ML20321A240

OIG-21-A-02 Results of the Audit of Nrc'S Financial Statements for Fy 2020 Dated November 21, 2020

ML20321A240
Person / Time
Issue date:	11/16/2020
From:	Feitel R NRC/OIG
To:	Kristine Svinicki NRC/Chairman
References
OIG-21-A-02
Download: ML20321A240 (48)

Text

UNITED STATES NUCLEAR REGULATORY COMMISSION WASHINGTON, D.C. 20555-0001 OFFICE OF THE INSPECTOR GENERAL November 16, 2020 MEMORANDUM TO: Chairman Kristine L. Svinicki Digitally signed by Robert FROM: Robert J. Feitel Robert J. J. Feitel Date: 2020.11.16 Inspector General Feitel 13:16:35 -05'00'

SUBJECT:

RESULTS OF THE AUDIT OF THE UNITED STATES NUCLEAR REGULATORY COMMISSION'S FINANCIAL STATEMENTS FOR FISCAL YEAR 2020 (OIG-21-A-02)

The Chief Financial Officers Act of 1990, as amended (CFO Act), requires the Inspector General (IG) or an independent external auditor, as determined by the IG, to annually audit the United States Nuclear Regulatory Commissions (NRC) financial statements in accordance with applicable standards. In compliance with this requirement, the Office of the Inspector General (OIG) retained CliftonLarsonAllen (CLA) to conduct this annual audit.

Transmitted with this memorandum is CLAs audit report. CLA examined NRCs Fiscal Year (FY) 2020 Agency Financial Report, which includes financial statements for FY 2020.

CLAs audit report contains the following reports:

Opinion on the Financial Statements.

Opinion on Internal Control over Financial Reporting.

Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements.

Objective of a Financial Statement Audit The objective of a financial statement audit is to determine whether the audited entitys 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 significant estimates made by management, as well as evaluating the overall financial statement presentation.

CLAs audit included, among other things, obtaining an understanding of the NRC and its operations, including internal control over financial reporting; evaluating the design and operating effectiveness of internal control and assessing risk; and testing relevant internal

controls over financial reporting. Because of inherent limitations in internal controls, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of any internal control to 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 or procedures may deteriorate.

FY 2020 Audit Results The results are as follows:

Financial Statements Unmodified opinion.

Internal Control over Financial Reporting Adverse opinion.

Compliance with Laws and Regulations No instances of noncompliance noted.

OIG Oversight of CLAs Performance To fulfill our responsibilities under the CFO Act and related legislation for ensuring the quality of the audit work performed, we monitored CLAs audit of NRCs FY 2020 financial statements by:

Reviewing CLAs audit approach and planning.

Evaluating the qualifications and independence of CLAs auditors.

Monitoring audit progress at key points.

Examining the working papers related to planning and performing the audit and assessing NRCs internal controls.

Reviewing CLAs audit report to ensure compliance with Government Auditing Standards and Office of Management and Budget Bulletin No. 19-03.

Coordinating the issuance of the audit report.

Performing other procedures deemed necessary.

CLA is responsible for the attached auditors report, dated November 12, 2020, and the conclusions expressed therein. OIG is responsible for technical and administrative oversight regarding the firms performance under the terms of the contract. Our oversight, 2

as differentiated from an audit in conformance with Government Auditing Standards, was not intended to enable us to express an opinion, and accordingly we do not express an opinion on:

NRCs financial statements.

Effectiveness of NRCs internal control over financial reporting.

NRCs compliance with laws, regulations, contracts, and grant agreements.

However, our monitoring review, as described above, disclosed no instances where CLA did not comply, in all material respects, with applicable auditing standards.

Meeting with the Chief Financial Officer At the exit conference on November 12, 2020, representatives of the Office of the Chief Financial Officer, OIG, and CLA discussed the results of the audit.

Comments of the Chief Financial Officer In her response, the Chief Financial Officer agreed to the recommendations in the report. However, the CFO does not believe the leases/leasehold improvement deficiency rises to the level of a material weakness. The full text of her response follows this report.

We appreciate NRC staffs cooperation and continued interest in improving financial management within NRC.

Attachment:

As stated cc: Commissioner J. Baran Commissioner A. Caputo Commissioner D. Wright Commissioner C. Hanson M. Doane, OEDO C. Johnson, OCFO J. Jolicoeur, OEDO S. Miotla, OEDO EDO_ACS_Distribution RidsEDO MailCenter Resource RidsOCFOMailCenter Resource OIG Liaison Resource 3

INDEPENDENT AUDITORS REPORT To: Inspector General United States Nuclear Regulatory Commission Chairman United States Nuclear Regulatory Commission In our audits of the fiscal years (FYs) 2020 and 2019 financial statements of the United States Nuclear Regulatory Commission (NRC), we found NRCs financial statements as of and for the FY ended September 30, 2020 and 2019, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; NRCs internal control over financial reporting was not effective as of September 30, 2020; and No reportable noncompliance or other matters for FY 2020 with provisions of applicable laws, regulations, contracts, and grant agreements we tested.

The following sections discuss in more details (1) our report on the financial statements and on internal control over financial reporting, required supplementary information (RSI) 1, and other information (OI)2 included in the financial statements; (2) our report on compliance with laws, regulations, contracts, and grant agreements and other matters; and (3) NRC managements response to the findings and recommendations.

Report on the Financial Statements and on Internal Control over Financial Reporting In accordance with our contract with NRCs Office of Inspector General, we have audited NRCs financial statements in accordance with U.S. generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB)

Bulletin No.19-03, Audit Requirements for Federal Financial Statements (OMB Bulletin 19-03).

NRCs financial statements comprise the balance sheets as of September 30, 2020, and 2019; the related statements of net cost, changes in net position, and budgetary resources for the FYs then ended; and the related notes to the financial statements. We also have audited NRCs internal control over financial reporting as of September 30, 2020, based on criteria established under 31 U.S.C. § 3512(c), (d), commonly known as the Federal Managers Financial Integrity Act (FMFIA). We believe that the audit evidence we obtained is sufficient and appropriate to provide a basis for our audit opinions.

1 The RSI consists of Managements Discussion and Analysis (MD&A) and the Combining Statement of Budgetary Resources, which are included with the financial statements.

2 Other Information consists of information included with the financial statements, other than RSI and the auditors report.

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INDEPENDENT AUDITORS REPORT, CONTINUED Managements Responsibility NRC management is responsible for (1) the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; (2) preparing, measuring, and presenting the RSI in accordance with U.S. generally accepted accounting principles; (3) preparing and presenting other information included in documents containing the audited financial statements and auditors report, and ensuring the consistency of that information with the audited financial statements and the RSI; (4) maintaining effective internal control over financial reporting, including the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; (5) evaluating the effectiveness of internal control over financial reporting based on the criteria established under FMFIA; and (6) its assessment included in the MD&A about the effectiveness of internal control over financial reporting as of September 30, 2020.

Auditors Responsibility Our responsibility is to express an opinion on these financial statements and an opinion on NRCs internal control over financial reporting based on our audits. Government Auditing Standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement, and whether effective internal control over financial reporting was maintained in all material respects. We are also responsible for applying certain limited procedures to RSI and OI included with the financial statements.

An audit of financial statements involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the auditors assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit of financial statements also involves evaluating the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

An audit of internal control over financial reporting involves performing procedures to obtain evidence about whether a material weakness exists. The procedures selected depend on the auditors judgement, including the assessment of the risk that a material weakness exists. An audit of internal control over financial reporting also includes obtaining an understanding of internal control over financial reporting and evaluating and testing the design and operating effectiveness of internal control over financial reporting based on the assessed risk. Our audit of internal control also considered NRCs process for evaluating and reporting on internal control over financial reporting based on criteria established under FMFIA. Our audits also included performing such other procedures as we considered necessary in the circumstances.

We did not evaluate all internal controls relevant to operating objectives as broadly established under FMFIA, such as those controls relevant to preparing performance information and ensuring efficient operations. We limited our internal control testing to testing controls over financial reporting. Our internal control testing was for the purpose of expressing an opinion on whether effective internal control over financial reporting was maintained, in all material respects.

Consequently, our audit may not identify all deficiencies in internal control over financial reporting.

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INDEPENDENT AUDITORS REPORT, CONTINUED A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entitys financial statements will not be prevented, or detected and corrected, on a timely basis.

Definition and Inherent Limitations of Internal Control over Financial Reporting An entitys internal control over financial reporting is a process effected by those charged with governance, management, and other personnel, the objectives of which are to provide reasonable assurance that (1) transactions are properly recorded, processed, and summarized to permit the preparation of financial statements in accordance with U.S. generally accepted accounting principles, and assets are safeguarded against loss from unauthorized acquisition, use, or disposition, and (2) transactions are executed in accordance with provisions of applicable laws, including those governing the use of budget authority, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct, misstatements due to fraud or error. We also caution that projecting any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion on Financial Statements In our opinion, NRCs financial statements present fairly, in all material respects, NRCs financial position as of September 30, 2020 and 2019, and its net cost of operations, changes in net position, and budgetary resources for the FYs then ended in accordance with U.S. generally accepted accounting principles.

However, misstatements may nevertheless occur in unaudited financial information reported internally or externally by the NRC as a result of the internal control deficiencies described in this report.

Opinion on Internal Control over Financial Reporting In our opinion, because of a material weakness in internal control over leases and leasehold improvements, the NRC did not maintain, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on criteria established under FMFIA.

Although the NRC had a material weakness in internal control over leases and leasehold improvements, the NRC made any necessary adjustments to its records and was therefore able to prepare financial statements that were fairly presented in all material respects for FY 2020.

This material weakness, which is discussed in Exhibit A and summarized below, is a significant deficiency in NRCs assessment and is not required to be reported in its FY 2020 FMFIA assurance statement. NRCs conclusion was based on the results of its evaluation of the agencys overall system of internal control and enterprise risk management procedures performed. In addition, the NRC indicated in its assurance statement that CLA reported a material weakness and the NRC will continue to take corrective actions to strengthen controls in this area.

