NUREG-2220 Volume 2, Fiscal Year 2018 - Agency Financial Report.

NUREG-2220, Volume 2, Fiscal Year 2018 - Agency Financial Report.

ML18317A204
Person / Time
Issue date:	11/30/2018
From:	Stengel S NRC/OCFO
To:
Meyd, Donald
References
NUREG-2220 V02
Download: ML18317A204 (112)

Text

Fiscal Year 2018 Agency Financial Report UNITED STATES NUCLEAR REGULATORY COMMISSION

AVAILABILITY OF REFERENCE MATERIALS IN NRC PUBLICATIONS NRC Reference Material Non-NRC Reference Material As of November 1999, you may electronically access Nuclear Documents available from public and special technical Regulatory Commission document identifier (NUREG)-series libraries include all open literature items, such as books, publications and other NRC records at NRCs Library journal articles, transactions, Federal Register notices, at www.nrc.gov/reading-rm.html. Publicly released records Federal and State legislation, and congressional reports. Such include, to name a few, NUREG-series publications; Federal documents as theses, dissertations, foreign reports and Register notices; applicant, licensee, and vendor documents translations, and non-NRC conference proceedings may be and correspondence; NRC correspondence and internal purchased from their sponsoring organization.

memoranda; bulletins and information notices; inspection and investigative reports; licensee event reports; and Commission Copies of industry codes and standards used in a papers and their attachments. substantive manner in the NRC regulatory process are maintained at NRC publications in the NUREG series, NRC regulations, and The NRC Technical Library Title 10, Energy, in the Code of Federal Regulations may also Two White Flint North be purchased from one of these two sources. 11545 Rockville Pike Rockville, MD 20852-2738

1. The Superintendent of Documents U.S. Government Publishing Office These standards are available in the library for reference use Washington, DC 20402-0001 by the public. Codes and standards are usually copyrighted Internet: bookstore.gpo.gov and may be purchased from the originating organization or, if Telephone: 1-202-512-1800 they are American National Standards, from Fax: (202) 512-2104 American National Standards Institute 11 West 42nd Street

2. The National Technical Information Service New York, NY 10036-8002 5301 Shawnee Road www.ansi.org Alexandria, VA 22312-0002 (212) 642-4900 www.ntis.gov 1-800-553-6847 or, locally, (703) 605-6000 Legally binding regulatory requirements are stated only in A single copy of each NRC draft report for comment is laws; NRC regulations; licenses, including technical available free, to the extent of supply, upon written request specifications; or orders, not in NUREG-series publications.

as follows: The views expressed in contractor prepared publications in this series are not necessarily those of the NRC.

Address: U.S. Nuclear Regulatory Commission The NUREG series comprises (1) technical and Office of Administration administrative reports and books prepared by the staff Multimedia, Graphics, and (NUREG-XXXX) or agency contractors (NUREG/CR-Storage & Distribution Branch XXXX), (2) proceedings of conferences (NUREG/CP-XXXX), (3) reports resulting from international agreements Washington, DC 20555-0001 (NUREG/IA-XXXX), (4) brochures (NUREG/BR-XXXX),

E-mail: distribution.resource@nrc.gov and (5) compilations of legal decisions and orders of the Facsimile: (301) 415-2289 Commission and Atomic and Safety Licensing Boards and Some publications in the NUREG series that are posted at of Directors decisions under Section 2.206 of NRCs the NRCs Web site address www.nrc.gov/reading-rm/doc- regulations (NUREG-0750).

collections/nuregs are updated periodically and may differ from the last printed version. Although references to material DISCLAIMER: This report was prepared as an account of found on a Web site bear the date the material was work sponsored by an agency of the U.S. Government.

accessed, the material available on the date cited may Neither the U.S. Government nor any agency thereof, nor subsequently be removed from the site. any employee, makes any warranty, expressed or implied, or assumes any legal liability or responsibility for any third partys use, or the results of such use, of any information, apparatus, product, or process disclosed in this publication, or represents that its use by such third party would not infringe privately owned rights.

About This Report The Agency Financial Report (AFR) for the U.S. Nuclear Regulatory Commission (NRC) provides financial and summary performance information in accordance with Office of Management and Budget Circular A-136, Financial Reporting Requirements. This AFR is an account of the agencys stewardship of its resources during fiscal year (FY) 2018, which covers the period from October 1, 2017, to September 30, 2018. The report is organized into the following three chapters:

• Chapter 1: Managements Discussion and Analysis This chapter provides an overview of the NRC financial information and summary-level program performance information. It includes an overview of program performance, current status of systems, internal controls, financial management, and the FY 2018 financial statement analysis.

• Chapter 2: Financial Statements and Auditors Report This chapter contains details on the NRCs finances for FY 2018. It includes a message from the Chief Financial Officer, the financial statements and accompanying notes, required supplementary information, and the independent auditors report.

• Chapter 3: Other Information This chapter provides the Office of the Inspector Generals discussion of management and performance challenges, a summary of the financial statement audit, information on payment integrity and fraud, space occupancy, a glossary of acronyms, and other information.

NRC Reports on the Agency Web Site:

• AFRs since FY 2017 at http://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr2220/

• The NRC has chosen to produce an AFR and an Agency Performance Report. The FY 2018 Agency Performance Report will accompany the NRCs FY 2020 Congressional Budget Justification and will be posted on the NRCs Web site at https://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1100/ after publication of the report.

• Performance and Accountability Reports for years before FY 2017, at http://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1542/.

Public Protection Notification The NRC may not conduct or sponsor, and a person is not required to respond to, a request for information or an information collection requirement unless the requesting document displays a currently valid Office of Management and Budget control number.

The document NUREG-2220, Volume 2, has been reproduced from the best available copy.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment iii

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment iv

Table of Contents The Commission .......................................................................................................... vi A Message from the Chairman ................................................................................... vii Chapter 1: Managements Discussion and Analysis................................................. 1 Mission - Vision - Principles of Good Regulation ................................................................... 2 About the NRC ....................................................................................................................... 3 The NRCs Organizational Structure ....................................................................................... 4 The NRCs Regulatory Activities ............................................................................................. 5 The Nuclear Industry .............................................................................................................. 6 Future Challenges....10 Source of Funds ....................................................................................................................12 Analysis of the Financial Statements .....................................................................................14 Management Assurances, Systems, Controls, and Legal Compliance ..................................18 Program Performance Overview............................................................................................24 Chapter 2: Financial Statements and Auditors Report .......................................... 31 A Message from the Chief Financial Officer ...........................................................................32 Financial Statements .............................................................................................................34 Notes to the Financial Statements .........................................................................................38 Required Supplementary Information ....................................................................................53 Inspector Generals Letter Transmitting Independent Auditors Report ..................................57 Independent Auditors Report ................................................................................................60 Managements Response to the Independent Auditors Report .............................................66 Chapter 3: Other Information .................................................................................... 67 Inspector Generals Assessment of the Most Serious Management and Performance Challenges Facing the NRC ..................................................................................................68 Summary of Financial Statement Audit and Management Assurances ..................................93 Payment Integrity...................................................................................................................94 Fraud Reduction Report ........................................................................................................96 Reduce the Footprint .............................................................................................................97 Civil Monetary Penalty Adjustment for Inflation ......................................................................98 Grants Oversight & New Efficiency (GONE) Act Requirements .............................................99 Acronyms and Abbreviations ...............................................................................................100 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment v

The Commission The authority of the U.S. Nuclear Regulatory Commission is vested in a Commission of five members, with one member designated by the President of the United States to serve as Chairman. With the advice and consent of the Senate, the President appoints each member to serve a 5-year term. The Chairman is the chief executive officer and official spokesperson for the Commission. The Commission as a whole formulates policies and regulations governing the safety and security of nuclear reactors and materials, issues orders to licensees, and adjudicates legal matters brought before it. The Executive Director for Operations carries out program policies and decisions made by the Commission.

Chairman Kristine L. Svinicki Commissioner Jeff Baran Commissioner Stephen G. Burns Commissioner Annie Caputo Commissioner David A. Wright FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment vi

A Message from the Chairman The U.S. Nuclear Regulatory Commission (NRC) is pleased to present its fiscal year (FY) 2018 Agency Financial Report (AFR).

This report presents the NRCs continuing success in achieving its mission to license and regulate the Nations civilian use of radioactive materials to provide reasonable assurance of adequate protection of public health and safety and to promote the common defense and security. The AFR provides key financial information with a summary of program performance to the President, Congress, and the American people detailing how we used our resources during FY 2018. The AFR is available at http://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr2220/.

The NRC is an independent regulatory agency devoted to the effective and efficient oversight of the Nations operating power, research, and test nuclear reactors. The agency also maintains oversight of nuclear reactors in various stages of decommissioning. The NRC reviews all safety aspects of new reactor designs, siting, and construction of new nuclear power reactors, including small modular reactors and advanced reactors. Further, the agency focuses on the safe and secure use of nuclear materials in the energy, medical, educational, and industrial sectors through effective oversight of fuel facilities, uranium recovery sites, decommissioning sites, spent nuclear fuel sites, and nuclear material user licensees. The NRC met all of its strategic goals, objectives, and performance indicator targets in FY 2018.

The NRC is committed to good governance and the prudent management of resources entrusted to it by the American people and effectively managed its internal control environment during FY 2018. There were no material internal control weaknesses uncovered in our assessment. Based on Federal Managers Financial Integrity Act of 1982 assessments, I have concluded there is reasonable assurance that the agency is in substantial compliance. The financial and summary performance data published in this report are complete, accurate, reliable, and timely, in accordance with the Reports Consolidation Act of 2000 and Office of Management and Budget Circular A-136, Financial Reporting Requirements. Additionally, I have concluded that the agency is in substantial compliance with the Federal Financial Management Improvement Act of 1996 (FFMIA), based on the NRCs application of the FFMIA risk model.

I continue to be impressed by the performance and dedication of NRC employees in achieving the agencys safety and security goals. As an agency, we look forward to continuing to provide the high-quality service the American people have come to expect from us.

Kristine L. Svinicki Chairman November 8, 2018 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment vii

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment viii

Chapter 1: Managements Discussion and Analysis FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 1

Chapter 1 Managements Discussion and Analysis Mission The U.S. Nuclear Regulatory Commission (NRC) licenses and regulates the Nations civilian use of radioactive materials to provide reasonable assurance of adequate protection of public health and safety, and to promote the common defense and security, and to protect the environment.

Vision Demonstrate the Principles of Good Regulation in performing our mission.

To be successful, the NRC must not only excel in carrying out its mission but must do so in a manner that engenders the trust of the public and stakeholders. The Principles of Good Regulationindependence, openness, efficiency, clarity, and reliabilityguide the agency.

They affect how the NRC reaches decisions on safety, security, and the environment; how the NRC performs administrative tasks; and how its employees interact with each other as well as external stakeholders, and promotes trust in the agency. The agency puts these principles into practice with effective, realistic, and timely actions.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 2

Chapter 1 Managements Discussion and Analysis About the NRC The U.S. Congress established the NRC on January 19, 1975, as an independent Federal agency regulating the commercial and institutional uses of nuclear materials. The Atomic Energy Act of 1954, as amended, and the Energy Reorganization Act of 1974, as amended, define the NRCs purpose. These acts provide the foundation for the NRCs mission to regulate the Nations civilian use of byproduct, source, and special nuclear materials to provide adequate protection of public health and safety, to promote the common defense and security, and to protect the environment. The agency regulates civilian nuclear power plants and other nuclear facilities, as well as other uses of nuclear materials. These other uses include nuclear medicine programs at hospitals; academic activities at educational institutions; research work; industrial applications, such as gauges and testing equipment; and the transport, storage, and disposal of nuclear materials and wastes. Additional information about the NRC is available in the Information Digest at https://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1350/.

