financial management i

4, l .N U.s. NOCI. EAR NEGUI.AToRv cO\t%IISSloN M

systems. The major systems identified included (1) the core general ledger - Federal t J

Financial System (FFS) operated by Treasury's Financial Management Service (FMS), (2) accounts receivable, and (3) the payroll system.

I The remediation plan, dated June 1,1998, prepared by the CFO described the strategy to design a solution and provided a timetable for resolving the substantial non-compliance.

The plan was reviewed and accepted by the Office of the Inspector General and has been i acted upon by NRC management as follows:  !

1. General Ledger - FFS: NRC contacted the Treasury's Financial Management Service (FMS) expressing concern about the lack of a plan that is fully tested and restated that the responsibility for maintaining and testing the plan rests with FMS and not NRC. g. ,

FMS replied that action was being taken, however, the reasonable assurance letter issued to NRC by FMS at September 30,1998, indicated that little to no progress has been made on this issue. The substantial non-compliance remains unresolved. NRC I is dependent on FMS to resolve this condition.  !-

CFO's Comments  ;

"NRC is dependent on Treasury's Financial Management Service to resolve this U condition. We do not expect, however, for Treasury to complete corrective action ,

before FFS is replaced by NRC's new agency wide resource management system, 4  :

STARFIRE, within the next 6 months." i Auditors' Position i None.

2. Fee Systems: The strategy developed in the remediation plan for this system has not l

been implemented. In December 1998, NRC accepted a technical proposal from a contractor to develop and test a continuity plan for the fee systems. On January 29, 1999, the contractor delivered a work plan that describes the work to be performed, the milestones and the deliverables. The substantial non-compliance remains unre-solved.

CFO's Comments "While implementation of corrective action for this system has been delayed, it is expected that a fully tested business continuity plan will be in place by April 1,1999."

Auditors' Position During a subsequent review OlG will assess corrective actions taken to resolve this condition.

3. Payroll System: During the prior audit, we recognized that NRC had an outdated business continuity plan for the Automated Payroll System. We reported that man-agement planned to move to a new payroll synem effective April 1998 (PAY /PERS)

(camtinued em page $2) r

[51

_ _ mm,.m m . #

W

' Ng)4 J Audit of FY 1998 Financial Statement (continued) -

- @h . and that business continuity efforts should address the new system. PAY /PERS did

1. d'

- not become the system of record during fiscal year 1998, therefore, management s devoted resources to developing a contingency plan for the Automated Payroll Sys-

" 3; tem. Since a plan was developed and the Automated Payroll System is no longer the d . system of record, the substantial non-compliance is resolved and closed.

M-A Consistency of Other Information

, W

@ NRC's overview of program performance goals and results, and other supplemental financial and 4 management information contain a wide range of data, some of which is not directly related to the d . principal statements. We do not express an opinion on this information. We have, however, com-pared this information for consistency with the principal statements and discussed the measurement {

- j@d '.

and presentation methods with NRC management. Based on this limited effort, we found no material inconsistencies with the principal statements or noncompliance with OMB guidance.

W DQ Objectives, Scope and Methodology a

i NRC management is responsible for (1) preparing the principal statements in confonnity with the basis of accounting described in Note I to the Notes to Principal Statements,(2) establishing, j!! maintaining, and assessing internal controls to provide reasonable assurance that FMFIA's broad d control objectives are met, and (3) complying with applicable laws and regulations including the

. . d, requirements referred to in FFMIA.

p ,

I j We are responsible for expressmg an opmion on whether (1) the principal statements are free of d material misstatement and presented fairly, in all material respects, in conformity with the basis I y of accounting described in Note I to the principal statements, and (2) for obtaining reasonable assurance about whether management's assertion about the effectiveness of internal control is

' J j; fairly stated, in all material respects, based upon criteria established by FMFIA and OMB Circu-lar A-123, Management Accountability and Control. As of the date of our report, NRC manage-ment had completed its evaluation of financial controls.

We are also responsible for testing compliance with selected provisions of laws and regulations and for performing limited procedures with respect to certain other information in the principal j statements. In order to fulfill these responsibilities, we:

y a examined, on a test basis, evidence supporting the amounts and disclosures made in the 2 I principal statements;

'a 3

• assessed the accounting principles used and significant estimates made by management; 3

j

• evaluated the overall presentation of the principal statements; i

obtained an understanding ofinternal controls related to safeguarding of assets, compli-j ance with laws and regulations including execution of transactions in accordance with budget authority and financial reporting, in the principal statements;

@d'

'

• assessed control risk and tested relevant internal controls over safeguarding of assets, j compliance, and financial reporting, and evaluated management's assertion about the j effectiveness ofinternal control; g

l

i 4" , I s U.S. Nt' CLEAR REGilLAToRv co%INIISSloN m

j U -_ ______- . .

p j

q

= tested compliance with selected provisions of the following laws and regulations: Anti- ;d '

Deficiency Act (Title 31 U.S.C.), National Defense Appropriation Act (PL 101-510), ,

Omnibus Budget Reconciliation Act of 1990 (PL 101-508), Debt Collection Act of 1982 ,

(PL 97-365), Prompt Pay Act (PL 97-177), Civil Service Retirement Act of 1930, Civil b Service Reform Act (PL 97-454), Federal Managers' Fir.ancial Integrity Act (PL 97-255),

Chief Financial Officers' Act (PL 101-576), Budget and Accounting Act, Federal Finan-cial Management Improvement Act (PL 104-208); and, .

-J reviewed compliance and reported in accordance with FFMIA whether the agency's ,

financial management systems substantially comply with the Federal financial manage-ment system requirements, applicable accounting standards and the U.S. Standard Gen-eral Ledger at the transaction level.

We did not evaluate all internal controls relevant to operating objectives as broadly as defined in FMFI A, such as those controls for preparing statistical reports and those for ensuring efficient h ;l and effective operations. We limited our internal control tests to those controls necessary to 'H achieve the objectives described in our opinion on management's assertion about the effective-ness ofinternal controls. We performed our work in accordance with generally accepted auditing i standards, Government Auditing Standards and OMB Bulletin No. 98-08, Audit Requirementsfor {}

FederalFinancialStatements. ' ;j c q Agency Comments i On February 25,1999, the CFO responded to the Inspector General on our draft report and -)

addressed the recommendations noted in the report. However, the CFO did not provide specific ( i remedial actions for the FFMIA exceptions noted in the report. The CFO indicated that a j

[remediation) plan will be prepared by July 1,1999. Comment B, Accounts Receivable Classifi- , I cations, an FFMIA condition, will not be included in the remediation plan since the CFO expects , .

to have this condition resolved by April 1,1999. Based on our review of the CFO's comments, / u we are satisfied that the actions described meet the intent of our recommendations and FFMIA q guidelines. The CFO's comments are appended to this report in their entirety. E i

Under separate cover, comments will be provided to NRC management outlining opportunities  ?: '

for strengthening internal control and operating efficiency. We appreciate NRC staff cooperation >

and continued interest in improving financial management within the agency.