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INDEPENDENT AUDITORS REPORT, CONTINUED We considered this material weakness in determining the nature, timing, and extent of our audit procedures on the NRCs FY 2020 financial statements.

Material Weakness in Internal Control over Leases and Leasehold Improvements The NRC needs to strengthen controls over leases and leasehold improvements to ensure the accuracy of the financial statements and related notes. Finding details are included in Exhibit A.

In addition, we identified a significant deficiency 3 related to aged unliquidated obligations as described below with details in Exhibit B.

Significant Deficiency in Internal Control over Aged Unliquidated Obligations The NRC needs to strengthen its internal controls over review of aged unliquidated obligations for validity and de-obligate on a timely basis.

During our FY 2020 audits, we also identified other deficiencies in NRCs internal control over financial reporting that we do not consider to be material weaknesses or significant deficiencies.

Nonetheless, these deficiencies warrant NRC managements attention. We have communicated these matters to NRC management and, where appropriate, will report on them separately.

Other Matters Required Supplementary Information U.S. generally accepted accounting principles issued by the Federal Accounting Standards Advisory Board (FASAB) require that the RSI be presented to supplement the financial statements. Although the RSI is not a part of the financial statements, FASAB considers this information to be an essential part of financial reporting for placing the financial statements in appropriate operational, economic, or historical context. We have applied certain limited procedures to the RSI in accordance with Government Auditing Standards, which consisted of inquiries of management about the methods of preparing the RSI and comparing the information for consistency with managements responses to the auditors inquiries, the financial statements, and other knowledge we obtained during the audits of the financial statements, in order to report omissions or material departures from FASAB guidelines, if any, identified by these limited procedures. We did not audit and we do not express an opinion or provide any assurance on the RSI because the limited procedures we applied do not provide sufficient evidence to express an opinion or provide any assurance.

Other Information The NRCs other information contains a wide range of information, some of which is not directly related to the financial statements. This information is presented for purposes of additional analysis and is not a required part of the financial statements or the RSI. We 3

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

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INDEPENDENT AUDITORS REPORT, CONTINUED read the other information included with the financial statements in order to identify material inconsistencies, if any, with the audited financial statements. In addition, management has included references to information on websites or other data outside the Agency Financial Report (AFR). Our audits were conducted for the purpose of forming an opinion on NRCs financial statements. We did not audit and do not express an opinion or provide any assurance on the other information.

Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements and Other Matters In connection with our audits of NRCs financial statements, we tested compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements consistent with our auditors responsibility discussed below. We caution that noncompliance may occur and not be detected by these tests. We performed our tests of compliance in accordance with Government Auditing Standards. We also performed tests of compliance with certain provisions of the Federal Financial Management Improvement Act (FFMIA). However, providing an opinion on compliance was not an objective of our audit, and accordingly, we do not express such an opinion.

Managements Responsibility NRC management is responsible for complying with laws, regulations, contracts, and grant agreements applicable to the NRC, including ensuring NRCs financial management systems are in substantial compliance with FFMIA requirements.

Auditors Responsibility Our responsibility is to test compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements applicable to the NRC that have a direct effect on the determination of material amounts and disclosures in NRCs financial statements, including whether NRCs financial management systems substantially comply with the FFMIA Section 803(a) requirements, and perform certain other limited procedures. Accordingly, we did not test compliance with all laws, regulations, contracts, and grant agreements applicable to the NRC.

Also, our work on FFMIA would not necessarily disclose all instances of noncompliance with FFMIA requirements.

Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements and Other Matters Our tests for compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements disclosed no instances of noncompliance or other matters for FY 2020 that would be reportable under Government Auditing Standards. In addition, our tests of compliance with the FFMIA Section 803(a) requirements disclosed no instances in which NRCs financial management systems did not substantially comply with (1) federal financial management systems requirements, (2) applicable federal accounting standards, or (3) the U.S. Government Standard General Ledger (USSGL) at the transaction level. However, the objective of our tests was not to provide an opinion on compliance with laws, regulations, contracts, and grant agreements applicable to the NRC. Accordingly, we do not express such an opinion.

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INDEPENDENT AUDITORS REPORT, CONTINUED Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements and Other Matters The purpose of this report is solely to describe the scope of our testing of compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements, and the results of that testing, and not to provide an opinion on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering compliance.

Accordingly, this report on compliance with laws, regulations, contracts, and grant agreements is not suitable for any other purpose.

NRC Managements Response to the Findings and Recommendations NRCs response to the findings and recommendations identified in our report is included in Exhibit C. In their response the NRC concurs with the deficiencies in the areas of leases/

leasehold improvements and de-obligating aged unliquidated orders timely; however, the NRC does not believe that the leases/leasehold improvement deficiency rises to the level of a material weakness. We believe that properly designed and effective review of leases/

leasehold improvements is critical to NRCs internal control systems. The NRC states that it will implement corrective actions to eliminate these deficiencies. We did not audit NRCs response, and accordingly, we express no opinion on it.

CliftonLarsonAllen LLP Arlington, Virginia November 12, 2020 6

INDEPENDENT AUDITORS REPORT, CONTINUED Exhibit A Material Weakness FY 2020 Improve Controls over Leases and Leasehold Improvements Criteria Per NRCs Management Directive 4.1, Accounting Policies and Practices, section 4.1-02 d and g, the Chief Financial Officer:

Established, maintains, and oversees the interpretation and implementation of policies, standards, and general procedures of accounting and related reporting essential to the financial integrity and efficient financial management of the NRC and to the safeguarding of NRC funds and property.

Establishes and maintains an internal control program for NRC program and administrative activities, including a system that reasonably ensures NRCs managers take the necessary action to determine that controls are functioning as intended or are modified as conditions change.

The U.S. Government Accountability Office, Standards for Internal Control in the Federal Government, requires that management ensure accurate and timely recording of transactions.

Internal control over financial reporting is a process effected by those charged with governance, management, and other personnel, designed to provide reasonable assurance regarding the preparation of reliable financial statements in accordance with the applicable financial reporting framework and includes those policies and procedures that:

i. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; ii. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with the applicable financial reporting framework, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and those charged with governance; and iii. provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the entity's assets that could have a material effect on the financial statements Condition The NRC did not effectively perform its internal control in reviewing the:

schedule of future lease payments included in the notes to the financial statements; and leasehold improvements reported in the financial statements.

We noted several errors that impacted prior and current year balances in the calculation of the future lease payments such as missing occupancy agreements, amounts not agreeing to the occupancy agreements, or incorrect adjustments. Additionally, the NRC did not consistently write-off leasehold improvements associated with space no longer being leased by the NRC which resulted in the following before correction in FY 2020:

$21.8 million overstatement of Leasehold Improvements

$10.8 million overstatement of Accumulated Depreciation 7

INDEPENDENT AUDITORS REPORT, CONTINUED Exhibit A Material Weakness FY 2020

$2.1 million overstatement of Depreciation Expense

$13.1 million understatement of Loss on Disposal of Asset.

Cause The review process and communication between the Office of the Chief Financial Officer and other departments with information on leasehold improvements and current occupancy agreements was not effective in identifying errors related to leases and leasehold improvements.

Effect The effect of the lease or leasehold improvement findings were as follows:

1. After CLA questioned amounts, the future lease payment notes in the 9/30/19 and 6/30/20 financial statements were determined to be overstated by $82.8 million and $74.6 million respectively.

2. After CLA questioned amounts, the NRC recorded a write-off of $21.8 million in leasehold improvement assets, $10.8 million in accumulated depreciation, $2.1 million correction of overstatement in depreciation expense, and a $13.1 million loss on disposal of asset. The NRC recorded an $11 million write-off of property, plant, and equipment, net in FY 2020

($21.8 million - $10.8 million) of which $7.7 million should have been expensed in FY 2019 and $3.3 million should have been expenses in FY 2018 when the NRC gave up leased space.

3. The NRC identified and recorded a $5.3 million leasehold improvement in FY 2020, which was erroneously recorded in expense in FY 2019.

Impact on the FY 2019 Financial Statements FY 2019 expense was understated by $2.4 million ($7.7 million for leasehold improvement write-offs recorded in FY 2020 instead of FY 2019 less $5.3 million for a leasehold improvement erroneously expensed in FY 2019 instead of being capitalized). Leasehold improvement was overstated by $5.7 million ($2.4 million noted above plus $3.3 million related to amounts that should have been expensed in FY 2018) or 10% of property, plant and equipment, net.

In FY 2020 we noted the future lease payment note for FY 2019 was overstated by $82.8 million.

This is 20% of the $419.1 million future lease payments total in the note in FY 2019.

Impact on the FY 2020 Financial Statements For FY 2020 the NRC expensed $5.7 million related to prior years ($11 million expense for leasehold improvements write-offs related to giving up space in prior years ($7.7 million related to FY 2019 and $3.3 million related to FY 2018) less $5.3 million reduction in expense for the leasehold improvement erroneously expensed in FY 2019 and move to capitalized leasehold improvement in FY 2020). The $5.7 million error is 12% of property, plant and equipment, net.

Recommendations CLA recommends that the NRC Chief Financial Officer:

1. Perform a more robust review of the future lease payments schedule to ensure it reflects all changes and updates to occupancy agreements. This review should include a documented review by the group responsible for negotiating and signing occupancy agreements since they would be most familiar with all current occupancy agreements.

2. Perform a more robust review of leasehold improvements and require accurate communication from accountable property managers to ensure that as occupancy 8

INDEPENDENT AUDITORS REPORT, CONTINUED Exhibit A Material Weakness FY 2020 agreements change, projects begin, or projects are completed, any impact to leasehold improvements in the financial statements is recorded timely and accurately. This review should also include timely and completely documenting the status of leasehold improvements in process.