NRC Headquarters is located in Rockville, MD. The agency Operations Center in the headquarters building coordinates communications with NRC licensees, State agencies, and other Federal agencies. This center is the focal point for assessing and responding to operating events in the industry. NRC operations officers staff the Operations Center 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day, 7 days a week. The agency also has four regional offices located in King of Prussia, PA; Atlanta, GA; Lisle, IL; and Arlington, TX. The regional offices allow the agency to work closely with the agencys licensees to ensure safety. The NRC also employs at least two resident inspectors at each of the Nations nuclear power reactor, new reactor, and fuel fabrication sites.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 3

Chapter 1 Managements Discussion and Analysis The NRCs Organizational Structure Commissioner Executive Director, General Counsel Advisory Committee Director, Office Director, Office on Reactor Safeguards of Congressional of Public Affairs Affairs Director, Office of Director, Office of International Programs Commission Appellate Adjudication Secretary Inspector of the Commission General Chief Administrative Judge (Chairman), Atomic Safety Chief Financial and Board Panel Officer Executive Director for Operations Deputy Executive Director Deputy Executive Director for Materials, Director, Office of for Reactor and Waste, Research, State, Tribal, Compliance, Small Business Preparedness Programs Administration, and Human Capital Programs and Civil Rights Director, Office of Chief Information Nuclear Regulatory Officer Research Assistant for Director, Office of Operations Enforcement Director, Office of Director, Office of I New Reactors Director, Office of Administration Director, Office of Nuclear Security and Incident Response Director, Office of Nuclear Reactor I

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 4

Chapter 1 Managements Discussion and Analysis The NRCs Regulatory Activities The NRC performs five principal regulatory functions: developing regulations and guidance for applicants and licensees; licensing or certifying applicants to use nuclear materials, operate nuclear facilities, construct new nuclear facilities, and decommission facilities; inspecting and assessing licensee operations and facilities to verify that licensees are complying with NRC requirements and taking appropriate follow-up or enforcement actions when necessary; evaluating operational experience of license facilities and activities; and conducting research, holding hearings, and obtaining independent reviews to support regulatory decisions (see Figure 1).

The standards and regulations established by the agency set the rules that users of radioactive materials must follow. Drawing on the knowledge and experience of the agencys scientists and engineers, these rules are the basis for protecting workers and the general public from the potential hazards associated with the use of radioactive materials.

With a few exceptions, any organization or individual intending to have or use

1. Developing regulations and guidance for applicants and licensees.

radioactive materials must 2. Licensing or certifying applicants to use nuclear materials, operate nuclear facilities, and decommission facilities.

obtain a license. A license 3. Inspecting and assessing licensee operations and facilities to ensure licensees comply with NRC requirements, identifies the type and amount responding to incidents, investigating allegations of wrongdoing and taking appropriate follow-up or enforcement actions when necessary.

of radioactive material that 4. Evaluating operational experience of licensed facilities and activities.

may be held and used. NRC 5. Conducting research, holding hearings, and obtaining independent reviews to support regulatory decisions.

scientists and engineers evaluate the license Figure 1 How We Regulate application to ensure that the potential licensees use of nuclear materials meets the agencys safety and security requirements.

The NRC regulates 98 commercial nuclear power reactors operating in 30 States at 59 sites; 31 research and test reactors; about 4,600 people licensed to operate reactors; 21 nuclear reactors in various stages of decommissioning; 78 independent spent fuel storage installations; 13 licensed fuel cycle facilities; 11 uranium recovery sites; and about 2,800 licenses for medical, academic, industrial, and general uses of nuclear materials. The agency conducts approximately 1,000 health and safety inspections of its nuclear materials licensees annually.

Under the NRCs Agreement State program, 38 States have assumed primary regulatory responsibility for the industrial, medical, and other users of nuclear materials within their States, accounting for approximately 17,000 licensees. The NRC works closely with these States to assist them in maintaining public safety through acceptable licensing and inspection procedures.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 5

Chapter 1 Managements Discussion and Analysis The Nuclear Industry The NRC is responsible for regulating all aspects of the civilian nuclear industry. The industry can best be described by examining the nuclear fuel cycle (see Figure 2). The nuclear material cycle begins with the mining and production of nuclear fuel or the use of nuclear materials for medical, industrial, and other applications, continues with the use of nuclear fuel to power the Nations nuclear power plants, and ends with the safe transportation and storage of spent nuclear fuel and other nuclear waste. The NRCs regulatory programs provide reasonable assurance that radioactive materials are used safely and securely at every stage in the nuclear material cycle. To address safety and security issues, the NRC has developed regulatory practices, knowledge, and expertise specific to each activity in the nuclear fuel cycle.

Fuel Facilities The production of nuclear fuel begins at uranium mines where milled uranium ore is used to produce a uranium concentrate called yellowcake. At a special facility, the yellowcake is converted into uranium hexafluoride (UF 6 ) gas and loaded into cylinders. The cylinders are sent to a gaseous diffusion plant, where uranium is enriched for use as reactor fuel.

The enriched uranium is then converted into oxide powder, fabricated into fuel pellets (each about the size of a fingertip),

loaded into metal fuel rods about 3.5 meters long, and bundled into Figure 2 The Nuclear Fuel Cycle reactor fuel assemblies at a fuel fabrication facility. Assemblies are then transported to nuclear power plants, non-power research reactor facilities, and naval propulsion reactors for use as fuel (see Figure 3). The NRC licenses eight major fuel fabrication and production facilities and three enrichment facilities in the United States. Because they handle extremely hazardous material, these facilities take special precautions to prevent theft, diversion, and dangerous exposures.

Figure 3 Simplified Fuel Fabrication Process FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 6

Chapter 1 Managements Discussion and Analysis Reactors The NRC licensed nuclear reactors generate approximately 20 percent of the U.S. gross electricity needs, or about 805 billion kilowatt hours annually. The NRC regulates about 80 different reactor designs. To generate electricity, power plants change one form of energy into another. Electrical generating plants convert heat energy, the kinetic energy of wind or falling water, or solar energy into electricity. Other types of heat-conversion plants burn coal, oil, or gas to produce heat energy that is then used to produce electricity. Nuclear energy cannot be seen. Heat energy is not produced by the burning of fuel in the usual sense. Rather, energy is given off by the nuclear fuel as certain types of atoms split in a process called nuclear fission.

This energy is in the form of fast-moving particles and radiation. As the particles and radiation move through the fuel and surrounding water, the energy is converted into heat, which generates electricity. The radiation energy can be hazardous, and facilities take special precautions at nuclear power plants to protect people and the environment from these hazards (see Figures 4 and 5).

Because the fission reaction produces potentially hazardous radioactive materials, nuclear power plants are equipped with safety systems to protect workers, the public, and the environment. Radioactive materials require careful use because they produce radiation, a form of energy that can damage human cells. Depending on the amount and duration of the exposure, radiation can potentially cause cancer. In a nuclear reactor, most hazardous radioactive substances, called fission byproducts, are trapped in the fuel pellets, or in the sealed metal tubes holding the fuel. However, small amounts of these radioactive fission byproducts, principally gases, become mixed with the water passing through the reactor. Other impurities in the water also become radioactive as they pass through the reactor. The facility processes and filters the water to remove these radioactive impurities and then returns the water to the reactor cooling system.

Figure 4 The Boiling-Water Reactor Figure 5 The Pressurized-Water Reactor FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 7

Chapter 1 Managements Discussion and Analysis Materials Users The medical, academic, and industrial fields all use nuclear materials. For example, about one-third of all patients admitted to U.S. hospitals are diagnosed or treated using radioisotopes.

Most major hospitals have specific departments dedicated to nuclear medicine. Of the nuclear medicine or radiation therapy procedures performed annually, the vast majority are used in diagnoses. Radioactive materials used as a diagnostic tool can identify the status of a disease and minimize the need for surgery. Radioisotopes give doctors the ability to look inside the body and observe soft tissues and organs, in a manner similar to the way x-rays provide images of bones. Radioisotopes carried in the blood also allow doctors to detect clogged arteries or check the functioning of the circulatory system.

The same property that makes radiation hazardous can also make it useful in treating certain diseases like cancer. When living tissue is exposed to high levels of radiation, cells can be destroyed or damaged. Doctors can selectively expose cancerous cells (cells that are dividing uncontrollably) to radiation to either destroy or damage these cells.

Many of todays industrial processes also use nuclear materials. Technologically advanced methods that ensure the quality of manufactured products often rely on radiation generated by radioisotopes. To determine whether a well drilled deep into the ground has the potential for producing oil, geologists use nuclear well-logging, a technique that employs radiation from a radioisotope inside the well, to detect the presence of different materials. Radioisotopes are also used to sterilize instruments, find flaws in critical steel parts and welds that go into automobiles and modern buildings, authenticate valuable works of art, and solve crimes by spotting trace elements of poison. Radioisotopes can also eliminate dust from film and compact discs and reduce static electricity (which may create a fire hazard) from can labels. In manufacturing, radiation can change the characteristics of materials, often giving them features that are highly desirable. For example, wood and plastic composites treated with gamma radiation resist abrasion and require low maintenance. As a result, they are used for some flooring in high-traffic areas of department stores, airports, hotels, and churches.

Waste Disposal During normal operations, a nuclear power plant generates both high level radioactive waste, which consists of used fuel (usually called spent fuel), and low level radioactive waste, which includes contaminated equipment, filters, maintenance materials, and resins used in purifying water for the reactor cooling system. Other users of radioactive materials also generate low level waste.

Nuclear power plants handle each type of radioactive waste differently. They must use special procedures in the handling of the spent fuel because it contains the highly radioactive fission byproducts created while the reactor was operating. The spent fuel from nuclear power plants can be stored in water-filled pools at each reactor site. The water in the spent fuel storage pool provides cooling and adequately shields and protects workers from the radiation. Nuclear power plants also use dry casks to store spent fuel. These large metal or concrete casks rest on concrete pads adjacent to the reactor facility. The thick layers of concrete and steel in these casks shield workers and the public from radiation.

Currently, most spent fuel in the United States remains stored at individual plants. Permanent disposal of spent fuel from nuclear power plants will require a disposal facility that can provide reasonable assurance that the waste will remain isolated for thousands of years.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 8

Chapter 1 Managements Discussion and Analysis Licensees often store low-level waste on site until its radioactivity has decayed and the waste can be disposed of as ordinary trash, or until amounts are large enough for shipment to a low level waste disposal site in containers approved by the U.S. Department of Transportation. The NRC has developed a waste classification system for low-level radioactive waste based on its potential hazards and has specified disposal and waste form requirements for Class A, Class B, and Class C waste. Generally, Class A waste contains lower concentrations of radioactive material than Class B and Class C wastes. The two disposal facilities that accept a broad range of low level wastes are located in Barnwell, SC, and Richland, WA.

Spent Fuel Dry Cask Storage FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 9

Chapter 1 Managements Discussion and Analysis Future Challenges There are many challenges and external factors that influence the ability of the NRC to achieve its strategic goals and associated objectives. The most significant challenges include industry operating experience, national priorities, a potential significant incident at a domestic or non-U.S. nuclear facility, the security and threat environment, legislation, Federal court litigation, market forces, new technologies, and resource availability. The NRC strives to respond promptly to shifts in Agency priorities necessitated by these challenges. The nuclear industry has maintained an excellent safety record at nuclear power plants over decades as both the nuclear industry and the NRC have gained substantial experience in the operation and maintenance of nuclear power facilities. Maintaining this excellent safety record requires that the agency take proactive measures to ensure the accomplishment of its mission. The key challenges the Agency faces are highlighted below.

Market Forces Many market forces affect the nuclear industry. These can affect the business operations of facility operators and license applicants subject to NRC jurisdiction and therefore the workload before the agency. The NRC must be prepared with the regulatory infrastructure to continue to provide reasonable assurance of the safety and security of operating facilities, support areas such as decommissioning of nuclear power plants, changes in exports and imports, and licensing of new technologies and facilities.

Globalization and Development of Nuclear Technology Technological changes may affect the development of advanced nuclear systems and support infrastructure, resulting in impacts to the industry activities subject to NRC jurisdiction.