]

This report is intended for the management of the U.S. Nuclear Regulatory Commission, j OMB, Congress and the NRC Office of the Inspector General (OIG). This restriction is not intended to limit the distribution of this report, which upon acceptance by the OIG, is a matter of public record. 7

,h ho[hM '

i February 5,1999 h

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1998 ACCOUNTAHILITY RENmT ID-

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PRINCIPAL STATEMENTS  ;

FOR FISCAL YEAR 1998  !'

U. S. NUCLEAR . REGULATORY COMMISSION ;3 i

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IIALANCE SilEET i

As of September 30,1998 '

j (in dollars) -

l ASSETS

_,,_.,~m-,,,

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j Intragovernmental assets: c ;j Fund balances with Treasury (Note 2) $165,219,307 l

Accounts receivable, net (Note 4) 1,993,974 Advances and prepayments (Note 5) 2.091.378 Total intragovernmental assets 169,304,659 gy Cash (Note 3) 50,000 t Accounts receivable, net (Note 4) 26,324,300 '

Advances and prepayments (Note 5) 218,772  ; ;. i Property and equipment, net (Note 6) 39.432.602  ; .

1 Total Entity Assets 235.330.333 -

J J

k b -d Accounts receivable, net (Note 4) 36.606 pl

-l Total Non Entity Assets 36.606 - H r

TOTAL ASSETS $235.366.939 L a

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(continued on page 58)

The accompanying notes to the principal statements i are an integral part of this statement.

Li 1998 ACCoUNTABil.ITY REPORT bDd ..

Audit of FY l998 Financial Staternent (continued)

IIALANCE SIIEET (Continued)

As of September 30,1998 (in dollars)

LIABILITIES

........-Liabilities l Covered by Budgetary Resources:

Intragovernmentalliabilities:

Accounts payable and advances (Note 7) $ 11,715,665 Accrued benefits (Note 8) 2,094,961 Other intragovernmental liabilities (Note 9) 31.983.981 Total intragovernmental liabilities 45,794,607 Accounts payable (Note 7) 17.968,182 Otherliabilities (Note 9) 1,769,829 Accrued payroll and benefits (Note 8) 11.614.850 Total Liabilities Covered by Budgetary Resources 77.147.468 LLiabilities Not Covered by Budgetary Resources: .

Intragovernmentalliabilities:

Otherintragovernmentalliabilities (Note 10) 6,404,812 j Otherliabilities (Note 10) 26.049.638

~

Total Liabilities Not Covered by Budgetary Resources 32.454.450 L

TOTAL LIABILITIES 109.601.918 NET POSITION Unexpended appropriations (Note 12) 116.022,952 i Cumulative results of operations (Note 13) 9.742.069

i. TOTAL NET POSITION 125.765.021 Total Liabilities and Net Position $235.366.939 The accompanying notes to the principal statements are an integral part of this statement.

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STATEMENT OF NET COST For the year ended September 30,1998 (in dollars) f.

FC ta MU Regulatory Program intragovernmental $ 94,919,617

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With the public 259.985.218 Total 354,904,835 Less directly assignable revenue (Note 16) (96.718.258) I;:

f:

M Regulatory Program costs, net of assignable revenue $258,186,577 -

Regulatory Effectiveness Program (.

Intragovernmental 75,606,111  ;

With the public 76.283.200 p Regulatory Effectiventss Program costs 151,889,311

[

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Regulation of DOE Program I- 4 Intragovemmental 714,039 f With the public 3.668.313 1 Regulation of DOE Program costs 4.382.352

[.

Total program costs, net of directly [ -'

assignable earned revenues 414,458,240  :

v

'I '

t Less earned revenues not directly assignable to programs (Note 16) (365.619.349)

....n.,_,......, ,,n.. , gg a Net Cost of Operations a $ 48.838.891 $

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(continued on page 60)

The accompanying notes to the principal statements -

are an integral part of this statement. p p

IMil AcCoONTARILITY REPORT bhI [~

'd7.j Audit of FY I998 Financial Statement (continued) fL:)

[G! STATEMENT OF CIIANGES IN NET POSITION l For the year ended September 30,1998

'ij (in dollars) 39 jy!

[SkDat[ofUhehtbM $ (48,838,891)

-A Financing sources (other than exchange revenues):

. 1;]

1 Appropriations used, net (Note 14) 37,516,139

s Non-exchange revenue (Note 1.B.) 7,015,287 l Imputed financing (Note 15) 17,961,303 Transfers - out (7.015.287)

, :j Total financing sources 55.477.442 JI m

Net results of operations 6,638,551 r Decrease in unexpended appropriations (13.262.129) 1

>j Change in Net Position (6,623,578)

Net Position - Beginning of Period 128,447,809

,{

} Prior-period adjustment (Note 18) 3.940.79_Q

/, Net Position - Restated Beginning of Period 132.388.599 O,

1 Net Position - End of Period $125.765.021 q

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fj The accompanying notes to the principal statements fj are an integral part of this statement.

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l STATEMENT OF llUDGETARY RESOURCES For the year ended September 30,1998

, (in dollars) j i

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[. Budgetary Resourres (Note 19)ij Budget authority $481,125,000 Unobligated balances - beginning of period 29,370,393 1 j

Spending authority from offsetting collections 4,908,396 1 Adjustments (Note 19) 9.895.274 i

i Total Budgetary Resources $525.299.063 J l

y . . ,,. , _ , - _ . , , ,  ;

[ Status of BudgetaryResources: ,  ;

q Obligations incurred $490,118,464 d Unobligated balances - available 35.180.599 Total Status of Hudgetary Resources $525.299.063  :

i

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. 1 Obligations incurred $490,118,464 Less

Spending authority from offsetting l. i collections and adjustments (14.803.670)

Subtotal 475,314,794 Obligated balances, net - beginning of period 145,827,462 Less: obligated balances, net - end of period (124.700.809)

.i' Total Outlays $496.441.447 (continued on page 62)

The accompanying notes to the principal statements are an integral part of this statement.

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-ff0-ff Audit of FY I998 Financial Staternent (continued) lu A Mi STATEMENT OF FINANCING j For the year ended September 30,1998 M. n (in dollars) v.um s sympe, w w-:s w.-~ nom r .cwr w en - rp n u- v- ,-ven c ~. ~w e *.

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m iga _tions and_Noahudge_ tar..y Resources 9;,

Obligations incurred $490,118,464

. Less: Spending authority for offsetting f{ -

q collections and adjustments (14,803,670)

Imputed financing (Note 15) 17,961,303

.j Exchange revenues not in the budget (Note 16) (456.251.634) s ..

l Total Obligations and Nonbudgetary Resources 37.024.463

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o Change in amount of goods, services, and benefits ordered but not yet received or provided 18,452,978 fi' j Costs capitalized on the balance sheet (Note 6) (9,674,767) 1 Financing sources that fund costs of prior periods (4,325,044) 4 Other 1.646.170

. g y; Total Resources That Do Not Fund Net Cost of Operations 6.099.337

.; Costs That Do Not Require Resources i

j Depreciation and amortization 5.571.440

Total Costs That Do Not Require Resources 5.571.440

g. ..