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INDEPENDENT AUDITORS REPORT, CONTINUED Exhibit B Significant Deficiency FY 2020 Improve Controls to De-Obligate Aged Unliquidated Obligations on a Timely Basis Criteria NRC Work Practice: Guidance for NRC Staff on De-obligating Excess Fund is FAR 4.804-1, Closeout by the Office Administering the Contract and NRCs Management Directive 4.2, Administrative Control of Funds Part VII C1. See below:

Per FAR 4.804-1, Closeout by the Office Administering the Contract:

(a) Except as provided in paragraph (c) of this section, time standards for closing out contract files are as follows:

(1) Files for contracts using simplified acquisition procedures should be considered closed when the contracting officer receives evidence of receipt of property and final payment, unless otherwise specified by agency regulations.

(2) Files for firm-fixed-price contracts, other than those using simplified acquisition procedures, should be closed within 6 months after the date on which the contracting officer receives evidence of physical completion.

(3) Files for contracts requiring settlement of indirect cost rates should be closed within 36 months of the month in which the contracting officer receives evidence of physical completion.

(4) Files for all other contracts should be closed within 20 months of the month in which the contracting officer receives evidence of physical completion.

(b) When closing out the contract files at 4.804-1(a)(2), (3), and (4), the contracting officer shall use the closeout procedures at 4.804-5. However, these closeout actions may be modified to reflect the extent of administration that has been performed. Quick closeout procedures (see 42.708) should be used, when appropriate, to reduce administrative costs and to enable de-obligation of excess funds.

(c) A contract file shall not be closed if-(1) The contract is in litigation or under appeal; or (2) In the case of a termination, all termination actions have not been completed.

NRC Management Directive 4.2, Administrative Control of Funds, Handbook Part VII C1 requires that an initial contract funds status review should be conducted within 90 days of completion of a contract, and where appropriate, excess funds should be de-obligated.

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INDEPENDENT AUDITORS REPORT, CONTINUED Exhibit B Significant Deficiency FY 2020 Condition The NRCs review control was not operating effectively as aged unliquidated orders (ULOs) or obligations that were no longer valid were not de-obligated timely. ULOs were considered aged if there was no activity since 2017 and the period of performance ended in 2017 or prior. CLA noted:

1. Ten out of 11 aged ULO samples tested, totaling $327 thousand with no recent activity and a period of performance end date ranging from 2010 to 2017, were not de-obligated timely. These amounts should have been de-obligated in fiscal year 2018 or prior.

2. At September 30, 2020, there was a $6 million unreconciled difference between the subsidiary details (management report) of outstanding ULO balances and the general ledger. The general ledger was less than the management report. It is possible this difference may be related to about $4 million in amounts on the management report related to change of station that are not true ULOs and should not be on the management report.

Cause Requests for de-obligation were not processed timely in accordance with FAR 4.804. Some of the requests for de-obligation were not prepared timely and some requests for de-obligation were not posted timely.

Effect By not ensuring timely review and de-obligation of aged ULOs, the agency is unnecessarily tying up funds that could be used for other mission critical activities. Moreover, the balances in the statement of budgetary resources could be misstated. Based on extrapolating the test results of 10 ULOs that should be de-obligated to the aged population, ULOs were overstated by approximately $8.5 million throughout fiscal year 2020 and at yearend.

Recommendations CLA recommends that the NRC Chief Financial Officer:

3. Strengthen its internal control to ensure funds are de-obligated timely including identifying amounts to be de-obligated and posting the de-obligation to the accounting system.

4. Maintain adequate documentation, including correspondence, for the reasons why an aged unliquidated obligation should not be de-obligated.

5. Review the process for generating the unliquidated obligation subsidiary details report (management report); ensure that amounts that are not ULOs are not included in the management report; and reconciles the management report to the general ledger.

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INDEPENDENT AUDITORS REPORT, CONTINUED Exhibit C Managements Response to Findings and Recommendations FY 2020 12

INDEPENDENT AUDITORS REPORT, CONTINUED Exhibit C Managements Response to Findings and Recommendations FY 2020 13

INDEPENDENT AUDITORS REPORT, CONTINUED Exhibit C Managements Response to Findings and Recommendations FY 2020 14

Chapter 2 Financial Statements and Auditors Report Financial Statements Balance Sheet (IN THOUSANDS)

As of September 30, 2020 2019 Assets Intragovernmental Fund balance with Treasury (Note 2) $ 390,731 $ 411,871 Accounts receivable (Note 3) 3,211 5,501 Advances and prepayments 4,950 7,039 Total intragovernmental 398,892 424,411 Accounts receivable, net (Note 3) 67,485 60,902 Property and equipment, net (Note 4) 46,764 55,649 Other 76 45 Total Assets $ 513,217 $ 541,007 Liabilities Intragovernmental Accounts payable $ 9,199 $ 7,777 Other (Note 5) 12,734 11,524 Total intragovernmental 21,933 19,301 Accounts payable 24,113 27,671 Federal employee benefits (Note 6) 4,607 4,607 Other (Note 5) 81,890 73,628 Total Liabilities 132,543 125,207 Net Position Unexpended appropriations 315,755 340,983 Cumulative results of operations (Note 8) 64,919 74,817 Total Net Position 380,674 415,800 Total Liabilities and Net Position $ 513,217 $ 541,007 The accompanying notes to the financial statements are an integral part of these statements.

FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 36

Chapter 2 Financial Statements and Auditors Report Statement of Net Cost (IN THOUSANDS)

For the periods ended September 30, 2020 2019 Nuclear Reactor Safety Gross costs $ 723,021 $ 729,946 Less: Earned revenue (644,719) (692,962)

Total Net Cost of Nuclear Reactor Safety (Note 9) 78,302 36,984 Nuclear Materials and Waste Safety Gross costs 204,585 208,364 Less: Earned revenue (70,966) (74,900)

Total Net Cost of Nuclear Materials and Waste Safety (Note 9) 133,619 133,464 Net Cost of Operations $ 211,921 $ 170,448 The accompanying notes to the financial statements are an integral part of these statements FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 37

Chapter 2 Financial Statements and Auditors Report Statement of Changes in Net Position (IN THOUSANDS)

For the periods ended September 30, 2020 2019 Unexpended Appropriations Beginning Balance $ 340,983 $ 324,998 Adjustments (Note 8) - -

Beginning Balance, as adjusted $ 340,983 $ 324,998 Budgetary Financing Sources Appropriations received 154,852 138,743 Appropriations used (Note 11) (179,642) (122,758)

Other adjustments (438) -

Total Budgetary Financing Sources (25,228) 15,985 Total Unexpended Appropriations 315,755 340,983 Cumulative Results of Operations Beginning Balance $ 74,817 $ 96,592 Adjustments (Note 8) - (6,692)

Beginning Balance, as adjusted $ 74,817 $ 89,900 Budgetary Financing Sources Appropriations used (Note 11) 179,642 122,758 Nonexchange revenue (Note 11) 797 667 Other Financing Sources:

Imputed financing from costs absorbed by others (Note 11) 22,381 32,608 Other (797) (667)

Total Financing Sources 202,023 155,366 Net Cost of Operations (211,921) (170,448)

Net Change (9,898) (15,082)

Cumulative Results of Operations $ 64,919 $ 74,817 Net Position $ 380,674 $ 415,800 The accompanying notes to the financial statements are an integral part of these statements.

FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 38

Chapter 2 Financial Statements and Auditors Report Statement of Budgetary Resources (IN THOUSANDS)

For the periods ended September 30, 2020 2019 Budgetary Resources Unobligated balance from prior-year budget authority, net $ 87,091 $ 49,770 Appropriations 859,180 910,959 Spending authority from offsetting collections 6,322 3,662 Total Budgetary Resources $ 952,593 $ 964,391 Status of Budgetary Resources New obligations and upward adjustments (total) (Note 12) $ 865,239 $ 895,020 Unobligated balance, end of year Apportioned, unexpired accounts 84,983 67,717 Exempt from apportionment, unexpired accounts 756 407 Unapportioned, unexpired accounts - -

Unexpired unobligated balance, end of year 85,739 68,124 Expired unobligated balance, end of year 1,615 1,247 Unobligated balance, end of year (total) 87,354 69,371 Total Budgetary Resources $ 952,593 $ 964,391 Outlays Net and Disbursements Net Outlays Net and Disbursements Net 879,882 885,983 Distributed offsetting receipts (-) (704,328) (772,216)

Agency Outlays, net $ 175,554 $ 113,767 The accompanying notes to the financial statements are an integral part of these statements.

FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 39

Chapter 2 Financial Statements and Auditors Report Notes to the Financial Statements (All tables are presented in thousands)

Note 1 - Summary of Significant Accounting Policies A. Reporting Entity The U.S. Nuclear Regulatory Commission (NRC) is an independent regulatory Agency of the U.S. Federal Government that the Congress created to regulate the Nations civilian use of byproduct, source, and special nuclear materials to ensure adequate protection of public health and safety, to promote the common defense and security, and to 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 provide the foundation for regulating the Nations civilian use of nuclear materials.

The NRC operates through the execution of its congressionally approved appropriations for Salaries and Expenses (which includes funds derived from the NWF) and OIG.

B. Basis of Presentation These financial statements for Fiscal Year (FY) 2020 and FY 2019 (prior-year) are presented on a comparative basis. They report the financial position and results of operations of the NRC as required by the Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994. These financial statements were prepared from the books and records of the NRC in conformance with GAAP for Federal entities of the United States and the form and content for entity financial statements specified in OMB Circular A-136. GAAP for Federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board (FASAB). The FASAB has been recognized by the American Institute of Certified Public Accountants (AICPA) as the official accounting standard setting authority for the Federal government. These statements are different from the financial reports prepared by the NRC in compliance with OMB directives, which are used to monitor and control the NRC's use of budgetary resources.

Presentation of the budget accounts on the Combining Statement of Budgetary Resources shows columns for the no-year Salaries and Expenses appropriation, which includes funding for the Office of the Commission; no-year and 2-year funds aggregated for the OIG, and the Nuclear Facility Fees, which reflects the Distributed Offsetting receipts.