Increased globalization of nuclear technology, including small modular reactors and advanced reactor designs, could increase competition in the nuclear supply chain and; therefore, could affect industry operating costs and increase the complexity of regulatory oversight due to the need to encompass foreign vendors. In addition to operating and regulatory impacts on the domestic nuclear industry, globalization increases the value of the NRCs enhanced cooperation with international organizations for licensing activities, training, development and implementation of codes and standards, and conventions and treaties to ensure safe and secure use of nuclear technology.

Incidents The U.S. national security landscape will continue to be dynamic, encompassing a full range of threats and incidents, including the identification of and protection against, cyber and physical security threats. As a result, the regulatory approach needed to ensure the safety and security of nuclear materials and infrastructure may need to evolve in response to such incidents and threats. A significant incident at a nuclear facility, whether caused by adversaries, natural disaster, or other factors, could prompt the agency to reassess its safety and security requirements and could impact the agencys focus. The NRC must anticipate and be prepared for an operational and regulatory response to threats and incidents involving nuclear infrastructure. An incident at a non-U.S. facility could also cause the NRC to reassess its safety and security requirements.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 10

Chapter 1 Managements Discussion and Analysis Legislative and Executive Branch Actions Congressional or Executive Branch actions may affect the NRCs regulatory responsibilities, and strategies to comply with new direction would need to be developed.

International Treaties and Conventions The ratification by the United States of international instruments related to the safety of nuclear facilities or radioactive materials could potentially impose binding provisions on the Nation that can affect responsible governmental agencies, such as the NRC. Strategies to comply with new provisions would need to be developed.

Workforce Dynamics The agencys most valuable resource is its staff, and its ability to recruit, hire, train, motivate, and retain qualified staff in a competitive job market is critical to meeting its strategic goals. The agency must also maintain a high-performing, diverse, engaged, and flexible workforce supported by a healthy organizational culture with a focus on safety, security, and continuous improvement to meet mission needs. This will require the NRC to better understand and meet the needs of its employees and become a more flexible and agile organization.

Information Technology Advances Information technology developments in an increasingly mobile society will impact the agencys operations. The NRC will need to take advantage of technology to enable an effective and efficient work environment. It is essential to maintain a reasonable balance between the need to maximize technological innovation to perform the Agencys mission and the secure use and protection of sensitive and proprietary information. The NRC needs to be aware of the heightened risk that sensitive information held by the Agency or its licensees could be lost, misplaced, or intercepted and obtained by unauthorized users. The Agency will need to develop and maintain a knowledgeable workforce capable of addressing both these technology and security challenges.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 11

Chapter 1 x Managements Discussion and Analysis Source of Funds Appropriations The NRC receives two appropriations: (1) Salaries and Expenses and (2) the Office of the Inspector General (OIG). For FY 2018, the NRC received total appropriations of $922.0 million, which included $909.1 million for the Salaries and Expenses appropriation and $12.9 million for the OIG. The NRCs Salaries and Expenses appropriation increased $4.1 million compared to the prior-year. The appropriation for the OIG increased by $0.8 million.

The Salaries and Expenses appropriation is available until expended. This includes a provision that not more than $9.5 million be made available for the Office of the Commission; these funds are available for obligation by the NRC through September 30, 2019. After that date, the remaining funds that have not been obligated for the Office of the Commission are available until expended as part of the Salaries and Expenses appropriation.

The OIG appropriation is available to obligate for 2 years (FY 2018 and FY 2019) through September 30, 2019. This 2-year funding includes $1.1 million for Inspector General services provided to the Defense Nuclear Facilities Safety Board (DNFSB).

Total Budget Authority The total budget authority Table 1 Total Budget Authority (IN MILLIONS) available for the NRC to For the fiscal years ended 2018 2017 Inc/(Dec) obligate in FY 2018 was September 30,

$975.2 million and included Appropriations

$922.0 million for current Salaries and Expenses $909.1 $905.0 $4.1 year appropriations, Office of the Inspector General 12.9 12.1 0.8

$38.7 million from, prior-year appropriations, Total Appropriations 922.0 917.1 4.9

$10.5 million from Other Budget Authority recoveries of prior-year Unobligated balance from obligations, and $4.0 million prior-year budget authority, 38.7 42.0 (3.3) spending authority from brought forward October 1 offsetting collections. Recoveries of prior-year 10.5 14.5 (4.0)

Funds available to obligate obligations in FY 2018 decreased from Spending Authority from 4.0 5.6 (1.6) the FY 2017 amount of Offsetting Collections

$979.2 million by Total Other Budget Authority 53.2 62.1 (8.9)

$4.0 million, primarily as a Total NRC Budget Authority $975.2 $979.2 $(4.0) result of an increase of

$4.9 million in appropriations, offset by decreases of $3.3 million in unobligated balances from prior-year budget authority, $4.0 million in recoveries of prior-year obligations, and $1.6 million in spending authority from offsetting collections.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 12

Chapter 1 Managements Discussion and Analysis Fee Collection Offset of Appropriations The Omnibus Budget Table 2 Sources of Funds for Appropriations (IN MILLIONS)

Reconciliation Act of 1990 For the fiscal years ended (OBRA-90), as amended, September 30, 2018 2017 Inc/(Dec) requires the NRC to collect Reactor Fees Collected $697.0 $ 708.4 $(11.4) fees to offset approximately Materials Fees Collected 84.8 81.2 3.6 90 percent of its appropriation. By law, this Nuclear Waste Fund 0 0 0 excludes amounts Treasury General Fund 140.1 127.5 12.6 appropriated for Waste Total Sources of Funds $921.9 $917.1 $4.8 Incidental to Reprocessing, Generic Homeland Security, Inspector General services for the DNFSB, the Advanced Reactor Regulatory Infrastructure, International Activities, and the Nuclear Waste Fund (NWF). Funds equal to fees collected are transferred to the NRCs two appropriations, and the U.S. Department of the Treasury (Treasury) issues a negative warrant for the amount of the fee transfer to reduce the NRCs appropriations.

In FY 2018, the NRC collected fees and transferred $781.8 million to the Treasury and the net received from the Treasury general fund was $140.1 million (see Table 2). The fees collected during FY 2017 and transferred to the Treasury totaled $789.6 million.

Uses of Funds by Function Funds are used when the Table 3 Use of Funds (Obligations) (IN MILLIONS)

NRC incurs obligations For the fiscal years ended against budget authority. 2018 2017 Inc/(Dec)

September 30, Obligations are legally Salaries and Benefits $553.9 $567.3 $ (13.4) binding agreements that will Corporate Support 335.5 330.9 4.6 result in an outlay of funds.

Travel 21.6 21.1 0.5 The NRC incurred Grants 17.0 16.0 1.0 obligations of $934.0 million Reimbursable Work 6.0 5.2 0.8 in FY 2018, which Total Obligations $934.0 $940.5 $ (6.5) represented a decrease of

$6.5 million from FY 2017 (see Table 3). Approximately 59 percent of obligations in FY 2018 were for salaries and benefits. The remaining 41 percent were used to obtain technical assistance for the NRCs principal regulatory programs, to conduct confirmatory safety research, to cover operating expenses (e.g., building rentals, transportation, printing, security services, supplies, office automation, and training), and to pay for staff travel.

The unobligated budget authority at the end of FY 2018 was $41.1 million, which was a

$2.4 million increase from the FY 2017 amount of $38.7 million.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 13

Chapter 1 Managements Discussion and Analysis Analysis of the Financial Statements Chapter 2 of this AFR presents the NRCs financial statements, accompanying notes, and required supplementary information, along with the report of the independent auditors. The independent auditors issued an unmodified opinion on the financial statements and an unmodified opinion on internal controls over financial reporting for the fiscal years ended 2018 and 2017. Additionally, the independent auditors found no reportable instances of noncompliance with laws and regulations.

The principal financial statements are prepared to report the financial position and results of operations of the NRC, pursuant to the requirements of 31 United States Code (U.S.C.) § 3515(b). The statements are prepared from the books and records of the NRC in accordance with Federal generally accepted accounting principles (GAAP) and the formats prescribed by the Office of Management and Budget (OMB). Reports used to monitor and control budgetary resources are prepared from the same books and records. The financial statements should be read with the realization that they are for a component of the U.S. Government.

We present the following analysis of the financial statements and significant changes.

Table 4 Key Measures (IN MILLIONS)

For the fiscal years ended FY 2018 FY 2017 Inc/(Dec)  %

September 30, Assets:

Fund Balance with Treasury $386.9 $365.8 $21.1 5.8%

Accounts Receivable, Net 75.3 87.0 (11.7) (13.4%)

Advances and Prepayments 9.2 12.8 (3.6) (28.1%)

Property & Equipment, Net 65.0 79.9 (14.9) (18.6%)

Other Assets -

.1 .1 0 Total Assets $536.5 $545.6 $(9.1) (1.7%)

Liabilities:

Accounts Payable $31.9 $30.4 $1.5 4.9%

Federal Employee Benefits 5.3 5.4 (0.1) (1.9)%

Other Liabilities 77.7 78.2 (0.5) (0.1%)

Total Liabilities $114.9 $114.0 $0.9 0.1%

Net Position (Assets minus Liabilities) $421.6 $431.6 $(10.0) (2.3%)

COST BY PROGRAMS Nuclear Reactor Safety $741.9 $736.8 $5.1 0.7%

Nuclear Materials and Waste Safety 213.0 203.8 9.2 5.0%

LESS: Earned Revenue (License Fees) 774.7 796.3 (21.6) (2.7%)

Net Cost of Operations $180.2 $144.3 $35.9 24.9%

COST BY STRATEGIC GOALS Safety $912.8 $896.7 $16.1 1.8%

Security 42.1 43.9 (1.8) (4.1%)

LESS: Earned Revenue (License Fees) 774.7 796.3 (21.6) (2.7%)

Net Cost of Operations $180.2 $144.3 $35.9 24.9%

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 14

Chapter 1 Managements Discussion and Analysis Analysis of the Balance Sheet Assets. The NRCs total assets were $536.5 million as of September 30, 2018, representing a decrease of $9.1 million from the fiscal year ended September 30, 2017. Changes in major categories include an increase of $21.1 million in the Fund Balance with Treasury, offset by decreases of $3.6 million in Advances and Prepayments, $14.9 million in Property and Equipment, Net, and $11.7 million in Accounts Receivable, Net.

The Fund Balance with Treasury was $386.9 million as of September 30, 2018, which accounts for 72 percent of total assets. This account consists of cash or cash equivalents from appropriated funds, license fee collections, and other funds maintained at the Treasury to pay current liabilities and to finance authorized purchase commitments. The Fund Balance with Treasury can vary largely due to timing of disbursing payments and receiving collections as well as changes in the appropriations. The increase of $21.1 million in the Fund Balance with Treasury is primarily the result of a decrease in Net Outlays of $18.7 million and an increase of

$4.9 million in appropriations, offset by a decrease of $2.4 million in the beginning balance.

Accounts Receivable consists mostly of amounts that other Federal agencies and the public owe to the NRC for license fees. As of September 30, 2018, Accounts Receivable, Net were

$75.3 million, which includes an offsetting allowance for doubtful accounts of $2.8 million. This represents a net decrease in Accounts Receivable, Net of $11.7 million from the FY 2017 amount of $87.0 million. The decrease is primarily due to decreases in intragovernmental fees receivable of $1.5 million, billed fees receivable of $4.6 million, unbilled fees receivable of

$6.9 million and the allowance for doubtful accounts of $1.0 million and an increase of

$0.3 million in other receivables. The changes result from the reduced fee base used for collections and an increased collection effort.

Property and Equipment, Net consists primarily of typical office furnishings, leasehold improvements, nuclear reactor simulators, and computer hardware and software. The NRC has no real property. The land and buildings in which the NRC operates are leased from the U.S.

General Services Administration (GSA). At the end of FY 2018, Property and Equipment, Net was $65.0 million, a $14.9 million decrease from the FY 2017 amount of $79.9 million. The decrease primarily results from the amortization of completed Leasehold Improvements and a reduction of Leasehold Improvements in Progress in the amount of $11.3 million due to the completion of renovations of headquarters offices. Property and Equipment is further decreased by $14.9 million in Internal Use Software under Development which is offset by an increase in Software capitalized of $11.9 million.