Financing Sources Yet to be Provided 143.651 1

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Net Cost of Operations S 48.838.891 j

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79 The accompanying notes to the principal statements

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are an integral part of this statement.

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i NOTES TO PRINCHML S1ATEMENTS l '

l September 30,1998 l l

i NOTE 1.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES  :

A. Reporting Entity The U. S. Nuclear Regulatory Commission (NRC) is an independent regulatory agency of the Federal Government that was created by the U. S. Congress to regulate the Nation's civilian use of byproduct, source, and special nuclear materials to ensure adequate protec- {

tion of the public health and safety, to promote the common defense and security, and to U l protect the environment. Its purposes are defined by the Energy Reorganization Act of )

1974, as amended, along with the Atomic Energy Act of 1954, as amended, which pro- ,

vide the foundation for regulating the Nation's civilian uses of nuclear materials. -

The NRC has two appropriations:

j 31X0200 - Salaries and Expenses g ,

=

31X0300 - Office of Inspector General

]

y '

The NRC is under budget functional classification 276 - Energy information, policy, and -

regulation and departmental code 31.

The 31X0200 appropriation includes approximately $19 million of funds derived from the Nuclear Waste Fund ($15 million appropriated for Nuclear Waste Policy Act work and

$4 million for licensing a multi-purpose canister design) and $3 million from the General Fund for assistance provided to the U. S. Department of Energy (DOE).

In addition, $8.1 million was available for obligation from appropriations provided by the U. S. Agency for International Development. The transfer was for the Nuclear Safety  : 1 Assistance Program in Russia, Armenia. Kazakhstan and the Ukraine.

The accompanying financial statements of NRC include the accounts of all funds under _

NRC control.

B. Basis ofPresentation '

These principal statements were prepared to report the Gnancial position and results of Lj operations of the NRC as required by the Chief Financial OfDeers Act of 1990 and the '!

Government Management Reform Act of 1994. These financial statements were prepared  ; j from the books and records of the NRC in accordance with the form and content for entity i financial statements specified by the Office of Management and Budget (OMB) in Bulletin j No. 97-0l, Form and Content ofAgency Financial Statements, and NRC accounting i'

(continued on page 64) a y

2****

p Audit ofIT 1996 Financial Statement (continued)

NOTES TO PRINCIPAi 11'A11?MENTS September 30, i M

, policies which are summarized in this note. These statements are, therefore, different from the financial reports, also prepared by the NRC pursuant to OMB directives, which are used to monitor and control NRC's use of budgetary resources.

The principal financial statements are noticeably different from last year's statements.

The Federal Accounting Standards Advisory Board's Statement of Federal Financial Accounting Concepts Number 2, Entity and Display, recommended new principal finan-cial statements. Based on this Concept Statement, OMB Bulletin No. 97-01 now requires the following statements: Statement of Net Cost, Statement of Changes in Net Position, 1 Statement of Budgetary Resources, and the Statement of Financing. The Statement of I Financial Position contained in prior reports has been renamed the Balance Sheet. The NRC has not prepared a Statement of Custodial Activity because the amounts involved are immaterial and are incidental to its operations and mission.

The NRC assesses two types of fees to recoser its budget authority: (1) fees assessed under 10 CFR Part 170 for licensing, inspection, and other services under the authority of the Independent Offices Appropriation Act of 1952 to recover the NRC's costs of provid-ing individually identifiable services to specific applicants and licensees; and (2) annual fees assessed for nuclear facilities and materials licensees under 10 CFR Part 171. All fees, with the exception of civil penalties, are considered exchange revenues in accor-dance with Statement of Federal Financial Accounting Standards Number 7, Accounting ,

for Revenue and Other Financing Sources and Conceptsfor Reconciling Budgetary and Financial Accounting. Non-exchange revenue of $7,015,287 consists of $6,501,603, received from civil penalties, and $513,684 of miscellaneous receipts, which includes interest on delinquent debt, late penalties, Freedom of Information Act fees, and indem-nity fees.

In the Statement of Net Cost, fees assessed under 10 CFR Part 170 are shown as revenues under the Regulatory Program. Fees assessed under 10 CFR Part 171 are shown as revenues not directly assignable to programs. Revenue from reimbursable agreements is included in this statement, as well.

The programs as presented on the Statement of Net Cost were based on the FY 1998 budget structure. Other budget line items, such as Management and Support and the l Office of the Inspector Genercl, were allocated using cost-finding techniques consistent with Statement of Federal Financial Accounting Standards Number 4, Managerial Cost Accounting Concepts and Standardsfor the Federal Govermnent. The NRC's three programs are described as follows:

1. Regulatory Program encompasses all NRC efforts to ensure that the operation of commercial and nonpower nuclear reactor facilities and all NRC-regulated aspects of nuclear fuel cycle facilities; nuclear materials licensing; nuclear waste transport, h.64

- ' O.s. NUCl. EAR REGUIEloRY Co31%IINsloN l.

NOTES TO PRINCH%L STATEMENTS September 30,1998 storage, and disposal; and decommissioning activities are conducted in a manner that provides reasonable assurance of adequate protection of public health and safety, as required by the Atomic Energy Act of 1954 and other relevant laws.

2. Regulatory EITectiveness Program helps ensure adequate protection of the public health and safety, as required by the Atomic Energy Act of 1954, by providing the Commission with the technical bases for regulatory decisions for all regulatory programs.

3. Regulation of DOE Program involves the continued commitment of DOE and NRC to resolve issues of concern to either agency that relate to the regu'ation t of nuclear facilities, projects, and activities in the protection of public health and safety and the environment.

C. Budgets and Budgetary Accounting For the past 24 years, Congress has enacted no-year appropriations which are available for obligation by NRC until expended. The Omnibus Budget Reconciliation Act (OBRA) of 1990, as amended, requires the NRC to recover approximately 100 percent of its new budget authority of $472.8 million, less the amounts derived from the Nuclear Waste Fund of $15 million, by assessing fees. In addition, for FY 1998, Congress appropriated

$3 million from the General Fund. At the end of the fiscal year, NRC's appropriations were reduced by $454.8 million, which is the amount of collections made during the fiscal year.

.1 D. Basis ofAccounting Transactions are recorded on both an accrual accounting basis and on a budgetary basis.