The NRC collects miscellaneous receipts for information requests under the Freedom of Information Act; civil penalties; and interest, administrative, and penalty charges on delinquent debt. All miscellaneous receipts, when collected, are returned to the U.S.

Treasury. The NRC has not presented these amounts on a Statement of Custodial Activity as the amounts involved are immaterial and incidental to the Agency's operations and mission.

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Chapter 2 Financial Statements and Auditors Report C. Budgets and Budgetary Accounting Budgetary accounting measures appropriation and consumption of budget spending authority or other budgetary resources and facilitates compliance with legal constraints and controls over the use of Federal funds. Under budgetary reporting principles, budgetary resources are used at the time of purchase. Assets and liabilities, which do not use current budgetary resources, are not reported, and only those liabilities for which valid obligations have been established are considered to use budgetary resources.

Congress passed the Further Consolidated Appropriations Act 2020 that funded the NRCs budget at a level of $842.2 million for FY 2020. Not more than $9.5 million of the appropriation was made available for the costs of the Office of the Commission until September 30, 2021. Congress enacted a 2-year appropriation of $13.3 million for the OIG, which is available for obligation by the NRC through September 30, 2021.

Additionally, Congress passed the Coronavirus Aid, Relief, and Economic Security Act 2020 that made available supplemental funding of $ 3.3 million until September 30, 2021 for costs to prevent, to prepare for, and to respond to coronavirus.

In FY 2019, Congress passed the Energy and Water, Legislative Branch, and Military Construction and Veterans Affairs Appropriations Act, 2019 that funded the NRCs budget at a level of $898.3 million for FY 2019. Not more than $9.5 million of the appropriation was made available for the costs of the Office of the Commission until September 30, 2020. Additionally, Congress enacted a 2 year appropriation of $12.6 million for the OIG, which was available for obligation by the NRC through September 30, 2020.

D. Basis of Accounting These financial statements reflect both accrual and budgetary accounting transactions.

Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash.

Budgetary accounting is also used to record the obligation of funds prior to the accrual-based transaction. SBR presents total budgetary resources available to the NRC, the status of total budgetary resources, and net outlays for the year.

E. Revenues and Other Financing Sources The NRC is required to offset its appropriations by revenue received during the FY from the assessment of fees. The NRC assesses two types of fees to recover its appropriation:

1. Fees assessed to recover the NRCs costs of providing individually identifiable services to specific applicants and licensees under 10 CFR Part 170, "Fees for Facilities, Materials, Import and Export Licenses, and Other Regulatory Services under the Atomic Energy Act of 1954 , as Amended, for licensing, inspection, and other services under the authority of the Independent Offices Appropriation Act of 1952.

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2. Annual fees assessed for nuclear facilities and materials licensees under 10 CFR Part 171, Annual Fees for Reactor Licenses and Fuel Cycle Licenses and Materials Licenses.

Licensing revenues are recognized on a straight-line basis over the licensing period. The annual licensing period for reactor and materials fees begins October 1 and ends September 30. Annual fees for reactors are invoiced in four quarterly installments, before the end of each quarter. The NRC invoices licensees for materials annual fees in the month the license was originally issued. Inspection fees are recorded as revenues when the services are performed.

For accounting purposes, appropriations are recognized as a financing source (appropriations used) at the time goods and services are received. Periodically during the FY, appropriations recognized are reduced by the amount of assessed fees collected during the FY to the extent of new budget authority for the year. Collections that exceed 90 percent of the NRC's appropriation, excluding amounts appropriated for Waste Incidental to Reprocessing, Generic Homeland Security, Regulatory Infrastructure for Advanced Reactor Technologies, International activities, Integrated University Grants program, and OIG services for the DNFSB, are held to offset subsequent years appropriations. The NRC recognizes appropriated expenses over the useful life of property and equipment as reflected by depreciation and amortization expense.

F. Fund Balance with Treasury The Treasury processes the NRCs cash receipts and disbursements. The Fund Balance with Treasury is primarily appropriated funds and license fee collections that are available to pay current liabilities and to finance authorized purchase commitments. The Fund Balance with Treasury represents the NRCs right to draw on the U.S. Treasury for allowable expenditures.

G. Accounts Receivable Accounts receivable consist of amounts that other Federal agencies and the public owe to the NRC. Amounts due from the public are presented net of an allowance for uncollectible accounts. The allowance is determined based on the age of the receivable and allowance rates established from historical experience. Receivables from Federal agencies are expected to be collected; therefore, there is no allowance for uncollectible accounts for Federal agencies.

H. Non-Entity Assets Non-entity assets consist of miscellaneous fees assessed for Freedom of Information Act requests; civil penalties; and interest, administrative charges, and penalties assessed on delinquent debt due from the public. Once collected, the funds are transferred to the U.S.

Treasury.

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Chapter 2 Financial Statements and Auditors Report I. Property and Equipment Property and equipment consist primarily of typical office furnishings, leasehold improvements, nuclear reactor simulators, and computer hardware and software. The costs of internal use software include the full cost of salaries and benefits for Agency personnel involved in software development. The NRC has no real property as the land and buildings in which the NRC operates are leased through the General Services Administration (GSA). The rent approximates the commercial 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 using the straight-line method over the useful life of the asset. Other property items are expensed when purchased. Normal repairs and maintenance are charged to expense as incurred.

J. Accounts Payable The NRC uses an estimation methodology to calculate the accounts payable balance, which represents costs for billed and unbilled goods and services received but unpaid before year-end. The NRC calculates the accounts payable amount using an average based on the historical trend of validated accruals. The estimation methodology is validated quarterly.

K. Liabilities Not Covered by Budgetary Resources Liabilities not Covered by Budgetary Resources represents the amount of future funding needed to pay the accrued unfunded expenses as of the end of the FY. These liabilities are not funded from current or prior-year appropriations and assessments, but instead they are funded from future appropriations and assessments.

Liabilities represent the amount of monies or other resources that are likely to be paid by the NRC as a result of a transaction or event that has already occurred. The NRC cannot pay Liabilities without an appropriation. Liabilities for which an appropriation has not been enacted are classified as Liabilities Not Covered by Budgetary Resources" and fall into the following three categories:

1. Intragovernmental. The NRC records a liability to the U.S. Department of Labor (DOL) for Federal Employees Compensation Act (FECA) benefits paid by the DOL on behalf of the NRC. The NRC also accrued a liability to GSA for Broker Commission Credits received by the NRC and annual step rent increases on the occupancy agreements for rent of NRC office space. The NRC amortizes the liability on a straight-line basis and paid to GSA over the life of the occupancy agreements.

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2. Federal Employee Benefits. Federal employee benefits represent the actuarial liability for estimated future FECA disability benefits. The DOL generates the future workers' compensation estimate from an application of actuarial procedures developed to estimate the liability for FECA, which includes the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases.

3. Other. This category includes the amount of accrued annual leave earned by the NRC employees, but not yet taken; and contingent liabilities which have the probable likelihood of an adverse outcome.

L. Contingencies Contingent liabilities are those for which the existence or amount of the liability cannot be determined with certainty pending the outcome of future events. The uncertainty should ultimately be resolved when one or more future events occur or fail to occur.

Accounting treatment of the contingency depends on if the likely outcome is considered probable, reasonably possible, or remote.

A contingency is considered probable when the future confirming event or events are more likely than not to occur, with the exception of pending or threatened litigation and unasserted claims. This type of contingency is recorded in the financial statements as a contingent liability (included in Other Liabilities) and as an expense. It should be recorded when a past event or exchange transaction has occurred, a future outflow or other sacrifice of resources is probable, and the future outflow or sacrifice of resources is measurable.

A contingency is considered reasonably possible when the chance of the future confirming event or events occurring is more than remote but less than probable. This type of contingency is disclosed in the notes to the financial statements (Note 17) if any of the conditions for liability recognition are not met and there is at least a reasonable possibility that a loss or an additional loss may have been incurred.

A contingency is considered remote when the chance of the future event or events occurring is slight. This type of contingency is not recognized as a liability and as an expense in the financial statements, nor is it disclosed in the notes when the chance of the future event or events occurring is remote.

M. Annual, Sick, and Other Leave Annual leave is accrued as it is earned, and the accrual is reduced as leave is taken.

Each year, the balance in the accrued annual leave liability account is adjusted to reflect current pay rates. To the extent that current or prior-year funding is not available to cover annual leave earned but not taken, funding will be obtained from future financing sources. Sick leave and other types of nonvested leave are expensed as taken.

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Chapter 2 Financial Statements and Auditors Report N. Retirement Plans The NRC employees belong to either the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS).

The NRC does not report on its financial statements FERS and CSRS assets, accumulated plan benefits, or unfunded liabilities, if any, applicable to its employees.

Reporting such amounts is the responsibility of the U.S. Office of Personnel Management (OPM). The portion of the current and estimated future outlays for FERS and CSRS not paid by the NRC is included in NRCs financial statements as an imputed financing source in the Statement of Changes in Net Position and as program costs on the Statement of Net Cost.

The NRC employees make mandatory contributions to their retirement plans through payroll deductions as required by law. For employees belonging to FERS and receiving an appointment before January 1, 2013, the NRC withheld 0.8 percent of base pay earnings and made an employer contribution of 13.7 percent in 2020 and 2019. In accordance with Public Law 112-96, Section 5001 of the Middle Class Tax Relief and Job Creation Act of 2012 , employees hired after January 1, 2013, as Federal Employees Retirement System - Revised Annuity Employees (FERS-RAE) must pay 3.1 percent of their salary to retirement contributions with 11.9 percent in 2020 and 2019 for employer matching contributions. For employees hired after January 1, 2014, as FERS-RAE must pay 4.4 percent of their salary to retirement contributions with 11.9 percent in 2020 and 2019 for employer matching contributions. The sum is transferred to the Federal Employees Retirement Fund. For employees covered by CSRS, the NRC withholds 7 percent of base pay earnings. The NRC matched this withholding with a 7 percent contribution in 2020 and 2019.