Liabilities. Total liabilities were $114.9 million as of September 30, 2018, representing an increase of $0.9 million from the FY 2017 balance of $114.0 million. Liabilities consist primarily of accounts payable to other Federal agencies and the public, grants payable, accrued salaries and benefits, and other accrued employee benefits.

Total liabilities include liabilities not covered by budgetary resources, which represent expenses recognized in the financial statements that will be paid from future appropriations. The liabilities not covered by budgetary resources are $48.8 million for FY 2018, compared to $48.6 million for FY 2017, a $0.2 million increase. For FY 2018 the liabilities not covered by budgetary resources represent 42 percent of Total Liabilities and include $42.5 million in unfunded accrued annual leave that has been earned but not yet taken, $5.3 million as an actuarial estimate of accrued future workers compensation expenses included in Federal Employee Benefits, and

$1.0 million in accrued workers compensation included in Other Liabilities.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 15

Chapter 1 Managements Discussion and Analysis Net Position. The difference between Total Assets and Total Liabilities, Net Position, was

$421.6 million as of September 30, 2018, a decrease of $10.0 million from the FY 2017 year-end balance. Net Position comprises two components: Unexpended Appropriations and Cumulative Results of Operations which is the cumulative excess of financing sources over expenses. The Analysis of the Statement of Changes in Net Position below presents additional information.

Analysis of the Statement of Net Cost The Statement of Net Cost presents the gross cost of the NRCs two major programs (Nuclear Reactor Safety and Nuclear Materials and Waste Safety) as identified in the NRC Annual Performance Plan, offset by earned revenue. The purpose of this statement is to link program performance to the cost of programs. The NRCs net cost of operations for the year ended September 30, 2018, was $180.2 million, representing an increase of $35.9 million compared to the FY 2017 net cost of $144.3 million. This includes an increase in gross costs of $14.3 million and a decrease in earned revenue of $21.6 million which result in an increase in net cost of

$35.9 million.

Gross Costs. The NRCs total gross costs were $954.9 million for FY 2018, an increase of

$14.3 million from the prior-year amount of $940.6 million. The gross costs in FY 2018 for the Nuclear Reactor Safety program were $741.9 million compared to FY 2017 gross costs of

$736.8 million, an increase of $5.1 million. The gross costs in FY 2018 for the Nuclear Materials and Waste Safety program were $213.0 million compared to FY 2017 gross costs of

$203.8 million, an increase of $9.2 million. Thus, the gross cost of both programs increased a total of $14.3 million. The increase is due to expected slight fluctuations across all cost categories. The gross cost of $954.9 million as incurred by the NRCs goals of Safety and Security were $912.8 million for the Safety goal and $42.1 million for the Security goal.

Earned Revenue. Total earned revenue for FY 2018 was $774.7 million, a decrease of

$21.6 million from the FY 2017 earned revenue of $796.3 million. Revenue for the Nuclear Reactor Safety program in FY 2018 was $692.9 million compared to $710.0 million in FY 2017, a decrease of $17.1 million. Revenue from the Nuclear Materials and Waste Safety program in FY 2018 was $81.8 million compared to $86.2 million in FY 2017, a decrease of $4.4 million.

The decrease in earned revenue is primarily a result of reductions in the fee base, that is, the amount of the appropriated budget that Congress directs the NRC to recover in license fees.

The $16.2 million appropriated budget for International Activities and an additional $5 million appropriated budget for the Advanced Reactor Regulatory Infrastructure program were taken off the fee base in FY 2018.

The NRC is required to collect approximately 90 percent of its appropriation through license fee billing. The agency collects fees for reactor and materials licensing and inspections in accordance with Title 10 of the Code of Federal Regulations (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, at https://www.nrc.gov/reading-rm/doc-collections/cfr/part170/, and 10 CFR Part 171, Annual Fees for Reactor Licenses and Fuel Cycle Licenses and Materials Licenses, Including Holders of Certificates of Compliance, Registrations, and Quality Assurance Program Approvals and Government Agencies Licensed by the NRC, at https://www.nrc.gov/reading-rm/doc-collections/cfr/part171/.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 16

Chapter 1 Managements Discussion and Analysis Analysis of the Statement of Changes in Net Position The Statement of Changes in Net Position reports the change in net position for the reporting period. Net position is affected by the changes in two components: (1) Cumulative Results of Operations and (2) Unexpended Appropriations. In FY 2018, the NRC had a decrease in Net Position of $10.0 million resulting from a decrease in Cumulative Results of Operations of

$28.2 million, offset by an increase of $18.2 million in Unexpended Appropriations.

The change in Unexpended Appropriations results from appropriations received, net of license fee collections, being more or less than the appropriations used to finance the NRC operations.

The increase in FY 2018 Unexpended Appropriations of $18.2 million resulted from an increase in the adjusted beginning balance of $9.4 million offset by an increase of $12.7 million in appropriations received, net of license fees collected, and a decrease of $3.9 million in appropriations used to finance the NRC operations. The increase in appropriations received, net of license fees collected, resulted from appropriations received for FY 2018 of

$922.0 million, reduced by current year license fee collections of $781.8 million, as compared to appropriations received in FY 2017 of $917.1 million, reduced by FY 2017 license fee collections of $789.6 million.

Analysis of the Statement of Budgetary Resources The Statement of Budgetary Resources (SBR) provides information on budgetary resources available to the NRC and their status at the end of the period. In FY 2018, the Total Budgetary Resources of $975.2 million were available. This was $4.0 million less than the $979.2 million available for FY 2017. The two major components of Total Budgetary Resources that contributed to the decrease are appropriations and the beginning unobligated balance brought forward, October 1. The decrease is due to the decrease of $7.3 million in the unobligated balances brought forward, net and $1.6 million in spending authority from offsetting collections, offset by an increase in appropriations of $4.9 million.

The SBR accounts for operational activities funded with the NRCs budgetary resources during the fiscal year. The NRCs obligations for FY 2018 totaled $934.0 million, a decrease of

$6.5 million from the prior-year amount of $940.5 million.

The SBR also accounts for the funds that were not used in operations during the fiscal year.

Total budgetary resources not obligated at the end of the fiscal year were $41.1 million, an increase of $2.4 million from the prior-year balance of $38.7 million.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 17

Chapter 1 Managements Discussion and Analysis Management Assurances, Systems, Controls, and Legal Compliance Federal Managers Financial Integrity Act of 1982 The Financial Managers Financial Integrity Act (FMFIA or Integrity Act) mandates that Federal agencies establish effective internal control and provide reasonable assurance that the following objectives are being met:

a. Program Management - Programs are achieving their intended results, and are protected from waste, fraud, abuse, and mismanagement.

b. Resource Management - Resources are being used consistent with the agencys mission.

c. IT Systems - Information systems are authorized and appropriately secured.

d. Laws and Regulations - Laws and regulations are followed.

e. Communication - Reliable and timely information is obtained, maintained, reported, and used for sound decision-making.

The Integrity Act encompasses program, operational, and administrative areas, as well as accounting and financial management. It requires the NRC Chairman to provide an assurance statement on the adequacy of internal controls and on the conformance of financial systems with Governmentwide standards.

Enterprise Risk Management and Programmatic Internal Control Enterprise Risk Management (ERM) provides an enterprise-wide, strategically-aligned portfolio view of organizational challenges that provides better insight into how to most effectively prioritize resource allocations to ensure successful mission delivery. A principal component of ERM is internal control, which the U.S. Government Accountability Office defines in GAO 704G, Standards for Internal Control in the Federal Government, as a process effected by an entitys oversight body, management, and other personnel that provides reasonable assurance that the objectives of an entity will be achieved.

Office of Management and Budget Circular A-123, Managements Responsibility for Enterprise Risk Management and Internal Control, provides Federal agencies guidance on how to comply with the Integrity Act, and requires Federal managers to effectively manage risks that may impact agencies in meeting their strategic objectives.

In fiscal years 2017 and 2018, the NRC developed and implemented an ERM framework that meets OMB requirements. The framework includes the following:

• Incorporating ERM and performance management into the agencys internal control policy document;

• Leveraging appropriate agency governance organizations and processes currently in place such as the NRC Internal Control Governance Framework, quarterly performance review meetings, and Executive Committee on Enterprise Risk Management meetings;

• Standing up the agencys Programmatic Senior Assessment Team as the agency evaluation structure for enterprise risks; FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 18

Chapter 1 Managements Discussion and Analysis

• Developing and disseminating ERM and internal control awareness training, and risk documentation instructions to NRC management and staff;

• Incorporating ERM into executive decision-making, and managements evaluation of the NRCs internal control and reasonable assurance processes.

Figure 6 illustrates the NRCs FMFIA Governance Framework. It shows that the Chief Financial Officer (CFO) is responsible for ensuring that the agency complies with the FFMIA, and Section 4, Financial Systems of the Integrity Act.

The Senior Assessment Team, chaired by the CFO, is responsible for ensuring that the agency complies with OMB Circular A-123, Managements Responsibility for Enterprise Risk Management and Internal Control, Appendix A, Management of Reporting and Data Integrity Risk. The Executive Committee on Enterprise Risk Management (ECERM), co-chaired by Figure 6 The NRCs Integrity Act the CFO and the Executive Director for Governance Framework Operation, is responsible for ensuring that the agencys internal control over programmatic operations complies with the Integrity Act.

The other members of the ECERM are senior executives from the Office of the Executive Director for Operations, and the Chief Information Officer. The agencys General Counsel and Inspector General serve as advisory members. The Senior Assessment Team is chaired by the CFO and includes senior executives from the Office of the Chief Financial Officer (OCFO) as well as the lead senior officials from the agencys corporate support business lines, (i.e., the Chief Human Capital Officer, the Chief Information Officer, and the Office of Administration, which includes the agencys Acquisition Management Division Director).

The ECERM assessed the agencys programmatic operations, financial systems, and internal control over financial reporting; reported to the NRC Chairman that there were no internal control deficiencies or enterprise risks serious enough to require reporting as a material weakness or area of noncompliance; and voted to recommend that the Chairman sign the agencys Federal Managers Financial Integrity Act Statement (see Figure 7).

Fiscal Year 2018 Integrity Act Results In accordance with Section 2 of the Integrity Act and under the guidance established in OMB Circular A-123, all NRC business line leads and corporate support product line leads certified that, as of September 30, 2018, there was reasonable assurance that the internal control was in place, producing the intended results. Based on managements certification of reasonable assurance, the NRC is able to provide a statement of assurance that its internal control met the objectives of the Integrity Act, and conforms to Governmentwide standards.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 19

Chapter 1 Managements Discussion and Analysis U.S. NUCLEAR REGULATORY COMMISSION FISCAL YEAR 2018 FEDERAL MANAGERS' FINANCIAL INTEGRITY ACT STATEMENT The U.S. Nuclear Regulatory Commission (NRC) managers are responsible for establishing and maintaining effective internal control and financial management systems that meet the objectives of 1he Federal Managers' Financiallnlegrity Act of 1982 (Integrity Act). The NRC is able to provide an unmodified statement of assurance that the internal controls and financial management systems meet the objectives of the Integrity Act with no material weaknesses.

The NRC conducted its assessment of Internal control over programmatic operations In accordance with OffICe of Management and Budget (OMB) Circular A-123, Management's Responsibility for Enterprise Risk Management and Internal Control (A-123) guidelines. Based on the results of this evaluation, the NRC can provide reasonable assurance that its internal control over programmatic operations is in substantial compliance with applicable laws and guidance, and no material weaknesses were found as of September 30, 2018. Also in accordance with guidance established in A-123, the NRC incorporated Enterprise Risk Management into the agency's performance management and internal control framework and can provide assurance on its risk management process of identifying, assessing, and managing risks. The agency developed a risk profile and found there were no enterprise-wide risks determined to be reportable outside the agency.