Under the accrual method, revenues are recognized when earned and expenses are recog-nized when a liability is incurred, without regard to receipt or payment of cash. Budget-ary accounting facilitates compliance with legal constraints and control over the use of Federal funds. Interest on borrowings of the U. S. Treasury is not included as a cost to NRC's programs and is not included in the accompanying financial statements E. Revenues and Other Financing Sources Licensing fees and fees for inspections and other services, assessed in accordance with 10 CFR Parts 170 and 171, are recognized as revenue when earned. In accordance with Federal Government accounting guidance, the NRC classifies revenues as either ex-change revenue or non-exchange revenue. Exchange revenues are those that are derived (continued on page 66) 65

_cc_ _r,m,_ w

>3

} Audit of FY l996 Financial Statement (continued)

H

[ NOTES TO PRINCH%L STATEMENTS

^ September 30,1998 j from transactions in which both the Government and the public receive value. These revenues are presented on the Statement of Net Cost and serve to reduce the reported cost of NRC's programs. Non-exchange reveaues are derived from the Government's sover-eign right to demand payment, including fines fo. violation oflaws or regulations. These financing sources do not reduce the cost of NRC's programs and are reported on the l Statement of Changes in Net Position.

t A

}; 3 For accounting purposes, appropriations are recognized as financing sources (appropria-L, tions used) at the time expenses are accrued. At the end of the fiscal year, appropriations y recognized are reduced by the amount of assessed fees collected during the fiscal year to L the extent of new budget authority for the year. Collections which exceed the new budget authority are held to offset subsequent years' appropriations. Appropriations expended j for property and equipment are recognized as expenses when the asset is consumed in j operations (depreciation and amortization). Appropriations used does not include A

(a) expenses incurred but not yet funded by Congress, such as workers' compensation benefits and annual leave expenses; and (b) expenses which are paid by other Federal agencies, such as retirement benefits.

1 F. Funds with the U. S. Treasury and Cash The NRC's cash receipts and disbursements are processed by the U.S. Treasury. The fund balances with the Treasury and cash are primarily appropriated funds that are avail-able to pay current liabilities and to finance authorized purchase commitments. Cash balances held outside the U.S. Treasury are not material.

G. Accounts Receivable, Net ofAllowance The amounts due for receivables, except those due from Federal agencies, are stated net of an allowance for uncollectible accounts. Since receivables from Federal agencies are y expected to be collected, there is no allowance for uncollectible accounts. The estimate

of the allowance is based on an analysis of the outstanding balances and the application 1a of estimated uncollectible percentages to categories of aged receivable balances.

H. Advances and Prepayments The NRC makes cash payments to other Federal agencies, employees, grantees, and j, contractors to provide for future NRC program expenditures. These advance payments

~j are recorded as assets which are reduced when NRC receives reports of expenditures or d when accruals of cost estimates are made.

3:p a

3 4

]

! (I.S. NUCLEAR REGl't.AToRv Co\l\llSSloN y

e

!i' ly f

NOTES TO PRINCIPAL STATEMENTS September 30,1998 L

1. Property and Equipment

[

s 5

Property and equipment consists primarily of typical office furnishings, nuclear reactor -

simulators, and computer hardware and software. The agency has no real property. I e

The land and buildings in which NRC operates are provided by the U. S. General Ser- t vices Administration (GSA), which charges NRC rent that approximates the commercial D rental rates for similar properties.

Property with a cost of $50,000 or more per unit and a useful life of 2 years or more is -

capitalized at cost and depreciated. Other property items are expensed when purchased. L Normal repairs and maintenance are charged to expense as incurred. j

.~J. Accounts Payable and Advances L p

w Accounts payable represent vendor invoices for services received by NRC that will be

paid (liquidated) in the next fiscal year. Advances represent collections received in i advance of performing services under a variety of reimbursable agreements. The services will be provided and the revenue earned in the subsequent fiscal year.

p K. Liabilities Not Covered by Budget Resources Liabilities represent the amount of monies or other resources that are likely to be paid by I NRC as the result of a transaction or event that has already occurred. No liability can be {

paid by NRC absent an appropriation. Liabilities for which an appropriation has not been .

enacted and for which there is no certainty that an appropriation will be enacted are [,

classified as Liabilities Not Covered by Budgetary Resources. Also, NRC liabilities arising from sources other than contracts can be abrogated by the Government acting in re its sovereign capacity. J.

L Contingencies The NRC is a party to various administrative proceedings, legal actions, environmental suits, and claims brought by or against it. Based on the advice oflegal counsel concern-f I:

ing contingencies, it is the opinion of management that the ultimate resolution of these ,

proceedings, actions, suits, and claims will not materially affect the agency's financial position or results of operations, f[

b 6

~1 ;'

(continued on page 68) p.

_____ . . ~

f

,1 Audit of FT I996 Financial Statement (continued)

NOTES TO PRINCHML STATEMENTS

, l September 30,1998 e

b M. Annual, Sick, and Other Leave 1

1 Annual leave is accrued as it is earned and the accrual is reduced as leave is taken. Each t* year, the balance in the accrued annual leave liability account is adjusted to reflect current pay rates.

1

[ Sick leave and other types of nonvested leave are expensed as taken.

L <

V' N. Retirement Plans q

j The NRC employees hired after December 31,1983, are automatically covered by the

Federal Employees' Retirement System (FERS), which was implemented on January 1 1987. Employees hired prior to that date could elect tojoin FERS or to remain in the

$" Civil Service Retirement System (CSRS). Approximately 51 percent of NRC employees P' belong to CSRS and 49 percent belong to FERS. In FY 1998, for employees in FERS, i I

the NRC withheld 0.8 percent of base pay earnings in addition to Federal Insurance b ]' Contribution Act (FICA) withholdings and matched the withholding with an 10.7 percent contribution. The sum was transferred to the Federal Employees Retirement Fund. For

'? employees covered by CSRS, NRC withholds 7 percent of their base pay earnings. This

, withholding is matched by NRC with an 8.51 percent contribution, and the sum of the i withholding and the match is transferred to the CSRS.

On April 1,1987, the Federal government initiated the Thrift Savings Plan (TSP) which is l

a retirement savings and investment plan for employees covered by either FERS or CSRS. For employees covered by FERS, NRC automatically contributes one percent of

% base pay to their account and matches contributions up to an additional four percent. The g maximum percentage that an employee participating in FERS may contribute is 10 L percent of base pay. Employees covered by CSRS may contribute up to five percent of their base pay, but there is no NRC matching of the contribution. The maximum amount that either FERS or CSRS employees may contribute to the plan in a calendar year is p2

$10,000. The sum of the employees' and NRC's contributions is transferred to the Federal t Retirement Thrift Investment Board. )

q The NRC does not report on its financial statements FERS and CSRS assets, accumulated e A plan benents, or unfunded liabilities, if any, applicable to its employees. Reporting such

,y amounts is the responsibility of the U. S. Office of Personnel Management. The portion

of the current and estimated future outlays for CSRS not paid by NRC is included in j NRC's financial statements as an imputed financing source (see Note 15).

c rg, 43 8 n _ _ --

i NOTES TO PRINCH%L STATEMENTS September 30, I998

0. U. S. Department of Energy Charges Financial transactions between the DOE and NRC are fully automated through the U. S.