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for employees belonging to either FERS or CSRS. The maximum percentage of base pay that an employee participating in FERS or CSRS may contribute is unlimited, but it is subject to the maximum contribution of $19,500 in 2020 and $19,000 in 2019. For employees participating in FERS, the NRC automatically contributes 1 percent of base pay to the employee's account and matches contributions up to an additional 4 percent. For employees participating in CSRS, the NRC does match the contribution. The sum of the employees and the NRCs contributions is transferred to the Federal Retirement Thrift Investment Board.

O. Leases The NRC has two types of leases: capital leases and operating leases (Note 7):

Capital leases: Capital leases are leases that transfer substantially all the benefits and risks of ownership to the lessee. Capital leases are reported in the Balance Sheet as an asset under Property and Equipment and as a liability under Other Liabilities. If at its inception, a lease meets one or more of the following four criteria, the lessee should classify the lease as a capital lease:

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Chapter 2 Financial Statements and Auditors Report

1. The lease transfers the ownership of the property to the lessee by the end of the lease term.

2. The lease contains an option to purchase the leased property at a bargain price.

3. The lease term is equal or greater than 75 percent of the estimated economic life of the leased property.

4. The present value of rental or other minimum lease payments, excluding that portion of the payments representing executor cost, equals or exceeds 90 percent of the fair value of the leased property.

The NRC's capital leases are for personal property consisting of reproduction equipment that is installed at the NRC Headquarters.

Operating leases: The FASAB defines an operating lease as a lease in which the Federal entity does not assume the risks of ownership of the property, plant, and equipment (PP&E). It is an agreement conveying the right to use property for a limited time in exchange for periodic rental payments.

Operating leases at the NRC consist of real property leases with the GSA. The leases are for the NRCs Headquarters, regional offices, and Technical Training Center (TTC). The GSA charges the NRC lease rates that approximate commercial rates for comparable space.

P. Pricing Policy The NRC provides nuclear reactor and materials licensing and inspection services to the public and other Government entities. In accordance with OMB Circular A-25, Transmittal Memorandum #1, User Charges, and the Independent Offices Appropriation Act of 1952 ,

the NRC assesses fees under 10 CFR Part 170 for licensing and inspection activities to recover the full cost of providing individually identifiable services.

The NRCs policy is to recover the full cost of goods and services provided to other Government entities where the services performed are not part of the Agency's statutory mission and the 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. Net Position The NRCs net position consists of unexpended appropriations and cumulative results of operations. Unexpended appropriations represent (1) appropriated spending authority that is unobligated and has not been withdrawn by the U.S. Treasury, and (2) unliquidated obligations and expenditures not yet disbursed. Cumulative results of operations represent the excess of financing sources over expenses since inception.

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Chapter 2 Financial Statements and Auditors Report R. Use of Management Estimates The preparation of the accompanying financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates.

S. Transfers In prior years, the NRC was a party to non-expenditure transfers of funds, as a receiving entity, from the U.S. Agency for International Development. The transfers were for the international development of nuclear safety and regulatory authorities in other countries.

Transfers are legal delegations by one Agency of its authority to obligate budget authority and outlay funds to another Agency.

T. Statement of Net Cost The programs as presented on the Statement of Net Cost are based on the annual performance budget and are described as follows:

The Nuclear Reactor Safety program encompasses all the NRC efforts to ensure that civilian nuclear power reactor facilities and research and test reactors are licensed and operated in a manner that adequately protects public health and safety, and the environment, and protects against radiological sabotage and theft or diversion of special nuclear materials. The Nuclear Reactor Safety program consist of the following activities: operating reactors and new reactors.

The Nuclear Materials and Waste Safety program encompasses all the NRC efforts to protect the public health and safety and the environment and ensures the secure use and management of radioactive materials. The Nuclear Materials and Waste Safety program consist of the following activities: fuel facilities, nuclear materials users, decommissioning and low-level waste, spent fuel storage and transportation, and a high-level waste repository.

For intragovernmental gross costs and revenue, the buyers and sellers are Federal entities. For earned revenues from the public, the buyers of the goods or services are non-Federal entities.

U. Classified Activities Accounting standards require all reporting entities to disclose that accounting standards allow certain presentations and disclosures to be modified, if needed, to prevent the disclosure of classified information.

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Chapter 2 Financial Statements and Auditors Report Note 2 - Fund Balance with Treasury As of September 30, 2020 2019 Fund Balances Appropriated funds $ 389,975 $ 411,438 Nuclear Waste Fund 426 433 Other fund types 330 -

Total $ 390,731 $ 411,871 Status of Fund Balance with Treasury Unobligated balance Available - Appropriated funds $ 85,739 $ 68,124 Unavailable Unapportioned, unexpired accounts - -

Expired accounts 1,615 1,247 Obligated balance not yet disbursed 303,377 342,500 Non-budgetary funds with Treasury - -

Anticipated Appropriation - -

Total $ 390,731 $ 411,871 The Fund Balance with Treasury consists of the unobligated and obligated budgetary account balances, including NWF activity. The NWF unobligated balance was $0.4 million as of September 30, 2020 and $0.4 million as of September 30, 2019.

Other fund types in the Fund Balance with Treasury represent license fee collections used to offset the NRC current-year budget authority, miscellaneous collections, and adjustments that will offset revenue in the following FY.

Note 3 - Accounts Receivable As of September 30, 2020 2019 Intragovernmental Fee receivables and reimbursements $ 3,211 $ 5,501 Receivables with the Public Materials and facilities fees-billed $ 16,995 $ 4,026 Materials and facilities fees-unbilled 51,925 58,622 Other 2,119 671 Total Receivables with the Public 71,039 63,319 Less: Allowance for uncollectible accounts (3,554) (2,417)

Total Receivables with the Public, Net $ 67,485 $ 60,902 Total Accounts Receivable $ 74,250 $ 68,820 Less: Allowance for uncollectible accounts (3,554) (2,417)

Total Accounts Receivable, Net $ 70,696 $ 66,403 FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 48

Chapter 2 Financial Statements and Auditors Report Note 4 - Property and Equipment, Net As of September 30, 2020 2019 Accumulated Service Acquisition Depreciation Net Book Net Book Fixed Assets Class Years Value and Value Value Amortization Equipment 5 $ 13,925 $ (8,402) $ 5,523 $ 1,513 Leased equipment 5-8 924 (924) - -

IT software 5 78,715 (69,504) 9,211 13,775 IT software under development - 2,292 - 2,292 1,403 Leasehold improvements 4-16 63,152 (34,798) 28,354 38,171 Leasehold improvements in

- 1,384 - 1,384 787 progress Total $ 160,392 $ (113,628) $ 46,764 $ 55,649 In accordance with Statement of Federal Financial Accounting Standards (SFFAS) No. 44, "Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use," the NRC repairs or replaces capital assets as required and does not recognize impairment losses.

In September 2020, NRC corrected an overstatement of amortization expenses in leasehold improvements by $2.1 million. In addition, NRC wrote-off a total of $21.8 million in leasehold improvement costs and accumulated amortization expenses of $8.8 million with a net book value of $13.1 million.

Note 5 - Other Liabilities As of September 30, 2020 2019 Intragovernmental Liability to the U.S. Treasury General Fund for misc. receipts $ 65 $ 14 Liability for advances from other agencies 15 10 Accrued workers' compensation 953 970 Accrued unemployment compensation 1 9 Employee benefit contributions 5,893 4,596 Other liabilities 5,807 5,925 Total Intragovernmental Other Liabilities $ 12,734 $ 11,524 Other Liabilities Accrued annual leave $ 48,531 $ 42,004 Accrued salaries and benefits 19,539 16,553 Employer Contributions &

898 746 Payroll Taxes Payable Contract holdbacks, advances, capital lease liability, and other 1,447 815 Contingent Liabilities 354 -

Grants Payable 11,121 13,510 Total Other Liabilities $ 81,890 $ 73,628 Total Intragovernmental and Other Liabilities $ 94,624 $ 85,152 FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 49

Chapter 2 Financial Statements and Auditors Report Other Liabilities represents the accrual of broker commission credits (BCC) received by the NRC and the sum of annual step rent increases paid to GSA for rent of NRC office space. The credits received by the NRC and the step rent increases are amortized on a straight-line basis over the life of the occupancy agreements.

Other liabilities are current except for the $5.8 million accrual for BCC and annual step rent increases on the existing occupancy agreements with GSA.

Note 6 - Liabilities Not Covered by Budgetary Resources As of September 30, 2020 2019 Intragovernmental FECA paid by DOL $ 953 $ 970 Accrued unemployment compensation 1 9 Federal Employee Benefits Future FECA 4,607 4,607 Employer Contributions & Payroll Taxes Payable - -

Other Accrued annual leave 48,531 42,004 Contingent Liabilities 354 -

Other Liabilities 5,807 5,925 Total Liabilities Not Covered by Budgetary Resources 60,253 53,515 Total Liabilities Covered by Budgetary Resources 72,290 71,692 Total Liabilities $ 132,543 $ 125,207 Liabilities not Covered by Budgetary Resources represents the amount of future funding needed to pay the accrued unfunded expenses as of September 30, 2020, and 2019. These liabilities are not funded from current or prior-year appropriations and assessments, but rather they should be funded from future appropriations and assessments. Accordingly, future funding requirements have been recognized for the expenses that will be paid from future appropriations.

The projected annual benefit payments for FECA are discounted to present value. For FY 2020 and FY 2019, projected annual payments were discounted to present value based on the OMBs interest rate assumptions, which were interpolated to reflect the average duration in years for income payments and medical payments. The interest rate assumptions used for FY 2020 discounting were 2.414 percent in year 1 and year 2 for wage benefits, and 2.303 percent in year 1 and year 2 for medical benefits. The amount for FY 2020 is $4,573; however, this was not applied in FY 2020, thus reflects the same as FY 2019. The interest rate assumptions used for FY 2019 discounting were 2.716 percent in year 1 and year 2 for wage benefits, and 2.379 percent in year 1 and year 2 for medical benefits.