In addition, the NRC conducted its assessment of the effectiveness of internal control over financial repof1ing, which includes safeguarding of assets and compliance with applicable laws and regulations, in accordance with the requirements of Appendix A of A-123. Based on the results of the evaluation, the NRC can provide reasonable assurance that its intemal control over financial reporting as of June 30, 2018, was operating effectively, and no material weaknesses were found in the design or operation of the intemal contrcl over financial reporting.

In accordance with guidance established in OMS Circular A-123, Appendix 0, the Chief Financial Officer reviewed audit reports and other sources of information and as of September 30, 2018, can provide reasonable assurance that NRC's financial systems substantially comply with Federal financial system requirements, applicable Federal accounting standards, and the U.S. Treasury standard general ledger at the transaction level. as required by the Federal Financial Management Improvement Act of 1996.

Kristine L. Svinicki Chairman U.S. Nuclear Regulatory Commission OCtober 25, 2018 Figure 7 FY 2018 Federal Financial Management Improvement Act Statement FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 20

Chapter 1 Managements Discussion and Analysis Office of Management and Budget Circular A-123, Managements Responsibility for Enterprise Risk Management and Internal Control Management of Reporting and Data Integrity Risk (Appendix A)

The NRC adopted a rotational testing plan to assess the effectiveness of its internal controls over financial reporting to comply with OMB Circular A-123, Appendix A. Two of the eight key processes (financial reporting and IT) were significant enough to include in each years testing of the test plan cycle. The remaining six key processes (budget execution, disbursements, payroll, procurement, property, and revenue) were to be tested once in a 3-year cycle, two each year. Based on the results of the FY 2017 evaluation, the NRC can provide reasonable assurance that its internal controls over financial reporting were operating effectively as of June 30, 2018, and that the evaluation found no material weaknesses in the design or operation of the internal controls over financial reporting.

Requirements for Payment Integrity Improvement (Appendix C)

In FY 2011, the NRC completed an initial risk assessment to determine whether any programs were susceptible to making significant improper payments in accordance with the Improper Payments Information Act of 2002 (IPIA) as amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA). The results of that assessment allowed the agency to conduct future risk assessments on a triennial basis. The NRC conducted the latest risk assessment in FY 2017.

The FY 2017 risk assessment did not identify any programs that were susceptible to making significant improper payments. Although the results of the FY 2017 risk assessment identified programs as low risk, the NRC continues to monitor its payment processes, in addition to conducting periodic reviews of key controls for IPIA programs identified by management. The NRC will continue to conduct a risk assessment every 3 years in accordance with IPIA, as amended by IPERA and IPERIA, and OMB guidance. The next NRC IPIA risk assessment will take place in FY 2020. In addition, the NRC will conduct additional risk assessments, as needed, if there are material changes in the way programs operate or if the NRC establishes new programs.

Chapter 3, Other Information, of this report presents additional information in the Payment Integrity section.

Federal Financial Management Improvement Act of 1996 The Federal Financial Management Improvement Act of 1996 (FFMIA or Improvement Act) requires each agency to implement and maintain systems that comply substantially with: (1)

Federal financial system requirements; (2) applicable Federal accounting standards; and, (3) the standard general ledger at the transaction level. FFMIA requires the Chairman to determine whether the agencys financial management system complies with FFMIA and to develop remediation plans for systems that do not comply.

Fiscal Year 2018 Improvement Act Results The OCFO successfully completed implementation of the Cost Activity Code System. This included integration enhancements to its core general ledger system, known as the Financial FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 21

Chapter 1 Managements Discussion and Analysis Accounting and Integrated Management Information System and, its time and labor system, known as the Human Resource Management System. The Cost Activity Code System is the agency-wide authoritative platform of project cost activities that are used as the foundation for the calculation of licensee fee billing. The CFO conducted reviews, reviewed audit reports, and other sources of information and, as of September 30, 2018, can provide reasonable assurance that the NRCs financial systems substantially comply with applicable Federal accounting standards as required by the FFMIA.

Digital Accountability and Transparency Act of 2014 (DATA Act)

The DATA Act aims to establish Governmentwide financial data standards and increase the availability, accuracy, and usefulness of Federal spending information. The purposes of the DATA Act are to:

• Establish Governmentwide data standards for financial data and provide consistent, reliable, and searchable Governmentwide spending data that are accurately displayed.

• Expand accountability of the Federal Funding Accountability and Transparency Act of 2006 to disclose direct Federal agency expenditures and link Federal contract, loan, and grant spending information to programs.

• Simplify reporting for entities receiving Federal funds by streamlining requirements and reducing compliance costs while improving transparency.

• Improve data quality submitted to USASpending.gov by holding Federal agencies accountable for the completeness and accuracy of the information submitted.

• Apply approaches developed by the Recovery Accountability and Transparency Board for spending across the Federal Government to increase spending transparency and reduce reporting burden.

During FY 2017, the NRC successfully implemented the DATA Act, ahead of the OMB and the Treasury deadlines. The DATA Act requires that the OIG audit DATA Act compliance every 2 years. The results of the initial OIG audit of FY 2017 second quarter data issued in November 2018 reported that the agency submitted complete and accurate data that conformed to OMB and Treasury requirements. All of the recommendations made in the report were closed in FY 2018.

Financial Management Systems Strategies The NRC completed security based initiatives for the agencys financial systems in FY 2018. In compliance with the U.S. Department of Homeland Security Identity, Credential, and Access Management program, the NRCs financial management systems have migrated to a two-factor login authentication. Enabling two-factor login authentication strengthens the NRC security stance with financial management data while reducing help desk calls, routine systems maintenance, and annual and quarterly cybersecurity costs.

Prompt Payment The Prompt Payment Act of 1982, as amended, requires Federal agencies to make timely payments to vendors for supplies and services, to pay interest penalties when payments are made after the due date, and to take cash discounts when they are economically justified. In FY 2018, the NRC paid 97.43 percent of the 6,104 invoices subject to the Prompt Payment Act on time.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 22

Chapter 1 Managements Discussion and Analysis Debt Collection The Debt Collection Improvement Act of 1996 enhances the ability of the Federal Government to service and collect debts. The agencys goal is to maintain the level of delinquent debt owed to the NRC at year end to less than 1 percent of its annual billings. The NRC met this goal. At the end of FY 2018, delinquent debt was $5.9 million or less than 1 percent of annual billings.

The NRC was able to refer 99.5 percent of all eligible debt over 180 days delinquent to the Treasury for collection and 64.8 percent over 120 days old in accordance with the DATA Act. In addition, the NRC met the collections requirements of OBRA-90 which requires the agency to recover through fees approximately 90 percent of its budget authority in the current fiscal year.

Biennial Review of User Fees The Chief Financial Officers Act of 1990 requires agencies to conduct a biennial review of fees, royalties, rents, and other charges imposed by agencies and to make revisions to cover program and administrative costs incurred. The NRC conducted the following reviews in FY 2018:

• Navy Porting - Completed April 2018

• Public Use of Auditorium and On-site Parking Fees - Completed April 2018

• Small Materials and Import and Export Licenses - Completed July 2018

• Administrative Charges for Delinquent Debt - Completed July 2018

• Licensing, Inspection, Special Project, and Annual Fees Charged NRC Applicants and Licensees - Completed June 2018, as follows:

On June 25, 2018, the NRC issued a final rule in the Federal Register (FR) amending the licensing, inspection, and annual fees charged to its applicants and licensees. This rule can be found at https://www.gpo.gov/fdsys/pkg/FR-2018 25/pdf/2018-13320.pdf.

The amendments are necessary for the NRC to implement OBRA-90. OBRA-90 requires the NRC to collect fees to offset approximately 90 percent of its appropriation less activities expressly excluded from fee recovery. By law, this excludes the amounts appropriated for: Waste Incidental to Reprocessing activities of $1.3 million; the OIG services for the DNFSB of $1.1 million; the advance reactor regulatory infrastructure of $10.0 million; and, generic homeland security activities of

$15.2 million. Also, for the first time in FY 2018, international activities in the amount of $16.2 million are excluded from the fee recoverable budget. Based on the Consolidated Appropriations Act of 2018, the NRCs fee recovery budget amount is

$790.3 million.

Inspector General Act of 1978 The NRC has established and continues to maintain an excellent record in resolving and implementing OIG open audit recommendations. The status of these recommendations can be found at: http://www.nrc.gov/reading-rm/doc-collections/insp-gen.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 23

Chapter 1 Managements Discussion and Analysis Program Performance Overview The NRCs mission is to license and regulate the Nations civilian use of radioactive materials to protect public health and safety, promote the common defense and security, and protect the environment. The NRCs vision is to carry out the mission as a trusted, independent, transparent, and effective nuclear regulator. The NRCs two strategic goals, Safety and Security, are to ensure the safe and secure use of radioactive materials.

The NRC carries out its safety and security activities through two major programs: Nuclear Reactor Safety, consisting of the Operating Reactors and New Reactors business lines; and, Nuclear Materials and Waste Safety, consisting of the Fuel Facilities, Nuclear Materials Users, Decommissioning and Low-Level Waste, Spent Fuel Storage and Transportation, and High-Level Waste business lines. The agency accomplishes its mission to provide reasonable assurance of adequate protection for public health and safety through regulatory activities that include licensing, oversight, and rulemaking. The NRC oversees licensees through inspection, assessment, investigation, and enforcement actions. Investigations and enforcement actions are a subset of oversight in cases of suspected or proven instances of noncompliance with safety or security regulations. The NRCs event response activities prepare for and respond to emergencies involving radioactive materials. The following narrative highlights the agencys progress during FY 2018 in achieving its Safety and Security goals.

These goals/indicators align to the NRCs FY 2014-2018 Strategic Plan (http://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1614/v6/). Starting with the Fiscal Year 2019 Annual Financial Report, the results reported will align with the FY 2018-2022 Strategic Plan which was published in February 2018 and can be found at https://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1614/v7/.

Fiscal Year 2018 Performance Results The NRCs FY 2014-2018 Strategic Plan describes the agencys mission, goals, and strategies.

As noted above, the agencys two strategic goals are focused on Safety and Security.

The Safety goal is to: Ensure the safe use of radioactive materials.

The Security goal is to: Ensure the secure use of radioactive materials.

With the implementation of the Strategic Plan, the agency developed new performance indicators that are more in line with the plan. Because the nature of the agencys Safety and Security strategic goals is to prevent or minimize undesirable outcomes, the desired trends for all of its performance indicators are to either maintain these outcomes at zero or at very low levels.

Strategic Goal 1: Ensure the Safe Use of Radioactive Materials Strategic Objective Strategic objectives express more specifically the results that are needed to achieve a strategic goal. The strategic objective for Goal 1 is: Prevent and mitigate accidents and ensure radiation safety.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 24

Chapter 1 Managements Discussion and Analysis Minimizing the likelihood of accidents and reducing the consequences of an accident (should one occur) are the key elements for achieving the NRCs Safety goal. Such accidents, particularly for large complex facilities like nuclear power plants, have the potential to release significant amounts of radioactive material to the environment and expose facility workers and the public to high levels of radiation.

In FY 2018, the NRC achieved its Safety goal strategic objective. The NRC uses five performance indicators to determine whether it has met its Safety goal. The agency met all five performance indicator targets in FY 2018. Table 5 shows the outcomes for the last 4 years (FY 2015-FY 2018). The cost of achieving the agencys Safety goal in FY 2018 was

$912.8 million.

Safety Performance Indicators: Fiscal Years 2015-2018 The purpose behind the NRCs performance indicators is to prevent or minimize undesirable outcomes. Therefore, the trends indicating the agencys success in accomplishing its mission would be at or near zero. The following performance indicators were created in conjunction with the development of the NRCs FY 2014-2018 Strategic Plan.