Treasury's On-Line Payment and Collection (OPAC) System. The OPAC System allows DOE to collect amounts due from NRC directly from NRC's account at the U. S. Trea-sury for goods and/or services rendered. Project manager verification of goods and/or services received is subsequently accomplished through a system-generated voucher approval system. The vouchers are returned to the Office of the Chief Financial Officer documenting that the charges have been accepted. For the year ended September 30, ,

1998, NRC had expenses of approximately $61 million for research conducted by the DOE National Laboratories.

v It Pricing Policy r

The NRC provides goods and services to the public and other Government entities. In <

accordance with OMB Circular No. A-25 and the Independent Offices Appropriation Act b of 1952, NRC assesses fees under 10 CFR Part 170 for licensing and inspection activities to recover the full cost of providing individually identifiable services. In accordance with E the Omnibus Budget Reconciliation Act of 1990, annual fees are assessed to licensees under 10 CFR Part 171 to recover approximately 100 percent of new budget authority, less amounts excluded from fee recovery and those recovered under 10 CFR Part 170.

The NRC's policy is to recover the full cost of goods and services provided to other ,

Government entities where (1) the services performed are not part ofits statutory mission and (2) NRC has not received appropriations for those services. Fees for reimbursable work are assessed at the 10 CFR Part 170 rate with minor exceptions for programs that are nominal activities of the NRC.

Q. Use ofManagement Estimates The preparation of the accompanying financial statements requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabili-ties, revenue, and expenses. Actual results may differ from these estimates. I

!1 (continued on page 70) 1998 AccoONTABILITv REPORT [ .

IM

~

@)

>n Audit of FY 1996 Financial Statement (continued)

M a

L k NOTES TO PRINCIIMI.51ATEh!ENTS j September 30,1998

p

_ NOTE 2. FUND HALANCES WITH THE U. S. TREASURY d Fund balances with the U. S. Treasury consist of the following amounts as of September 30,1998:

y J

>7

' Appropriated funds:

Obligated _ $ 131,051,246

'i Unobligated 28.826.389 i 159,877,635 '

j Other fund types 5.341.672 ,

33 $165.219.307 1 l

1 i nj U. S. Government cash is handled on an overall consolidated basis by the U. S. Treasury. Funds

• 2 _ with Treasury represent NRC's right to draw on the U. S. Treasury for allowable expenditures.

'Q All amounts are available to NRC for current use. The obligated and unobligated balances exclude amounts related to unfilled customer orders.

n NOTE 3. CASH Jj]. n Cash consists of an imprest fund of $50,000 as of September 30,1998.

m y?

o d NOTE 4. ACCOUNTS RECEIVAHLE, NET kj Accounts receivable, net, is composed of the following as of September 30,1998:

ay py Entity Assets

@] Intragovernmental accounts receivable consists primarily of receivables and reimburse-g3 ments due from other Federal agencies which were $1,993,974 at September 30,1998.

O

% < El The non-Federal accounts receivable is comprised of the following amounts as of Sep.

tember 30,1998:

a M

g d Materials and facilities fees - billed $ 6,126,004

'1 Materials and facilities fees - unbilled 21,404,719 wQ Other 136.805 0j Total accounts receivable 27,667,528 7;3 Less: Allowance for uncollectible accounts (1.343.228) hfj Accounts receivable, net $26.324.300 Lg

% Other accounts receivable represent amounts due for fees assessed for licensing and 9 inspections of nuclear facilities, the handling of nuclear materials, and other services.

gj In the year collected, the amounts will be used to offset NRC's appropriations.

.i u

ka ld u _ __ __ __ ___

-4

-j NOTES TO PRINCIPAL STATEMENTS September 30,1998 i

Non Entity Assets Accounts receivable represents miscellaneous penalties and interest due from the public  :

of $36,606 at September 30,1998, which, when collected, must be transferred to the U.S. Treasury.

The NRC's methodology to estimate the allowance for uncollectible accounts is based on an analysis of the outstanding balances and the application of estimated uncollectible percentages to categories of aged receivable balances. .

i NOTE 5. ADVANCES AND PREPAYMENTS Advances and prepayments as of September 30,1998, consist primarily of the following: _

p Intragovernmental:

Advances - other Federal agencies $2.091.378 ,

e

?

Advances and prepayments $ 218.772 t

Advances and prepayments are recorded as assets until receipt of the goods or services involved or until contract terms are met. When goods or services are received or contract terms are met, the advance or prepayment is reduced and the expense or acquired asset is recognized.

NOTE 6. PROPERTY AND EQUIPMENT, NET h..

t-

~

Property and equipment, net, consists of the following as of September 30,1998:

Service Acquisition Accumulated Net Book U

_Ygm Blue Depreciation Value Fixed Assets Cla_s.S E Equipment 5-8 $24,215,428 $(20,148,650) $ 4,066,778 ADP software 5 38,010,869 (34,526,507) 3,484,362 ADP software under development 17,106,701 - 17,106,701 ..

Leasehold improvements 20 19,504,015 (4,777,216) 14,726,799 Leasehold improvements in progress 47.962 -

47.962 Total $98.884.975 $(59.452.373) $39.432.602 Property with a cost of $50,000 or more per unit and a useful life of 2 years or more are capital-ized at cost and depreciated. During FY 1998, the NRC capitalized $9,674,767 in property and equipment.

(continued on page 72) 71

_ _ m,m _ _ veu ,

t

':k ' Audio of ry 1996 Financial statement (continued)

& I NOTES TO PRINCII%L STATEMENTS

{j September 30, I998

,a l

gj The land and buildings occupied by the NRC are provided by GSA. The GSA charged NRC f ij $19,368,097 for the use of these facilities based on a rental fee which approximates the commer-

[] -

cial rates for similar properties.

t h4s j NOTE 7. ACCOUNTS PAYABLE AND ADVANCES 4

b:j} Accounts payable and advances consist of the following as of September 30,1998-l p[> j

[Q Intragovernmental:

Accounts payable I

i Department of Energy $5,632,116 6j Other Federal agencies 6.078.057 3 11,710,173 )

gj' Advances 5.492

$ 11.715.665 t g k c The non-Federal accounts payable include:

y ny Accounts payable  ;

, Vendors payable 15,983,576  !

i Contract holdbacks 1.984.606

$ 17.968.182 I

'gj ~

The vendors payable are all current. Current payables represent amounts which are expected to be paid within the Escal year following the reporting date.

@l NOTE 8. ACCRUED PAYROLL AND llENEFITS P ,

fl Accrued payroll and benefits as of September 30,1998, consists of:

gj h< intragovernmental:

b' L y Accrued benefits S 2.094.961

>3 -3 The non-Federal accrued personnel services include:

Ij Accrued payroll and benefits $11.614.850

- j:)

(1' Accrued payroll and benefits represent wages and benefits which have been earned but not paid as of the financial statement date.