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Chapter 2 Financial Statements and Auditors Report Note 7 - Leases As of September 30, 2020 2019 Assets Under Capital Leases:

Copiers and booklet maker $ 924 $ 924 Accumulated depreciation (924) (924)

Net Assets Under Capital Leases $ - $ -

Future Lease Payments Due:

As of September 30, 2020 Fiscal Year Capital Operating 2021 $ - $ 33,111 $ 33,111 2022 - 31,637 31,637 2023 - 31,742 31,742 2024 - 30,561 30,561 2025 - 28,976 28,976 2026 and thereafter 145,864 145,864 Total Lease Liability - 301,891 301,891 Subtract: Imputed Interest - - -

Total Future Lease Payments $ - $ 301,891 $ 301,891 For Future Lease Payments, the NRC calculated the Capital Lease Liability as of September 30, 2020 and subtracted the imputed interest to arrive at the Total Future Lease Payments. The reproduction equipment is generally depreciated over 5 years using the straight-line method with no salvage value. The lease agreement ended in the first quarter of FY 2019.

The land and buildings in which the NRC operates are leased through GSA. The NRC Headquarters complex consists of three office buildings and a warehouse located in Rockville, MD, with one of the headquarters office buildings jointly leased with the U.S. Food and Drug Administration (FDA) and the National Institutes of Health (NIH). The NRC has four regional offices that are located in King of Prussia, PA, Atlanta, GA, Lisle, IL, and Arlington, TX. In addition, the NRC operates and maintains the TTC located in Chattanooga, TN.

In the Three White Flint North (3WFN) office building, the NRC occupies 30,052 useable square feet and the NRC is no longer the primary tenant. The NRC occupies the Data center (half of fourth floor), Operations center (floor B2), and the Conference center. The FDA and NIH occupy the other floors. In early FY 2020, NRC released an additional two and a half floors of 3WFN.

The lease bill for 3WFN will be approximately $8.0 million less per year. The NRC will not recognize savings for these floors until another Federal Agency leases the space.

The GSA leases for land and buildings occupied by NRC, and their corresponding Occupancy Agreements (OAs) between GSA and NRC do not have renewal options or contingent rental restrictions. Consistent with leases ten years and over, some OAs such as the OA for the 3WFN, TWFN, and the four regional office buildings, have or had escalation clauses. The OAs for OWFN (GSA owned), the warehouse, and the TTC do not have escalation clauses.

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Chapter 2 Financial Statements and Auditors Report Note 8 - Cumulative Results of Operations As of September 30, 2020 2019 Liabilities not covered by budgetary resources (Note 6) $ (60,253) $ (53,515)

Investment in property and equipment, net (Note 4) 46,764 55,649 Contributions from foreign cooperative research agreements 8,587 6,070 Nuclear Waste Fund 430 436 Office of the Commission (financed by Fees) - -

Accounts receivable 68,957 63,920 Fee Collection Revenue Not Transferred 330 -

Other 104 2,257 Cumulative Results of Operations $ 64,919 $ 74,817 A prior period adjustment (PPA) of $6.7 million was recorded in FY 2019 to the beginning Cumulative Results of Operations. The PPA represents $0.8 million for prior year amortization expense recorded on Leasehold Improvement projects and $5.9 million to establish a liability to GSA for broker commission credits received by the NRC on occupancy agreements for rent of office space and the sum of step rent increases paid to GSA for rent of NRC office space. The step rent increases, net of the credits received by the NRC, are amortized on a straight-line basis over the life of the occupancy agreements.

Note 9 - Statement of Net Cost For the fiscal years ended September 30, 2020 2019 Nuclear Reactor Safety:

Intragovernmental gross costs $ 207,385 $ 208,573 Less: Intragovernmental earned revenue (44,062) (49,153)

Intragovernmental net costs 163,323 159,420 Gross costs with the public 515,636 521,373 Less: Earned revenues from the public (600,657) (643,809)

Net costs with the public (85,021) (122,436)

$ 78,302 $ 36,984 Total Net Cost of Nuclear Reactor Safety Nuclear Materials and Waste Safety:

Intragovernmental gross costs $ 56,762 $ 57,961 Less: Intragovernmental earned revenue (4,625) (5,639)

Intragovernmental net costs 52,137 52,322 Gross costs with the public 147,823 150,403 Less: Earned revenues from the public (66,341) (69,261)

Net costs with the public 81,482 81,142

$ 133,619 $ 133,464 Total Net Cost of Nuclear Materials and Waste Safety Nuclear Reactor Safety and Nuclear Materials and Waste Safety represent the NRC's two major programs as identified in the NRC Strategic Plan.

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Chapter 2 Financial Statements and Auditors Report Note 10 - Exchange Revenues For the periods ended September 30, 2020 2019 Fees for licensing, inspection, and other services $ 709,471 $ 762,148 Revenue from reimbursable work 6,215 5,714 Total Exchange Revenues $ 715,686 $ 767,862 Earned revenues or exchange revenues arise when an entity provides goods and services to the public or another Government entity for a price. The NRCs revenues are primarily for services provided for inspections, fees for licensing, and reimbursable work.

Note 11 - Financing Sources Other Than Exchange Revenue For the periods ended September 30, 2020 2019 Appropriations Used Collections are used to reduce the fiscal year's appropriations:

Funds consumed $ 883,647 $ 895,002 Less: Collection of fees assessed (703,998) (772,216)

Less: Nuclear Waste Fund Expense (7) (28)

Less: Office of the Commission (financed by Fees) - -

Total Appropriations Used $ 179,642 $ 122,758 Funds consumed include $62.5 million and $34.7 million through September 30, 2020, and 2019, respectively, of available funds from prior years. Current year funds consumed were

$821.1 million and $860.3 million through September 30, 2020 and 2019, respectively.

For the fiscal years ended September 30, 2020 2019 Non-Exchange Revenue Civil penalties $ 455 $ 413 Miscellaneous receipts 342 254 NonExchange Revenue 797 667 Contra-Revenue (797) (667)

Total NonExchange Revenue, Net of Funds Returned to the U.S. Treasury General Fund $ - $ -

For the periods ended September 30, 2020 2019 Imputed Financing Civil Service Retirement System $ 2,972 $ 3,649 Federal Employees Retirement System (498) 8,777 Federal Employee Health Benefit 19,830 18,810 Federal Employee Group Life Insurance 77 78 Judgments/Awards - 1,294 Total Imputed Financing $ 22,381 $ 32,608 FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 53

Chapter 2 Financial Statements and Auditors Report Note 12 - Total Obligations Incurred For the periods ended September 30, 2020 2019 Direct Obligations Category A $ 861,428 $ 891,493 Exempt from Apportionment 5 28 Total Direct Obligations 861,433 891,521 Reimbursable Obligations 3,806 3,499 Total Obligations Incurred $ 865,239 $ 895,020 Category A obligations consist of the NRC appropriations only. Obligations exempt from apportionment represent funds derived from the NWF.

Note 13 - Undelivered Orders at the End of the Period For the periods ended September 30, 2020 2019 Undelivered Orders - Unpaid Salaries and Expenses $ 235,096 $ 271,894 Inspector General 1,221 2,279 Nuclear Waste Fund - 26 Total Undelivered Orders - Unpaid $ 236,317 $ 274,199 Undelivered Orders - Paid Salaries and Expenses $ 4,703 $ 6,364 Inspector General 336 685 Nuclear Waste Fund - -

Total Undelivered Orders - Paid 5,039 7,049 Total Undelivered Orders $ 241,356 $ 281,248 Note 14 - Nuclear Waste Fund For FY 2020 and FY 2019, the NRCs budget did not include funds from the NWF. The funding provided to the NRC before FY 2014 and carried forward to subsequent years was for the purpose of performing activities associated with the U.S. Department of Energys application for a high-level waste repository at Yucca Mountain, NV.

The SFFAS 43 "Funds from Dedicated Collections: Amending Statement of Federal Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds," lists three defining criteria for funds from dedicated collections.

1. A statute committing the Federal government to use specifically identified revenues and/or other financing sources that are originally provided to the Federal government by a non-federal source only for designated activities, benefits or purposes;

2. Explicit authority for the fund to retain revenues and/or other financing sources not used in the current period for future use to finance the designated activities, benefits, or purposes; and FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 54

Chapter 2 Financial Statements and Auditors Report

3. A requirement to account for and report on the receipt, use, and retention of the revenues and/or other financing sources that distinguishes the fund from the Federal governments general revenues.

In 1982, Congress passed the Nuclear Waste Policy Act of 1982 (Public Law 97-425) establishing the NWF to be administered by the U.S. Department of Energy (42 U.S.C.

10222). For the NRC, the NWF transfer is a source of financing from other than non-Federal sources. The NRC collects no revenue on behalf of the NWF and has no administrative control over it. Furthermore, the Treasury has no separate fund symbol for the NWF under the NRCs agency location code. The receipt and expenditure of NWF funding is reported to the U.S. Treasury under the NRCs primary Salaries and Expenses Treasury Account Symbol (X0200).

As a result, the NWF is not a fund from dedicated collections from the NRC's perspective.

However, to provide additional information to the users of these financial statements, the table below presents enhanced disclosure of the fund.

For the periods ended September 30, 2020 2019 Appropriations Received $ - $ -

Expended Appropriations $ 7 $ 28 Obligations Incurred $ 5 $ 28 Unobligated Balances (includes recoveries of prior year $ 426 $ 407 obligations)

Note 15 - Explanation of Differences between the Statement of Budgetary Resources and the Budget of the U.S. Government SFFAS 7, Accounting for Revenue and Other Financing Sources and OMB Circular A-136 require the NRC to reconcile the budgetary resources reported on the SBR to the actual budgetary resources presented in the Presidents Budget and explain any material differences.