Limerick Generating Station, Units 1 and 2 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 25

Chapter 1 Managements Discussion and Analysis Table 5 FY 2015-2018 Safety Performance Indicators Goal-Safety: Ensure the Safe Use of Radioactive Materials

1. Prevent radiation exposures that significantly exceed regulatory limits.

Business Line FY 2015 FY 2016 FY 2017 FY 2018 Target Actual Target Actual Target Actual Target Actual Operating Reactors 0 0 0 0 0 0 0 0 New Reactors 0 0 0 0 0 0 0 0 Fuel Facilities 0 0 0 0 0 0 0 0 Decommissioning and Low-0 0 0 0 0 0 0 0 Level Waste Spent Fuel Storage and 0 0 0 0 0 0 0 0 Transportation Nuclear Materials Users 3 1* 3 2 3 0 3 1

• Reported in the FY 2015 Performance and Accountability Report and the FY 2017 Congressional Budget Justification as 2 due to one event previously labeled as an abnormal occurrence (AO) that upon further investigation was reclassified as not meeting the AO threshold.

2. Prevent releases of radioactive materials that significantly exceed regulatory limits.

Business Line FY 2015 FY 2016 FY 2017 FY 2018 Target Actual Target Actual Target Actual Target Actual Operating Reactors 0 0 0 0 0 0 0 0 New Reactors 0 0 0 0 0 0 0 0 Fuel Facilities 0 0 0 0 0 0 0 0 Decommissioning and Low-0 0 0 0 0 0 0 0 Level Waste Spent Fuel Storage and 0 0 0 0 0 0 0 0 Transportation Nuclear Materials Users 0 0 0 0 0 0 0 0

3. Prevent the occurrence of any inadvertent criticality events.

Business Line FY 2015 FY 2016 FY 2017 FY 2018 Target Actual Target Actual Target Actual Target Actual Operating Reactors 0 0 0 0 0 0 0 0 Fuel Facilities 0 0 0 0 0 0 0 0 Decommissioning and Low-0 0 0 0 0 0 0 0 Level Waste

4. Prevent accident precursors and reductions of safety margins at commercial nuclear power plants (operating or under construction) that are of high safety significance.

Business Line FY 2015 FY 2016 FY 2017 FY 2018 Target Actual Target Actual Target Actual Target Actual Operating Reactors 3 0 3 0 3 0 3 0 New Reactors 3 0 3 0 3 0 3 0

5. Prevent accident precursors and reductions of safety margins at nonreactor facilities or during transportation of nuclear materials that are of high safety significance.

Business Line FY 2015 FY 2016 FY 2017 FY 2018 Target Actual Target Actual Target Actual Target Actual Fuel Facilities 0 0 0 0 0 0 0 0 Decommissioning and Low-0 0 0 0 0 0 0 0 Level Waste Spent Fuel Storage and 0 0 0 0 0 0 0 0 Transportation FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 26

Chapter 1 Managements Discussion and Analysis Safety Objective 1: Prevent and mitigate accidents and ensure radiation safety.

Performance Goal 1: Prevent radiation exposures that significantly exceed regulatory limits.

Performance Indicator: Number of radiation exposures that meet or exceed abnormal occurrence (AO) criteria I.A.1 (unintended radiation exposure to an adult), I.A.2 (unintended radiation exposure to a minor), or I.A.3 (radiation exposure that has resulted in unintended permanent functional damage to an organ or physiological system).

Discussion: This indicator tracks the effectiveness of the NRCs nuclear safety regulatory programs, in part through the number of significant radiation exposures to the public and occupational workers that exceed AO criteria. This indicator tracks exposures from both nuclear reactors and other use of nuclear materials, such as hospitals and industrial uses. In FY 2018, there were no radiation exposures that exceeded AO criteria 1.A.1 Performance Goal 2: Prevent releases of radioactive materials that significantly exceed regulatory limits.

Performance Indicator: Number of releases of radioactive materials that meet or exceed AO criterion I.B (discharge or dispersal of radioactive material from its intended place of confinement, which results in releases of radioactive material).

Discussion: This indicator tracks the effectiveness of the NRCs nuclear material regulatory programs. Exceeding the applicable regulatory limits is defined as a release of radioactive material that causes a total effective radiation dose equivalent to individual members of the public greater than 0.1 rem in a year, exclusive of dose contributions from background radiation.

In FY 2018, there were no releases of this nature.

Performance Goal 3: Prevent the occurrence of any inadvertent criticality events.

Performance Indicator: Number of instances of unintended nuclear chain reactions involving NRC-licensed radioactive materials.

Discussion: This indicator tracks the effectiveness of the NRCs criticality safety regulatory programs through the number of unintended self-sustaining nuclear reactions occurring within a fiscal year. Intended criticality events include the startup of a nuclear power reactor. There were no inadvertent criticality events during FY 2018.

Performance Goal 4: Prevent accident precursors and reductions of safety margins at commercial nuclear power plants (operating or under construction) that are of high safety significance.

Performance Indicator: Number of malfunctions, deficiencies, events, or conditions at commercial nuclear power plants (operating or under construction) that meet or exceed AO criteria II.A-II.D (events at commercial nuclear power plant licensees).

Discussion: The NRCs Reactor Oversight Process monitors nuclear power plant performance in three areas: (1) reactor safety, (2) radiation safety, and (3) security. Analysis of individual plant performance is based on both licensee-submitted performance indicators and NRC inspection findings, which are independent assessments of licensee performance that the NRC conducts as the regulatory authority. Each issue is evaluated and assigned one of four FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 27

Chapter 1 Managements Discussion and Analysis categories in order of increasing significance: green, white, yellow, or red. When the rating is higher (more severe), the NRC applies a greater level of oversight. A red finding or performance indicator is the most severe rating and signals a significant reduction in the safety margin in the measured area. No red findings were issued in FY 2018.

Performance Goal 5: Prevent accident precursors and reductions of safety margins at nonreactor facilities or during transportation of nuclear materials that are of high safety significance.

Performance Indicator: Number of malfunctions, deficiencies, events, or conditions at nonreactor facilities or during transportation of nuclear materials that meet or exceed AO criteria III.A or III.B (events at facilities other than nuclear power plants and all transportation events).

Discussion: This indicator tracks the effectiveness of the NRCs regulatory safety programs for nonreactor facilities or during transportation of nuclear materials through the number of instances in which safety margins at nonreactor facilities are at unacceptable levels. No occurrences of this nature took place during FY 2018.

Safety Goal Strategies The NRCs FY 2014-2018 Strategic Plan describes the seven Safety goal strategies at the following link: strategieshttps://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1614/v6/.

Strategic Goal 2: Ensure the Secure Use of Radioactive Materials Strategic Objectives Strategic objectives more specifically express the results that are needed to achieve a strategic goal. The two strategic objectives for Goal 2 follow in bold text.

1. Ensure protection of nuclear facilities and radioactive materials.

Protecting nuclear facilities and radioactive materials are key elements for achieving the NRCs Security goal. Nuclear facilities and materials are protected against hostile intent by two primary means: (1) control of access to facilities and materials; and (2) accountability controls for radioactive materials. These controls are intended to prevent those with hostile intent from either damaging a nuclear facility in such a way that a significant release of radioactive materials to the environment occurs, or obtaining enough radioactive material for malevolent use.

2. Ensure protection of classified and Safeguards Information.

Protecting classified and Safeguards Information is another key contributor to achieving the agencys Security goal. This is accomplished primarily by controlling access to this information to ensure that potential adversaries cannot use it for malevolent purposes, such as sabotage, theft, or diversion of radioactive materials.

The strategic objectives specify the conditions that must be met for the agency to ensure the secure use of radioactive materials.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 28

Chapter 1 Managements Discussion and Analysis Fiscal Year 2018 Results In FY 2018, the NRC achieved its Security goal strategic objectives. The NRC also uses three Security goal performance indicators to determine whether the agency has met its Security goal.

The agency met all three performance indicator targets in FY 2018. Table 5 shows the outcomes from FY 2015-FY 2018. The cost of achieving the agencys Security goal was

$42.1 million in FY 2018.

Security Performance Indicators: FY 2015-2018 Table 6 FY 2015-2018 Security Performance Indicators Goal - Security: Ensure Secure Use of Radioactive Materials

1. Prevent sabotage, theft, diversion, or loss of risk-significant quantities of radioactive material.

Business Line FY 2015 FY 2016 FY 2017 FY 2018 Target Actual Target Actual Target Actual Target Actual All Business Lines 0 0 0 0 0 0 0 0

2. Prevent substantial breakdowns of physical security, cybersecurity, or material control and accountability.

Business Line FY 2015 FY 2016 FY 2017 FY 2018 Target Actual Target Actual Target Actual Target Actual All Business Lines 1 0 1 0 1 0 1 0

3. Prevent significant unauthorized disclosures of classified or Safeguards Information (SGI).

Business Line FY 2015 FY 2016 FY 2017 FY 2018 Target Actual Target Actual Target Actual Target Actual All Business Lines 0 0 0 0 0 0 0 0 Security Objective 1: Ensure protection of nuclear facilities and radioactive materials.

Performance Goal 1: Prevent sabotage, theft, diversion, or loss of risk significant quantities of radioactive material.

Performance Indicator: Number of instances of sabotage, theft, diversion, or loss of risk-significant quantities of radioactive material that meet or exceed AO criteria I.C.1 (unrecovered lost, stolen, or abandoned sources), I.C.2 (substantiated case of actual theft or diversion), and the portion of criterion I.C.3 (substantiated loss of a formula quantity) concerning theft or diversion of special nuclear material.

Discussion: This indicator measures the agencys effectiveness in preventing sabotage, theft, diversion, or loss of risk-significant quantities of radioactive material through tracking any loss or theft of radioactive nuclear sources that the NRC has determined to be of significant risk. The indicator also measures the agencys performance in ensuring the proper accounting for radioactive sources of significant risk that could be used for malicious purposes. It also measures whether NRC-licensed facilities maintain adequate protective capabilities to prevent theft or diversion of nuclear material or sabotage that could result in substantial harm to the public health and safety. No such incidents took place during FY 2018.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 29

Chapter 1 Managements Discussion and Analysis Performance Goal 2: Prevent substantial breakdowns of physical security, cybersecurity, or material control and accountability.

Performance Indicator: Number of substantial breakdowns of physical security, cybersecurity, or material control and accountability that meet or exceed AO criterion I.C.4 (substantial breakdown of physical security or materials control that will include breakdowns of cybersecurity) and the portion of AO criterion I.C.3 (substantiated loss of a formula quantity) concerning breakdowns of the accountability system for special nuclear material.

Discussion: This indicator measures the agencys effectiveness in maintaining security by tracking any substantial breakdowns in access control, containment, or accountability systems that significantly weakened the protection against theft, diversion, or sabotage for nuclear materials that the agency has determined to be of significant risk. In FY 2018, there were no incidents of this nature.

Security Objective 2: Ensure protection of classified and Safeguards Information (SGI).

Performance Goal 3: Prevent significant unauthorized disclosures of classified information or SGI.

Performance Indicator: Number of significant unauthorized disclosures of classified information or SGI by licensees as defined by AO criterion I.C.5 and by NRC employees or contractors as defined by analogous NRC internal criteria.

Discussion: This indicator includes significant unauthorized disclosures of classified information or SGI that cause damage to national security or public safety. This indicator reflects whether information that can harm national security (classified information) or cause damage to the public health and safety (SGI) has been protected sufficiently to prevent its disclosure to terrorist organizations, other nations, or personnel without a need to know. No significant unauthorized disclosures occurred in FY 2018.

Security Goal Strategies The NRCs FY 2014- 2018 Strategic Plan describes the seven Security goal strategies at the following link: strategieshttps://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1614/v6/.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 30

Chapter 2: Financial Statements and Auditors Report FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 31

Chapter 2 Financial Statements and Auditors Report A Message from the Chief Financial Officer I can report that the financial condition of the U.S. Nuclear Regulatory Commission (NRC) is sound. The independent auditors issued an unmodified opinion on the fiscal year (FY) 2018 financial statements and an unmodified opinion on our internal controls over financial reporting. Moreover, the auditors found no reportable instances of noncompliance with laws and regulations for FY 2018. Since the passage of the Chief Financial Officers Act of 1990, the NRC has consistently issued sound reports on the status of resources entrusted to the agency. This long term consistency in excellent reporting has built up trust and goodwill from the communities we serve.