'?h i

?!f 72 g U.S. NUCl. EAR REGl'I,AloRY CoNDilSSloN

'd od Mi - - -- -__. - - - - - _ - - - - - - - - - - - - - - - --__

i i

NOTES TO PRINCll%L STATEMENTS September 30,1998 NOTE 9. OTIIER LIAllILITIES COVERED llY llUDGETARY RESOURCES Other liabilities as of September 30,1998, include:

Intragovernmental:

Liability to offset net accounts receivable for fees assessed $27,764,482 Liability related to fees collected which will offset subsequent years' appropriations 4,182,693 Liability to offset miscellaneous accounts receivable 36.806

$31.983 981 The liability to offset the net accounts receivable for fees assessed represents amounts which, when collected, will be transferred to the U. S. Treasury to offset NRC's appropriations in the year collected. The liability related to fees collected which will be used to offset subsequent years' appropriations represents amounts which will be transferred to the U. S. Treasury to offset subsequent years' appropriations. The liability to offset miscellaneous accounts receivable represents amounts which will be reverted to the U. S. Treasury when collected.

Other liabilities as of September 30,1998, include:

Liability for deposit funds $ 1,111,270 Advances from others 658.559

$ 1.769.829 The liability for deposit funds consists primarily at liabilities arising from payroll deductions and tax withholdings.

All other liabilities except advances from others are current. Current liabilities represent amounts which are expected to be paid within the fiscal year following the reporting date.

Advances from others may not be liquidated in the fiscal year following the reporting date.

1 (ccmtinued on page 74) 1998 AccotNIAnit.ITY REPORT Q[

Audit of FY 1996 Financial Statement (continued) d?:q _

W 2:k NOTES TO PRINCil%L STATEMENTS

% September 30,1998 lh(( j 99 NOTE 10. OTHER LIABILITIES NOT COVERED HY HUDGETARY RESOURCES d Unfunded liabilities as of September 30,1998, include:

1 3-F jj Intragovernmental:

9] Accrued workers' compensation:

Benefits paid $1,609,812 -i j@ : Estimated future benefits 4.795.000 v.d $6.404.812 .

sq l bd Accrued annualleave $26.049.638 l

+3 N j

. Accrued annual leave represents the amount of annual leave earned by NRC employees but not yet i} taken. Accrued workers' compensation includes: (a) FECA benefits paid by the U. S. Department "q 'of Labor (DOL) on NRC's behalf which had not been billed to or paid by NRC as of June 30, j 1998, and (b) an actuarial estimate for future disability benefits. The future workers' compensation g] estimate was generated by DOL from an application of actuarial procedures developed to estimate yg the liability for FECA, which includes the expected liability for death, disability, medical, and gfj miscellaneous costs for approved compensation cases. The liability was calculated using historical

.M benefit payment patterns related to a specific incurred period to predict the ultimate payments Rd Om related to that period. These projected annual benefit payments were discounted to present value. 1 I

Accrued annual leave and accrued workers' compensation are not funded by current or prior years'

[ appropriations and assessments. Funding will be provided from future years' appropriations.

i; a 43

?! NOTE 11. LEASES fQ gy gj A description of lease agreements as of September 30,1998, follows:

'l Capital Leases ya j Future payments due:

"d} Fiscal Year Lease Payments e 11 1999 $127,358

9 2000 60,215 y; 2001 63,139 kQ 2002 66,204

%d 2003 51,754 <

k{

$j i

Total future lease payments 2004 and thereafter

$368,670 Less: imputed interest (35.556) hy))

{ Total capitallease liability. $333.114 QA

'-a 93 LACfJ U.S. ECLEAR REGUI.AToRY COMMisSloN

~

s.

NOTES TO PRINCHML STATDIENTS September 3(1,1998 The total capital lease liability is considered unfunded as of September 30,1998.

The NRC's capital leases are for personal property consisting of reproduction equipment, which is installed in various NRC facilities. The length of the leases vary from 4 to 5 years and the imputed interest rate, based on rates paid, was 4.75 percent. The reproduction equipment is depreciated over 5 years using the straight-line method with no salvage value.

• Operating Leases Future payments due: d:

Fiscal Year Lease Payments b 1999 $ 19,868,835 ;c 2000 20,033,846 c 2001 19,739,445 l 2002 19,527,849  !'

2003 19,429,474 2004 and thereafter 178.143.462  ;

Total future lease payments $276.742.911 l~

t Operating leases consist of real property leases with GSA. The leases are for NRC's headquar-  !

ters offices, regional offices, and the Washington, DC, reading room. The leases have terms over s 2 years and annual lease payments of $25,000 or more. The GSA charges NRC lease rates pt which approximate commercial rates for comparable space.

NOTE 12. UNEXPENDED APPROPRIATIONS The unexpended appropriations consist of the following as of September 30,1998:

Unexpended appropriations: E Unobligated $ 31,396,370 Undelivered orders 84.626.582

$ 116.022.952 t-Unexpended appropriations include (a) unobligated appropriation balances and (b) undelivered orders, which are amounts which have been obligated but not yet expended. The unobligated I appropriations balance does not include $3,784,228 in unfilled customer orders - unobligated as of September 30,1998. The undelivered orders balance does not include $2,569,983 in unfilled '

customer orders - obligated as of September 30,1998.

(continued on page 76)

IW8 ACCoUNTAHlu rv REPORT /d

fMA Audit of FY 1996 Financial Statement (continued)

%a . NOTES TO PRINCll%L STATEAfENTS b) .

September 30,1998 y

dm NOTE 13. CUMULATIVE RESUllrS OF OPERATIONS

,1 g The cumulative results of operations as of September 30,1998, consist of the following:

e 4

Future funding requirements $(32,454,450)

Investment in property and equipment, net 39,432,603 Accounts receivable - refunds, net 27,900

,j Revenue from foreign cooperative agreements 2.736.016 1 $ 9.742.069

.d  !

m ,

M Future funding requirements represent the amount of future funding needed to pay the accrued l Fq unfunded expenses as of September 30,1998. These accruals are not funded from current or 7 h prior-year appropriations and assessments, but rather should be funded from future appropria-Aj - tions and assessments. Accordingly, future funding requirements have been recognized for the

@j expenses that will be paid from future appropriations.

u $s

' 1 NOTE 14. APPROPRINflONS USED M

d. - Appropriations Used, a financing source, is recognized to the extent that appropriated funds have Ed been consumed less the amount collected from fees assessed for licensing, inspections, and other (g services. During the year ended September 30,1998, $458,982,693 was collected from fees pj assessed for licensing, inspections, and other services. At the end of the fiscal year, appropria-pd tions recognized are reduced by the amount of assessed fees collected during the fiscal year to

• ;j the extent of new budget authority for the year. Collections which exceed the new budget au-

,f thority are held to offset subsequent years' appropriations. Included in the $458,982,693 of fees a collected is $4,182,693 available to offset subsequent years' appropriations.

$l3

_M For the year ended September 30,1998, $454,800,000 of collections were used to reduce the

] fiscal year's appropriations recognized:

y

a  ;

' ;g]

Appropriated funds consumed $ 493,767,773 Less: Collection from fees assessed (454.800.000) )

gq 38,967,773 Collection to offset subsequent years'

(]1 a appropriations (1.451.634).