The NRC does not have any material differences between the budgetary resources reported on the SBR for FY 2019 and the FY 2019 actuals in the proposed President's Budget for FY 2021.

The reconciliation was based on actual numbers for FY 2019 because the Budget of the United States (also known as the Presidents Budget) was not published at the time that these financial statements were issued.

The FY 2020 actual budgetary resources numbers will be available in the FY 2021 Presidents Budget which is expected to be published in 2021, and will be available on the OMB Web site http://www.whitehouse.gov/omb and through the U.S. Government Publishing Office.

FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 55

Chapter 2 Financial Statements and Auditors Report Note 16 - Reconciliation of Net Cost to Net Outlays For the fiscal year ended September 30, 2020 Intra- With the governmental Public Net Cost of Operations $ 215,460 $ (3,539) $ 211,921 Components of the Net Cost That Are Not Part of Net Outlays Property, plant, and equipment depreciation - (9,490) (9,490)

- (13,076) (13,076)

Property, plant, and equipment disposal & revaluation - 535 535 Other- ADP Software Cost Capitalization Subtotal - (22,031) (22,031)

Increase/(decrease) in assets:

Accounts receivable (2,355) 6,647 4,292 Other assets (2,088) 31 (2,057)

Subtotal (4,443) 6,678 2,235 (Increase)/decrease in liabilities:

Accounts payable (1,426) 3,260 1,834 Salaries and benefits (1,298) (3,139) (4,437)

Other liabilities (263) (4,477) (4,740)

Subtotal (2,987) (4,356) (7,343)

Other Financing sources:

Federal employee retirement benefit cost paid by OPM and imputed to the Agency (22,381) - (22,381)

Other imputed financing Judgement Fund with Treasury - - -

Subtotal (22,381) - (22,381)

Total Components if Net Cost That Are Not Part of

$ (29,811) $ (19,709) $ (49,520)

Net Outlays Components of Net Outlays That Are Not Part of Net Cost Acquisition of capital assets 7,475 5,317 12,792 Other 816 (455) 361 Other Timing Differences Prior Period Adjustment - - -

Total Components of Net Outlays That Are Not Part of 8,291 4,862 13,153 Net Cost Net Outlays $ 193,940 $ (18,386) $ 175,554 FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 56

Chapter 2 Financial Statements and Auditors Report Note 17 - Commitments and Contingencies The NRC is subject to potential liabilities in various administrative proceedings, legal actions, environmental suits, and claims brought against it. In the opinion of the NRCs management and legal counsel, the ultimate resolution of these proceedings, actions, suits, and claims will not materially affect the financial position or net costs of the NRC.

Probable Likelihood of an Adverse Outcome:

As of September 30, 2020, the NRC was involved in a case with the likelihood of an adverse outcome being probable, with the upper limit of the expected loss being $354 thousand. As of September 30, 2019, the NRC was not involved in a case in which the likelihood of loss is probable.

Reasonably Possible Likelihood of an Adverse Outcome:

As of September 30, 2020, the NRC was involved in three cases with the likelihood of an adverse outcome being reasonably possible, with the upper limit of the expected loss being unknown. As of September 30, 2019, the NRC was involved in a case with the likelihood of an adverse outcome being reasonably possible, with the upper limit of the expected loss being $300 thousand.

Note 18 - Net Adjustments to Unobligated Balance Brought Forward October 1 There were no material adjustments to correct the unobligated balance brought forward, October 1 for FY 2020 and FY 2019.

FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 57

Chapter 2 Financial Statements and Auditors Report Note 19 - Financial Statements to Reclassified Financial Statements For the period ending September 30, 2020 Line Items Used to Prepare the Government-wide NRC Financial Statement Balance sheet Assets Assets Intra-Governmental Assets Intra-Governmental Assets FBWT $ 390,731 $ 390,731 FBWT Accounts Receivable 3,211 2,820 Accounts Receivable Total Accounts Receivable 3,211 2,820 Total Reclassified A/R Other 4,950 4,950 Advances to Others and Prepayments Total Other 4,950 4,950 Total Reclassified Other Total Intra-Governmental Assets 398,892 398,501 Total Intra-Governmental Assets Accounts Receivable, Net 67,485 67,876 Accounts and Taxes Receivable, Net General PP&E, Net 46,764 46,764 PP&E, Net Other 76 76 Other Assets Total Assets $ 513,217 $ 513,217 Total Assets Liabilities Liabilities Intra-Governmental Liabilities Intra-Governmental Liabilities Accounts Payable $ 9,199 $ 15,006 Accounts Payable Total Accounts Payable 9,199 15,006 Total Reclassified Accounts Payable Other - Custodial Liability 65 65 Liability to GF for Custodial and Other Non-Entity Assets 5,413 Benefit Program Contributions Payable Other - Miscellaneous Liabilities 12,669 14 Advances from Other & Deferred 1,435 Other Liabilities Total Other - Miscellaneous Total Reclassified Other -

12,669 6,862 Liabilities Miscellaneous Liabilities Total Intra-Governmental 21,933 21,933 Total Intra-Governmental Liabilities Liabilities Accounts Payable 24,113 24,113 Accounts Payable Federal Employee and Veteran Federal Employee and Veteran 4,607 54,036 Benefits Benefits Payable Miscellaneous Liabilities 81,890 32,461 Other Liabilities Total Liabilities $ 132,543 $ 132,543 Total Liabilities FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 58

Chapter 2 Financial Statements and Auditors Report Net Position Net Position Unexpended Appropriations -

Funds from Dedicated Collections 315,755 Net Position - Funds from Dedicated 380,674 Collections Cumulative Results of Operations - 64,919 Funds from Dedicated Collections Total Net Position 380,674 380,674 Total Net Position Total Liabilities & Net Position $ 513,217 $ 513,217 Total Liabilities & Net Position Statement of Net Cost to Reclassified Statement of Net Cost For the period ending September 30, 2020 NRC Financial Statement Line Items Used to Prepare the Government-wide SNC Non-Federal Costs

$ 663,459 Non-Federal Gross Cost 663,459 Total Non-Federal Costs Intragovernmental Costs 90,165 Benefit Program Costs Gross Costs $ 927,606 22,381 Imputed Costs 124,388 Buy/Sell Costs 7,475 Purchase of Assets (7,475) Purchase of Assets Offset 27,213 Other Expenses (w/o Reciprocals) 264,147 Total Intragovernmental Costs Total Gross Costs 927,606 927,606 Total Reclassified Gross Costs 666,871 Non-Federal Earned Revenue 666,871 Total Non-Federal Revenue Earned Revenue 715,685 48,814 Buy/Sell Revenue 48,814 Total Intragovernmental Earned Total Earned Revenue 715,685 715,685 Total Reclassified Earned Revenue Net Cost $ 211,921 $ 211,921 Net Cost FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 59

Chapter 2 Financial Statements and Auditors Report For the period ending September 30, 2020 Line Items Used to Prepare the Government-wide NRC Financial Statement SCNP Unexpended Appropriation Unexpended Appropriations,

$ 340,983 $ 340,983 Net Position, Beginning of Period Beginning Balance Correction of Errors - years Preceding Corrections of Errors - -

the Prior Year Total Reclassified Corrections of Total Corrections of Errors - -

Errors Appropriations Received 154,852 154,414 Appropriations Received as Adjusted Other Adjustments (438)

Appropriations Used (179,642) (179,642) Appropriations Used (Federal)

Total Unexpended

$ 315,755 $ 315,755 Total Unexpended Appropriations Appropriations Cumulative Results of Operations Cumulative Results, Beginning

$ 74,871 $ 74,817 Net Position, Beginning of Period Balance Appropriations Used Appropriations Used Correction of Errors - - Correction of Errors - Years Preceding the Prior Year Non-Federal Non-Exchange 797 Revenues Non-Exchange Revenues 797 Other Taxes and Receipts 797 Total Non-Federal Non-Exchange Revenues Total Reclassified Non-Exchange Total Non-Exchange Revenues 797 797 Revenues Non-Expenditure Transfers-In of

- Unexpended Appropriations and Financing Sources Non-Expenditure Transfers-Out of Transfers In/Out w/o

- - Unexpended Appropriations and Reimbursement - Budgetary Financing Sources Total Reclassified Transfers In/Out w/o Reimbursement - Budgetary (Federal)

FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 60

Chapter 2 Financial Statements and Auditors Report Total Transfers-In/Out w/o - - Total Reclassified Transfers-In/Out w/o Reimbursement - Budgetary Reimbursement - Budgetary Intragovernmental Other (679) Accrual of Collections Yet to be Transferred to a TAS Other than the Other (797) General Fund (118) Other Budgetary Financing Sources (797) Total Intragovernmental Other Total Other (797) (797) Total Reclassified Other Imputed Financing 22,381 22,381 Imputed Financing Sources (Federal)

Total Financing Sources 202,023 202,023 Total Financing Sources Net Cost of Operations (211,921) (211,921) Net Cost of Operations Ending Balance - Cumulative 64,919 64,919 Net Position - Ending Balance Results of Operations Total Net Position $ 380,674 $ 380,674 Total Net Position FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 61

Chapter 2 Financial Statements and Auditors Report Required Supplementary Information Deferred Maintenance and Repairs for General Property, Plant, and Equipment Information on deferred maintenance and repairs (DM&R) is required under SFFAS 42, "Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32."

SFFAS 42 defines DM&R as maintenance and repairs that were not performed when they should have been or were scheduled to be and which are put off or delayed for a future period."

Maintenance and repairs (M&R) are defined as activities directed toward keeping fixed assets in an acceptable condition. Activities include preventive maintenance, replacement of parts, systems, or components; and other activities needed to preserve or maintain the asset. M&R, as distinguished from capital improvements, excludes activities directed towards expanding the capacity of an asset or otherwise upgrading it to serve needs different from, or significantly greater than, its current use.