Good management of financial resources begins with our budgeting process. Beginning in FY 2017, we improved the clarity and transparency of the NRCs Congressional Budget Justification. For example, we added prior year actuals to the budget trend tables, workload tables to each business line chapter, and expanded explanations of how the budget relates to fees. We review our budget formulation process each year to continually improve it. The savings from our most recent effort included fewer formal meetings, an increase in deadlines being met because of consistency in budget deliverables, and streamlining the concurrence process for budget documents.

Good management is also inherent in the efficiency and effectiveness of our operations. The NRC has made great strides in the past few years in reducing the cost of operations and passing those savings on to our licensee stakeholders in the form of reduced license fees and fees for services. These savings, reflected in the agencys financial statements as lower cost of operations, resulted from process efficiency gains and staff reductions through our ongoing Project AIM initiative. During FY 2018, as an additional cost reduction initiative, the NRC transferred its bill-paying operations and collections to a Federal cross-service enterprise, the Administrative Resource Center, Treasury Bureau of the Fiscal Service. Additional functional transfers are being considered for the future.

In recent years, the NRC made substantial improvements in IT related to financial management and labor reporting. Improvements in data collection and classification in our information systems, along with the redesign of invoices, has improved communications with our licensees and other stakeholders. We continue to strive for improved service to our customers with new initiatives such as electronic billing.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 32

Chapter 2 Financial Statements and Auditors Report Our Enterprise Risk Management effort institutes an agency level approach to risk management processes and systems that make sense. It is designed to identify risks early, bring them to the attention of agency leadership, and develop viable solutions. Under the NRC governance framework, each NRC business line lead prepares an annual assurance certification based on their assessment of all relevant programmatic internal control activities and activities that have internal control implications. Other sources of information also contribute to the assurance certification such as Senior Assessment Team direction, audit reports, and management challenges as identified by the Inspector General. We continue to adjust our Enterprise Risk Management program to ensure that it remains effective. As a result of our assessment, the NRC management team has concluded that the agency is in substantial compliance with laws and regulations, programs are achieving desired results, and the financial data published in the report are complete, accurate, reliable, and timely.

This Agency Financial Report illustrates our sound stewardship of NRC resources. As noted in Chapter 1, the NRC has reduced its costs while meeting all of its goals and objectives. Chapter 2 presents the NRCs financial statements and the independent auditors report. Finally, Chapter 3 presents other relevant information such as the Inspector Generals assessment of the most serious management and performance challenges facing the NRC, information on payment integrity including improper payments and fraud reduction, and reducing our occupancy footprint, as well as other information to round out the report.

The NRC remains committed to its mission of ensuring the safety and security of the Nations civilian use of radioactive materials in the most effective and efficient manner. The regulation of the Nations nuclear industries during times of fiscal and regulatory challenges requires careful stewardship of limited agency resources and demands superior financial performance. I am gratified that we have continued using sound business practices to accomplish our regulatory mission and I am confident that we will continue such improvements in the future.

Maureen E. Wylie Chief Financial Officer November 8, 2018 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 33

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

As of September 30, 2018 2017 Assets:

Intragovernmental Fund balance with Treasury (Note 2) $ 386,894 $ 365,832 Accounts receivable (Note 3) 5,680 7,152 Advances and prepayments 9,190 12,752 Total intragovernmental 401,764 385,736 Accounts receivable, net (Note 3) 69,640 79,874 Property and equipment, net (Note 4) 65,073 79,910 Other 57 51 Total Assets $ 536,534 $ 545,571 Liabilities:

Intragovernmental Accounts payable $ 6,211 $ 6,759 Other (Note 5) 5,398 5,586 Total intragovernmental 11,609 12,345 Accounts payable 25,683 23,673 Federal employee benefits (Note 6) 5,259 5,370 Other (Note 5) 72,393 72,571 Total Liabilities 114,944 113,959 Net Position:

Unexpended appropriations 324,998 306,831 Cumulative results of operations (Note 8) 96,592 124,781 Total Net Position 421,590 431,612 Total Liabilities and Net Position $ 536,534 $ 545,571 The accompanying notes to the financial statements are an integral part of these statements.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 34

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

For the fiscal years ended September 30, 2018 2017 Nuclear Reactor Safety Gross costs $ 741,875 $ 736,794 Less: Earned revenue (692,947) (710,086)

Total Net Cost of Nuclear Reactor Safety (Note 9) 48,928 26,708 Nuclear Materials and Waste Safety Gross costs 213,063 203,826 Less: Earned revenue (81,813) (86,168)

Total Net Cost of Nuclear Materials and Waste Safety (Note 9) 131,250 117,658 Net Cost of Operations $ 180,178 $ 144,366 The accompanying notes to the financial statements are an integral part of these statements FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 35

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

For the fiscal years ended September 30, 2018 2017 Unexpended Appropriations:

Beginning Balance $ 306,831 $ 297,438 Budgetary Financing Sources:

Appropriations received 140,171 127,480 Appropriations used (Note 11) (121,936) (118,087)

Other adjustments (68) -

Total Budgetary Financing Sources 18,167 9,393 Total Unexpended Appropriations $ 324,998 $ 306,831 Cumulative Results of Operations:

Beginning Balance $ 124,781 $ 123,925 Adjustments (Note 8) (368) 6,413 Beginning Balance, as adjusted 124,413 130,338 Budgetary Financing Sources:

Appropriations used (Note 11) 121,936 118,087 Non-exchange revenue (Note 11) 394 251 Other Financing Sources:

Imputed financing from costs absorbed by others (Note 11) 30,421 20,722 Other (394) (251)

Total Financing Sources 152,357 138,809 Net Cost of Operations (180,178) (144,366)

Net Change (27,821) (5,557)

Cumulative Results of Operations $ 96,592 $ 124,781 Net Position $ 421,590 $ 431,612 The accompanying notes to the financial statements are an integral part of these statements.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 36

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

For the fiscal years ended September 30, 2018 2017 Budgetary Resources:

Unobligated balance from prior-year budget authority, net $ 49,226 $ 56,460 Appropriations 921,928 917,129 Spending authority from offsetting collections 4,004 5,626 Total Budgetary Resources $ 975,158 $ 979,215 Memorandum Entry:

Net adjustments to unobligated balance brought forward Oct 1 $ 10,538 $ 14,503 Status of Budgetary Resources:

New obligations and upward adjustments (total) (Note 12) $ 934,014 $ 940,527 Unobligated balance, end of year:

Apportioned, unexpired accounts 39,575 35,071 Exempt from apportionment, unexpired accounts 431 532 Unapportioned, unexpired accounts 3 2,570 Unexpired unobligated balance, end of year 40,009 38,173 Expired unobligated balance, end of year 1,135 515 Unobligated balance, end of year (total) 41,144 38,688 Total Status of Budgetary Resources $ 975,158 $ 979,215 Outlays, net:

Outlays, net 900,866 919,534 Distributed offsetting receipts (781,825) (789,648)

Agency Outlays, Net $ 119,041 $ 129,886 The accompanying notes to the financial statements are an integral part of these statements.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 37

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 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 Nuclear Waste Fund (NWF)) and the OIG.

B. Basis of Presentation These financial statements for FY 2018 and FY 2017 (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, Financial Reporting Requirements.

GAAP for Federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board, which is the official body for setting the accounting standards of the U.S.

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 NRCs use of budgetary resources.

The NRC has not presented a Statement of Custodial Activity because the amounts involved are immaterial and incidental to the agency's operations and mission.

Presentation of the budget accounts on the Combining Statements 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 reflect the Distributed Offsetting Receipts.

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

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 38

Chapter 2 Financial Statements and Auditors Report Congress passed the Consolidated Appropriations Act, 2018 which funded the NRCs budget at a level of $909.1 million for FY 2018. Not more than $9.5 million of the appropriation may be made available for the costs of the Office of the Commission until September 30, 2019.

Additionally, Congress enacted a 2-year appropriation of $12.9 million for the OIG, which was available for obligation by the NRC through September 30, 2019.

In FY 2017, Congress passed the Consolidated Appropriations Act, 2017 which funded the NRCs budget at a level of $905 million for FY 2017. Not more than $7.5 million of the appropriation may be made available for the costs of the Office of the Commission until September 30, 2018. Additionally, Congress enacted a 2-year appropriation of $12.1 million for the OIG, which is available for obligation by the NRC through September 30, 2018.

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. The SBR presents budgetary resources available to the NRC and changes in obligations during 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.

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, Advanced Reactor Regulatory Infrastructure, International Activities, and Inspector General services for the DNFSB, are held to offset subsequent years appropriations.

Appropriations expended for property and equipment are recognized as expenses when the asset is consumed in operations as reflected by the depreciation and amortization expense.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 39

Chapter 2 Financial Statements and Auditors Report 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 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 penalties and interest due from the public that when collected, must be transferred to the Treasury.

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. The land and buildings in which the NRC operates are leased through the General Services Administration (GSA), for rent that 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 before year-end that are unpaid. 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 represent 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 appropriation 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 the 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 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 40

Chapter 2 Financial Statements and Auditors Report 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.

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. The liability is calculated using historical benefit payment patterns related to a specific incurred period to predict the ultimate payments related to that period.

3. Other. This category includes the amount of accrued annual leave earned by the NRC employees but not yet taken and contingent liabilities that 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 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 41

Chapter 2 Financial Statements and Auditors Report earned but not taken, funding will be obtained from future financing sources. Sick leave and other types of non-vested leave are expensed as taken.

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. The portion of the current and estimated future outlays for FERS and CSRS not paid by the NRC is included in the 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 2018 and 13.7 percent in 2017. 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 must pay 3.1 percent of their salary to retirement contributions, with 11.9 percent in 2018 and 11.9 percent in 2017 for employer matching contribution. For employees hired after January 1, 2014, as Federal Employees Retirement System-Revised Annuity Employees must pay 4.4 percent of their salary to retirement contributions with 11.9 percent in 2018 and 11.9 percent in 2017 for employer matching contribution. 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 FY 2018 and FY 2017.

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 $18,500 in 2018 and $18,000 in 2017. 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 not 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:

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

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 42

Chapter 2 Financial Statements and Auditors Report

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 Federal Accounting Standards Advisory Board 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. 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 agencys 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 Treasury, and (2) unliquidated obligations and expenditures not yet disbursed. Cumulative results of operations represent the excess of financing sources over expenses since inception.

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.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 43

Chapter 2 Financial Statements and Auditors Report S. Transfers of Authority 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 (USAID). The purpose of the funding authority transferred 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 and outlay funds to another agency. The NRC completed its participation in this project and had residual unobligated funds of $68,076.04 remaining from these transfers. The remaining unobligated funds were rescinded in FY 2018.

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 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 contains the following activities: operating reactors and new reactors.

The Nuclear Materials and Waste Safety program encompasses all 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 contains 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.

Note 2 - Fund Balance with Treasury As of September 30, 2018 2017 Fund Balances:

Appropriated funds $ 386,433 $ 365,226 Nuclear Waste Fund 461 606 Other fund types - -

Total $ 386,894 $ 365,832 Status of Fund Balance with Treasury:

Unobligated balance Available - Appropriated funds $ 40,006 $ 35,603 Unavailable Unapportioned, unexpired accounts 3 2,570 Expired accounts 1,135 515 Obligated balance not yet disbursed 345,750 327,144 Total $ 386,894 $ 365,832 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 44

Chapter 2 Financial Statements and Auditors Report The Fund Balance with Treasury consists of the unobligated and obligated budgetary account balances, to including NWF activity. The NWF unobligated balance was $0.4 million and

$0.5 million as of September 30, 2018, and 2017, respectively.