$ 37.516.139 I

-[l Ji e/j Appropriations Used includes $29,370,393 of available funds from prior years.

3]

m Jj lb a ,

t j' U.S. NUCLEAR REGULATORY CoAINilSSION m

NOTES TO PRINCIPAL STATEMENTS

~

September 30,1998 l.

NOTE 15. IMPUTED FINANCING .

. In accordance with Statement of Federal Financial Accounting Standards Number 5, Accountmg I for Liabilities of the Federal Government, the Statement of Changes in Net Position includes an imputed financing source of $17,961,303. The imputed financing source represents the service  !

costs related to NRC employees' post-employment benefits which are paid by the U. S. Office of Personnel Management, as follows: q L

Civil Service Retirement System $11,164,423 h, Federal Employee Health Benefit 6,753,062 f

Federal Employee Group Life Insurance 43.818 E

$17.961.303 L s

g NOTE 16. EXCIIANGE REVENUES h B

Exchange revenues for the year ended September 30,1998, were: iL e

U Fees for licensing, inspection, and other services $456,251,634 7; Revenue from reimbursable work 6.085.973 f-

$462.337.607 l .r The exchange revenue assigned to programs and revenue not assignable to programs, is f as follows.  ! ,

j .

6 Regulatory program revenue $ 96,718,258 0

[

Revenue not assignable to programs 365.619.349

$462.337.607  ;

NOTE 17.' EMPLOYEE RETIREMENT PLANS i The NRC's contributions for employee retirement plans were as follows: fy

{is -

Civil Service Retirement System $10,479,550 10,416,742

[

Federal Employees' Retirement System [

FederalInsurance Contribution Act 8,879,543 j;-

Thrift Savings Plan 4.305.298 p

$34.081.133 pj e

(continued on page 78) {;;

,77 -

--_- n l_.

~

w Y Audit of Fl' 1996 Financial Statement (continued)

<q q

k NOTES TO PRINCIl%L STATEMENTS September 30,1998 y

i Data on the actuarial present value of accumulated benefits, assets available for benefits, and

'M unfunded pension liability are maintained by other Federal agencies and are not allocated to 3 individual departments and agencies. The portion of the current and estimated future outlays for j CSRS not paid by NRC is included in NRC's financial statements as an imputed financing

,l source (see Note 15).

7; H

i] NOTE 18. PRIOR-PERIOD ADJUSTMENT The prior-period adjustment of $3,940,790 consists of the following:

1 l

/h Reimbursable revenue earned in prior years $3,896,137 "j Correction of expenditure refunds 44.653 e $3.940.790

.-3 A

l The $3,896,137 represents reimbursable revenue from foreign cooperative agreements applicable p] to prior years. Consistent with Statement of Federal Financial Accounting Standards Number 7, G Accoimtingfor Revenue and Other Financing Sources and Conceptsfor Reconciling Budgetary

'1 and Financial Accounting, this revenue should have been recognized as revenue in prior years.

e The impact of this adjustment is to increase the cumulative results of operations as of September

[a 30,1997, by $3,896,137.

L1

The $44,653 represents a correction to the beginning balance of unexpended appropriations and (j cumulative results of operations for the recording of receivables for expenditure refunds and the j associated allowance for uncollectible accounts in prior years. There is no effect on net position.

qj j

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w Ti lNS$$______________________--____-____________________-__- - -- _

q t

f NOTES TO PRINCil%L STATEMENTS v September 30,1998 NOTE 19.

SUMMARY

OF HUDGETARY RESOURCES The budgetary resources by major fund follows:  !'

Other Combined U Hudgetary Resources: X0200 X0300 Funds 'lidal Budget authority $ 472,025,000 $ 4,800,000 $ 4,300,000 $ 481,125,000 e' Unobligated balances - F beginning of period 24,048,047 1,632,146 3,690,200 29,370,393  ;

Spending authority from offsetting collections 4,908,396 - - 4,908,396 [

Adjustments 9.672.512 98.667 124.095 9.895.274 ['

Total Budgetary Resources $ 510.653.955 $ 6.530.813 $ 8.114.225 $ 525.299.063 L r-Status of Hudgetary Resources: h-

}-

Obligations incurred S 482,034,605 $ 5,328,929 $ 2,754,930 $ 490,118,464 7 Unobligated balances - available 28.619.350 1.201.884 5.359.365 35.180.599

• Total Status of Budgetary O Resources $ 510.653.955 $ 6.530.813 $_8. I 14.295 $ 525.299.063 L is Outlays:

Obligations incurred $ 482,034,605 $ 5,328,929 $ 2,754,930 $ 490,118,464 {

g Less: Spending authority from [

offsetting collections and adjustments (14.580.908) (98.667) (124.095) (14.803.670) 0 F

Subtotal 467,453,697 5,230,262 2,630,835 475,314,794 F Obligated balances, net -

beginning of period 141,162,720 1,350,282 3,314.460 145,827,462 g Less: obligated balance, net -

end of period (l21.515.836) (l.385.322) (l.799.651) (l24.700.809)  :

Total Outlays $ 487.100.581 $ 5.195.222 $ 4.145.644 $ 496.441.447 E

The adjustments of $9,895,274 to budgetary resources above consist of recoveries of prior-year j.)

obligations.

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1998 ACCOUNTABILITY REPORT k -I I

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{ NUCLEAR REGULATORY COMMISSION S  :[E WASHINGTON, DC 20555-0001 February 25,1999 MEMORANDUM TO: Thomas J. Barchi Assistant Inspector General for Audits t  :-

FROM: Jesse L. Funches Chief Financial Officer

SUBJECT:

DRAFT AUDIT REPORT- AUDIT OFTHE NUCLEAR REGULATORY COMMISSION'S FISCAL ~ YEAR 1998 FINANCIAL STATEMENTS We have reviewed the draft audit report of the Nuclear Regulatory Commission's FY 1998 financial statements. There are two areas in which we disagree with auditor's statements con-tained in the draft report.

In the first area, we disagree with the auditor's conclusion that management's assertion on the agency's system of accounting and internal control in place as of September 30,1998, was not fairly stated because management did not identify the lack of managerial cost accounting as a material weakness (page 1). In the management representation letter, dated February 5,1999, t management identified managerial cost accounting as a significant weakness pursuant to the Federal Managers' Financial Integrity Act (FMFIA) and as a substantial noncompliance with the Federal Financial Management Improvement Act (FFMIA).

While the auditors may conclude for financial statement audit purposes that lack ofimplementation of managerial cost accounting is a material weaknesses, it is not a material weakness under FMFIA. For FMFIA purposes, agency management determined that lack of managerial cost accounting did not have a material impact on the NRC's ability to perfonn its mission and to provide its managers with the financial infonnation they needed to manage their programs. Under FMFIA,if the head of the agency detennines a deficiency is significant enough to merit the atten-tion of the Executive Office of the President or the relevant congressional oversight committees, then a material weakness exists. This definition is different than the one used by Government auditors to identify management control weaknesses that, in their opinion, pose a risk or a threat to the internal control systems of an audited entity, such as a program or operation.