DM&R should include funded and unfunded M&R activities that have been delayed to a future period. DM&R on inactive or excess G-PP&E should be included to the extent that it is required to maintain those items in acceptable condition. The NRC evaluated DM&R activities for leased facilities, the multiple components of the agency information technology infrastructure, and individual capital asset purchases with a cost equal to or greater than $50,000. The NRC did not include noncapitalized PP&E with a cost of less than $50,000, which are deemed immaterial.

Deferred Maintenance and Repairs for the NRC Facilities, Other Structures, and Capital Equipment For the NRC leased facilities and capital equipment purchases, the NRC typically does not have any DM&R. The NRC had no DM&R for facilities, other structures, and capital equipment as of September 30, 2020, and 2019.

Defining and Implementing Maintenance and Repair Policies in Practice For the NRC Headquarters facilities, the Agency uses the GSA guidelines for maintenance activities along with industry best practices to determine the preventive maintenance activities to perform and the schedule for those activities. For the building structures and systems, the maintenance contractor performs all required periodic maintenance to keep the systems and buildings in a good state of repair. The contractor is held to a 98 percent scheduled completion rate, with all the preventive maintenance completed within a reasonable time. When equipment reaches the end of its useful life, it is generally replaced with like-kind or upgraded equipment.

For any type of an emergent failure to facilities, the NRC would request additional funding, as needed, for repairs or replacement to structures and equipment.

FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 62

Chapter 2 Financial Statements and Auditors Report For the regional offices, the building management (lessor) is responsible for performing all required periodic maintenance to keep the systems and buildings in a good state of repair.

Generally, the regional leases contain the fixed assets, including equipment purchased to support the operations of the Agency's leased space, such as diesel generators and chillers for the Incident Response Center, the local area network, and power cooling. Equipment requiring repair results in a service repair call. For those instances where equipment is purchased to support the NRC regional operations, maintenance contracts are put in place to provide periodic service and maintenance on the equipment. When equipment reaches the end of its useful life, it is generally replaced with like-kind or with upgraded equipment. For any type of an emergent failure, the NRC would request additional funding, as needed, for repairs or replacement of equipment.

The TTC facility and associated systems are leased and maintained by the lessor. This includes any emergent repairs that may occur, as well as any scheduled maintenance. Assets within the TTC are predominantly maintained by facilities personnel or in some cases, such as for simulator systems, contractor personnel perform all required emergent and periodic maintenance to keep the simulator systems in a good state of repair. When equipment reaches the end of its useful life, it is replaced with like-kind or upgraded equipment.

Ranking and Prioritization of Maintenance and Repair Activities Personnel safety is a top priority at the NRC leased facilities. Maintenance activity, such as for fire alarms and emergency exits, is given top priority. If a preventative maintenance activity must be deferred, which is typically only for 2 to 4 weeks, the impact to personnel safety and building functionality is considered during the review. Other M&R activities are executed as required so that there is no disruption to the NRC operations and the TTC training schedules.

Factors Considered in Determining Acceptable Condition The NRC's Facilities Management Branch at the headquarters facilities perform the daily inspections and maintenance of the buildings and major systems. The NRC internally reviews planned maintenance activity records and historical logs of M&R to monitor condition information for equipment. Based on the information gathered, the NRC will determine whether planning for replacement or upgrade is needed. Additionally, the GSA conducts onsite inspections every 3 to 5 years at the headquarters facilities to assess the overall condition of the buildings and to determine when major systems and components need to be scheduled for replacement. For the TTC and regional offices, the NRC has a Facilities Management staff person onsite to work with the GSA to manage the buildings with support from the lessors. As a result, the GSA performs more frequent onsite inspections of the facilities. The NRC works in close coordination with the GSA to ensure that M&R activities are performed on a timely basis for all NRC-occupied facilities.

FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 63

Chapter 2 Financial Statements and Auditors Report Deferred Maintenance and Repairs for Information Technology Infrastructure and Systems The NRC had no DM&R for IT Infrastructure and Systems as of September 30, 2020 and 2019.

The NRC IT infrastructure is a network of multiple equipment, software, and service components, taken as a whole, which provides the critical communication network that allows the NRC to accomplish its mission. The NRC IT infrastructure encompasses the following:

End-user systems and support and end-user hardware includes desktop, laptop, and handheld devices; peripherals (local printers, shared printers); software (personal computer operating systems, office automation suites, messaging, and groupware), and hardware and software for help desks. Also included are network operations command centers, wire closets, and cable management. For regional offices, this includes regional end-user support similar to that provided by the Customer Support Center at the NRC Headquarters, which includes contract support and Federal full-time equivalent (FTE).

Telecommunications services includes data networks and telecommunications (including wireless, multimedia, and local and long-distance telephone); hardware and software operations; licenses; maintenance; and backup, continuity of operations, and disaster recovery. For regional offices, this includes local telecommunications, which includes contract support and Federal FTE.

Production operations include mainframes and servers (including Web hosting, but not Web content development and management); hardware and software operations; licenses; maintenance; and backup, continuity of operations, and disaster recovery. Also included resources related to carrying out Homeland Security Presidential Directive-12, which requires all Federal Executive departments and agencies to implement a Government-wide standard for secure and reliable forms of identification for access to Federal facilities and information systems.

The NRC relies on the asset project and program managers to execute the maintenance budget and to establish and modify the M&R schedule as needed. Ranking factors that may impact the M&R schedule include personnel safety, age of the asset, scheduled replacement date, budget constraints, and unforeseen or unexpected events.

Additionally, for IT systems, whether computer-off-the-shelf or internally developed software, the NRC relies on the project and program managers to establish a M&R budget and schedule.

Minor repairs, enhancements, and upgrades are completed internally through the regular M&R operations process. For major upgrades and replacement systems, the project manager must submit a request to perform the work to the appropriate IT governance boards for their approval.

Defining and Implementing Maintenance and Repair Policies in Practice All of the NRC IT infrastructure M&R activities are performed under various contracts which includes leasing of servers, computers, printers, and software and provides provisions for periodic monitoring, maintenance, and repairs. Replacement of miscellaneous equipment components and software is scheduled as needed when the equipment reaches the end of its FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 64

Chapter 2 Financial Statements and Auditors Report useful life and before the equipment and software become obsolete. Desktops and laptops are upgraded on a 3-year rolling schedule so that they do not become obsolete.

Ranking and Prioritization of Maintenance and Repair Activities The NRC program managers determine the requirements for ranking, scheduling, and performing IT infrastructure M&R activities and include them in the contractor statement of work.

For the critical IT infrastructure and support services contract, the main ranking factor is the age of the asset (e.g., desktop, laptop, printer), followed by cost and budget constraints. However, when applicable, personnel safety is considered and is the highest priority.

Factors Considered in Determining Acceptable Condition In determining acceptable condition, the NRC mainly considers the assets age, remaining useful life, and compatibility with current and required software.

FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 65

Chapter 2 Financial Statements and Auditors Report Combining Statement of Budgetary Resources (IN THOUSANDS)

Salaries and Office of the Nuclear For the fiscal year ended September 30, 2020 Inspector Facility Total Expenses General Fees Budgetary Resources:

Unobligated balance from prior-year budget authority, net $ 83,343 $ 3,748 $ - $ 87,091 Appropriations 845,536 13,314 330 859,180 Spending authority from offsetting collections 6,322 - - 6,322 Total Budgetary Resources $ 935,201 $ 17,062 $ - $ 952,593 Memorandum Entry:

Net adjustments to unobligated balance brought forward $ 17,312 $ 845 $ - $ 18,157 October 1 Status of Budgetary Resources:

New obligations and upward adjustments (total) (Note 12) $ 853,085 $ 12,154 $ - $ 865,239 Unobligated balance, end of period:

Apportioned, unexpired accounts 81,598 3,385 - 84,986 Exempt from apportionment, unexpired accounts 426 - 330 756 Unapportioned, unexpired accounts - - - -

Unexpired unobligated balance, end of year 82,024 3,385 330 85,739 Expired unobligated balance, end of year 92 1,523 - 1,615 Unobligated balance, end of year 82,116 4,908 330 87,354 Total Status of Budgetary Resources $ 935,201 $ 17,062 $ 330 $ 952,593 Outlays Net:

Outlays, net 867,622 12,260 - 879,882 Distributed offsetting receipts - - (704,328) (704,328)

Agency Outlays, Net $ 867,622 $ 12,260 $(704,328) $ 175,554 Salaries and Office of the Nuclear For the fiscal year ended September 30, 2019 Inspector Facility Total Expenses General Fees Budgetary Resources:

Unobligated balance from prior-year budget authority, net $ 46,760 $ 3,010 $ - $ 49,770 Appropriations 898,350 12,609 - 910,959 Spending authority from offsetting collections 3,662 - - 3,662 Total Budgetary Resources $ 948,772 $ 15,619 $ - $ 964,391 Memorandum Entry:

Net adjustments to unobligated balance brought forward $ 8,579 $ 47 $ - $ 8,626 October 1 Status of Budgetary Resources:

New obligations and upward adjustments (total) (Note 12) $ 882,673 $ 12,347 $ - $ 895,020 Unobligated balance, end of period:

Apportioned, unexpired accounts 66,557 2,160 - 67,717 Exempt from apportionment, unexpired accounts 407 - - 407 Unapportioned, unexpired accounts - - - -

Unexpired unobligated balance, end of year 65,964 2,160 - 68,124 Expired unobligated balance, end of year 136 1,111 - 1,247 Unobligated balance, end of year 66,100 3,271 - 69,371 Total Status of Budgetary Resources $ 948,773 $ 15,618 $ - $ 964,391 Outlays Net:

Outlays, net 874,413 11,570 - 885,983 Distributed offsetting receipts - - (772,216) (772,216)

Agency Outlays, Net $ 874,413 $ 11,570 $(772,216) $ 113,767 FY 2020 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 66