(continued on page M)

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1998 AccotNTAHil.lTv REPORT b(

l Audit of FY 1998 Financial Staternent (continued) 1 2

In the second area, we disagree with the auditors statement that the FY 1998 license fee rates

< ' were not developed in accordance with applicable laws and regulations (page i1). As was  !

discussed with the auditors, on several occasions, the conclusion of NRC's Office of the General l Counsel is that the Independent Offices Appropriation Act does not authorize the NRC to charge l' licensees for generic costs under 10 CFR Part 170. This position is reaffirmed by a U. S. Fifth Circuit Court case and is further supported by the Conference Report accompanying the Omni-

@ bus Budget Reconciliation Act of 1990. We request that the statement contained in paragraph i g on page 11 of the draft report be deleted. {

q CONTACT: Barbara K. Gusack, OCFO/DAF/ GAB 415-6054 Our specific comments on the recommendations contained in the draft audit report are as follows.

Recommendation 1: The Chief Financial Officer (CFO) should assess the immediate needs of NRC managers to receive reliable and routine cost accounting information in light of perfor-mance and result mandates included in the Govemment Performance and Results Act. Addition- l l ally the CFO, in preparing a remediation plan, should develop a strategy, including milestones, l to incorporate cost management standards and concepts throughout the agency. The plan devel- 1 l oped could serve to identify, develop, and implement those metrics that managers need now in

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order to best manage resources and assess performance against the agency's strategic and perfor- l mance plans.

Response: Implementation of managerial cost accounting has been incorporated into a larger J agency initiative of implementing an integrated, agencywide resource management system, STARFIRE. STARFIRE will include cost accounting and labor cost distribution modules which will provide necessary tools for reporting costs and implementing cost accounting. Corrective action conceming the implementation of managerial cost accounting will be addressed in the remediation plan required by FFMIA. OCFO expects to complete this plan by July 1,1999. An agency manager responsible for implementation will be announced at that time.

Recommendation 2: The CFO should assure that the budget and strategic and performance plans are fully aligned. Employing such a concept would present one cohesive philosophy for agency managers to plan, record, process, and summarize financial activities, thus enabling

managers to evaluate their performance against financial operating plans, strategic goals, and performance plans.

Response: The NRC's structure for budgeting and strategic and performance planning have j "

been in an evolutionary development phase over the past 2 years as the agency has been transitioning to full alignment as required by GPRA for FY 1999. While the agency was in this transition period, it was not possible to implement the guidance in the Office of Management and Budget Bulletin No. 97-01, which required the full alignment of budget, strategic plan, and performance plan earlier than required by GPRA. As planned for FY 1999, NRC has fully aligned its budget, strategic plan, and performance plan. The Budget Estimates and Petformance Plan - Fiscal Year 2000 contains the budget and performance plan structure that the agency is M* executing for FY 1999 which is aligned with the current working draft of the strategic plan.

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Recommendation 3: The CFO should reaffirm to senior managers that funds control policies are critical elements for managing agency resources. At a minimum, all appropriate obligating documents should be provided to OCFO for recording obligations.

Response: The agency's administrative control of funds policies and procedures are depicted in Management Directive and Handbook 4.2, Administratire Control of Funds. In addition, senior managers responsible for funds management are required to take two NRC-developed training courses (1) Introduction to Federal Financial Management which reviews the concepts, pro-cesses, and procedures for Federal financial management and (2) Administrative Control of Funds which covers the .NRC's system of administrative control of funds that is defined in Management Directive and Handbook 4.2. However, the OCFO will reaffirm to senior managers the agency's funds control policies and the necessity to provide to OCFO all appropriate obligat-ing documents. Corrective action in the form of a memorandum to allowance financial manag-ers is expected to be completed by April 1,1999.

Recommendation 4: The CFO should ensure that new programs managed by the agency conform to established funds control practices embodied in the agency's respective manage-ment directives.

Response The OCFO will ensure that new programs managed by the agency confonn to estab-lished agency funds control guidance by requiring the program manager of the new activity to attend the two NRC training courses, Introduction to Federal Financial Management and Admin-istrative Control Funds. Allowance financial managers will be advised of this new requirement by memorandum by April 1,1999.

Recommendation 5: The CFO should clarify to senior managers agency policy for making funds control representations to other agencies. At a minimum, the information provided externally should be consistent with the official transactions recorded to the agency's account-ing records.

Response: OCFO will clarify with senior managers the agency policy for making funds control representations to other agencies. Corrective action in the form of a memorandum to allowance financial managers is expected to be completed by April 1,1999. In addition, future sessions of the Administrative Control of Funds training course will address this issue.

Recommendation 6: The CFO should implement procedures to ensure that revenue from reim-bursable agreements is reflected on the principal statements on the accrual basis of accounting.

Response: OCFO will perform an analysis of its reimbursable work and revenue recognition and establish the necessary procedures to ensure that revenue is appropriately recognized on the financial statements. Corrective action will be implemented by June 1,1999.

Recommendation 7: The CFO should initiate an analysis of all contract support costs that were classified as " generic activities" and were excluded from the rate. The analysis should seek to determine the portion of those costs that benefit specific classes oflicensees (i.e., power reactor or materials) and should, therefore, be included in the computation of Part 170 hourly rates.

Response: While OCFO believes its development of the license fee rates is compliant with applicable laws and regulations, it will initiate a study to analyze those activities currently (continued on page 86)

_ a 80 1998 AccOUNTABn.ITY REPORT - -

?' .fi i ?d Audit of FY l998 Financial Statement (continued) i j jf -

hj characterized as " generic activhies" for license fee development purposes. A multi-office team

$j will be established by May 1, ;999, to conduct a study to determine whether me costs currently Gl identilled as " generic" continue to meet the definition contained in the Conference Report to the Omnibus Budget Reconciliation Act. The results of this analysis will be incorporated in the h(.ij j development of the FY 2000 fee rule.

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Recommendation 8: The CFO should pursue technical enhancements to the file transfer proto-cols that are in place. The enhancements should be tested to ensure that the change made prop-

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'rly addresses the file transfer protocols between the subsidiary transactions and infonnation uploaded to the core accounting synem.

ea Od Response: The technical enhancements to the file transfer protocols have been completed and

,. y are in the process of being tested. We expect the enhancements to be implemented and opera-Py tional by April 1,1999; therefore, a remediation plan will not be developed for this finding.

Status of Prior Year Recommendation: Business Continuity General Ledger - FFS: NRC is dependent on Treasury's Financial Management Service to

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pj resolve this condition. We do not expect, however, for Treasury to complete corrective action before FFS is replaced by NRC's new agencywide resource management system,

$j 1 STARFIRE, within the next 6 months.

. y 2. Fee Systems: While implementation of corrective action for this system has been delayed, fj it is expected that a fully tested business continuity plan will be in place by April 1,1999, b] We apreciate the oprvcunity to respond to the draft audit report a:.d are available to discuss our comments.

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