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, 2018 2017 Intragovernmental:

Fee receivables and reimbursements $ 5,680 $ 7,152 Receivables with the Public:

Materials and facilities fees-billed $ 6,150 $ 10,759 Materials and facilities fees-unbilled 65,508 72,494 Other 790 475 Total Receivables with the Public 72,448 83,728 Less: Allowance for uncollectible accounts (2,808) (3,854)

Total Receivables with the Public, Net $ 69,640 $ 79,874 Total Accounts Receivable $ 78,128 $ 90,880 Less: Allowance for uncollectible accounts (2,808) (3,854)

Total Accounts Receivable, Net $ 75,320 $ 87,026 Note 4 - Property and Equipment, Net As of September 30, 2018 2017 Accumulated Service Acquisition Net Book Net Book Fixed Assets Class Depreciation and Years Value Value Value Amortization Equipment 5-8 $ 8,995 $ (8,033) $ 962 $ 1,181 Leased equipment 5-8 1,318 (1,213) 105 402 IT software 5 78,715 (60,323) 18,392 6,509 IT software under development - - - - 14,911 Leasehold improvements 20 84,253 (39,021) 45,232 49,246 Leasehold improvements in progress - 382 - 382 7,661 Total $ 173,663 $ (108,590) $ 65,073 $ 79,910 In FY 2017, the NRC identified two leasehold improvement projects expensed from FY 2014 through FY 2016 for heating, ventilation, and air conditioning upgrades in the One White Flint North building that should have been capitalized. The NRC recorded prior period adjustments in FY 2017 of $6.8 million to capitalize the leasehold improvement project costs and $0.4 million in related depreciation costs for FY 2014 through FY 2016.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 45

Chapter 2 Financial Statements and Auditors Report In accordance with Statement of Federal Financial Accounting Standards (SFFAS) 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.

Note 5 - Other Liabilities As of September 30, 2018 2017 Intragovernmental:

Liability to the U.S. Treasury General Fund for misc. receipts $ 30 $ 25 Liability for advances from other agencies 18 4 Accrued workers compensation 1,045 1,174 Accrued unemployment compensation - 27 Employee benefit contributions 4,305 4,356 Total Intragovernmental Other Liabilities $ 5,398 $ 5,586 Other Liabilities:

Accrued annual leave $ 42,476 $ 41,989 Accrued salaries and benefits 15,598 15,886 Employer Contributions & Payroll Taxes Payable 688 700 Contract holdbacks, advances, capital lease liability, and other 2,495 4,419 Contingent liabilities - -

Grants payable 11,136 9,577 Total Other Liabilities $ 72,393 $ 72,571 Total Intragovernmental and Other Liabilities $ 77,791 $ 78,157 Other liabilities are current except for capital lease liability (Note 7).

Note 6 - Liabilities Not Covered by Budgetary Resources As of September 30, 2018 2017 Intragovernmental:

FECA paid by DOL $ 1,045 $ 1,174 Accrued unemployment compensation - 27 Federal Employee Benefits:

Future FECA 5,259 5,370 Other:

Accrued annual leave 42,476 41,989 Contingent liabilities - -

Total Liabilities Not Covered by Budgetary Resources 48,780 48,560 Total Liabilities Covered by Budgetary Resources 66,164 65,399 Total Liabilities $ 114,944 $ 113,959 Liabilities Not Covered by Budgetary Resources represents the amount of future funding needed to pay the accrued unfunded expenses as of September 30, 2018, and 2017. 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.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 46

Chapter 2 Financial Statements and Auditors Report The projected annual benefit payments for FECA are discounted to present value. For FY 2018, 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 2018 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.

Note 7 - Leases As of September 30, 2018 2017 Assets Under Capital Leases:

Copiers and booklet maker $ 1,318 $ 1,318 Accumulated depreciation (1,213) (916)

Net Assets Under Capital Leases $ 105 $ 402 Future Lease Payments Due:

As of September 30, 2018 2017 Fiscal Year Capital Operating 2018 $ - $ - $ - 36,450 2019 25 31,244 31,269 25,514 2020 75 37,847 37,922 31,894 2021 - 36,469 36,469 276,540 2022 and thereafter - 284,779 284,779 -

Total Lease Liability 100 390,339 390,439 370,398 Subtract: Imputed Interest - - - (5)

Total Future Lease Payments $ 100 $ 390,339 $ 390,439 $ 370,393 The Capital Lease Liability of $100 thousand for reproduction equipment is included in Other Liabilities (Note 5). For Future Lease Payments, the NRC calculates the Capital Lease Liability and subtracts 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 land and buildings in which the NRC operates are leased through the 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). 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 Three White Flint North (3WFN), the NRC occupies 138,035 usable square feet (USF) which is 42.8 percent of the building. The NRC is no longer the primary tenant. The FDA occupies the other floors. Future plans to reduce the NRC footprint call for the NRC to release four floors of the 3WFN office building in late calendar year 2019. The lease bill for 3WFN will be approximately $4.0 million less per year. The NRC will not recognize savings for these floors until another Federal agency leases the space.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 47

Chapter 2 Financial Statements and Auditors Report The NRC leases for land and buildings do not have renewal options or contingent rental restrictions. The joint lease for the 3WFN office building with the FDA and the leases for the four regional office buildings have escalation clauses. The leases for the two remaining headquarters office buildings, the warehouse, and the TTC do not have escalation clauses.

Note 8 - Cumulative Results of Operations As of September 30, 2018 2017 Liabilities not covered by budgetary resources (Note 6) $ (48,780) $ (48,560)

Investment in property and equipment, net (Note 4) 65,073 79,910 Contributions from foreign cooperative research agreements 5,245 5,878 Nuclear Waste Fund 461 606 Office of the Commission (financed by fees) - -

Accounts receivable - fees 74,256 86,503 Other 337 444 Cumulative Results of Operations $ 96,592 $ 124,781 The beginning balances of Cumulative Results of Operations were adjusted for leasehold improvement corrections resulting in a decrease of $0.4 million in FY 2018 and an increase of

$6.4 million for FY 2017.

Note 9 - Statement of Net Cost For the fiscal years ended September 30, 2018 2017 Nuclear Reactor Safety:

Intragovernmental gross costs $ 210,872 $ 207,662 Less: Intragovernmental earned revenue (48,845) (48,809)

Intragovernmental net costs 162,027 158,853 Gross costs with the public 531,003 529,132 Less: Earned revenues from the public (644,102) (661,277)

Net costs with the public (113,099) (132,145)

Total Net Cost of Nuclear Reactor Safety $ 48,928 $ 26,708 Nuclear Materials and Waste Safety:

Intragovernmental gross costs $ 59,148 $ 54,366 Less: Intragovernmental earned revenue (6,180) (5,782)

Intragovernmental net costs 52,968 48,584 Gross costs with the public 153,915 149,460 Less: Earned revenues from the public (75,633) (80,386)

Net costs with the public 78,282 69,074 Total Net Cost of Nuclear Materials and Waste Safety $ 131,250 $ 117,658 Nuclear Reactor Safety and Nuclear Materials and Waste Safety represent the NRC's two major programs, as identified in the NRC Annual Performance Plan.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 48

Chapter 2 Financial Statements and Auditors Report Note 10 - Exchange Revenues For the fiscal years ended September 30, 2018 2017 Fees for licensing, inspection, and other services $ 769,185 $ 790,595 Revenue from reimbursable work 5,574 5,659 Total Exchange Revenues $ 774,759 $ 796,254 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 fiscal years ended September 30, 2018 2017 Appropriations Used Collections are used to reduce the fiscal years appropriations:

Funds consumed $ 903,906 $ 908,615 Less: Collection of fees assessed (781,825) (789,648)

Less: Nuclear Waste Fund Expense (145) (880)

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

Total Appropriations Used $ 121,936 $ 118,087 Funds consumed include $33.0 million and $36.5 million through September 30, 2018, and 2017, respectively, of available funds from prior years.

For the fiscal years ended September 30, 2018 2017 Non-Exchange Revenue Civil penalties $ 282 $ 182 Miscellaneous receipts 112 69 NonExchange Revenue 394 251 Contra-Revenue (394) (251)

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

For the fiscal years ended September 30, 2018 2017 Imputed Financing Civil Service Retirement System $ 4,391 $ 4,345 Federal Employees Retirement System 6,367 643 Federal Employee Health Benefit 19,582 15,652 Federal Employee Group Life Insurance 81 82 Judgments/Awards - -

Total Imputed Financing $ 30,421 $ 20,722 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 49

Chapter 2 Financial Statements and Auditors Report Note 12 - Total Obligations Incurred For the fiscal years ended September 30, 2018 2017 Direct Obligations Category A $ 927,959 $ 934,421 Exempt from Apportionment 101 881 Total Direct Obligations 928,060 935,302 Reimbursable Obligations 5,954 5,225 Total Obligations Incurred $ 934,014 $ 940,527 Obligations exempt from apportionment represent funds derived from the NWF. Category A obligations consist of the NRC appropriations only.

Note 13 - Undelivered Orders at the End of the Period For the fiscal years ended September 30, 2018 2017 Undelivered Orders - Unpaid Salaries and Expenses $ 283,929 $ 267,698 Inspector General 1,576 846 Nuclear Waste Fund 30 -

Total Undelivered Orders - Unpaid $ 285,535 $ 268,544 Undelivered Orders - Paid Salaries and Expenses $ 8,738 $ 12,584 Inspector General 619 168 Nuclear Waste Fund - -

Total Undelivered Orders - Paid 9,357 12,752 Total Undelivered Orders $ 294,892 $ 281,296 Undelivered Orders are obligations where the amount of goods or services ordered have not been actually or constructively received.

Note 14 - Nuclear Waste Fund For FY 2018 and FY 2017, 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 (DOE) application for a high-level waste repository at Yucca Mountain, NV.

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. Generally, funds from dedicated collections must have at least one source of funds external to the Federal Government, and the statute provides explicit authority to retain current, unused revenues for future use. SFFAS 43 also includes a requirement to account for and report on the receipt and use of the financing sources as distinguished from 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 DOE (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 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 50

Chapter 2 x Financial Statements and Auditors Report Treasury has no separate fund symbol for the NWF under the NRCs agency location code.

The receipt and expenditure of NWF money is reported to the Treasury under the NRCs primary Salaries and Expenses fund (X0200).

As a result, the NWF is not a fund from dedicated collections from the NRCs perspective.

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

For the fiscal years ended September 30, 2018 2017 Appropriations Received $ $

Expended Appropriations $ 145 $ 880 Obligations Incurred $ 101 $ 881 Unobligated Balances (includes recoveries of prior-year

$ 431 $ 532 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 2017 and the FY 2017 actuals in the proposed President's Budget for FY 2019.

The reconciliation was based on actual numbers for FY 2017 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 2018 actual budgetary resources numbers will be available in the FY 2020 Presidents Budget which is expected to be published in 2019, and will be available on the OMB Web site http://www.whitehouse.gov/omb/budget/ and through the U.S.

Government Publishing Office.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 51

Chapter 2 Financial Statements and Auditors Report Note 16 - Reconciliation of Net Cost of Operations to Budgetary Resources For the fiscal years ended September 30, 2018 2017 Budgetary Resources Obligated:

Obligations incurred (Note 12) $ 934,014 $ 940,527 Less: Spending authority from offsetting coll. and recoveries (14,542) (20,459)

Less: Distributed offsetting receipts, current year (781,825) (789,648)

Less: Distributed offsetting receipts, prior year - -

Net Obligations 137,647 130,420 Other Resources:

Imputed financing from costs absorbed by others 30,421 20,722 Non-Exchange Revenue 394 251 Funds returned to U.S. Treasury General Fund (394) (251)

Net Other Resources Used to Finance Activities 30,421 20,722 Total Resources Used to Finance Activities 168,068 151,142 Resources to Finance Items Not Part of Net Cost of Operations (17,701) (23,375)

Total Resources Used to Finance Net Cost of Operations 150,367 127,767 Components of the Net Cost of Operations that will not 29,811 16,599 require or generate resources in the current period Net Cost of Operations $ 180,178 $ 144,366 Distributed offsetting receipts of $781.8 million were collected and transferred to offset the FY 2018 NRC appropriations through September 30, 2018. Upon transfer, the Treasury issued a negative warrant for the amount of the transfer to reduce the NRC appropriations.

Note 17 - 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, 2018 the NRC was not involved in any cases in which the likelihood of loss is probable.

Reasonably Possible Likelihood of an Adverse Outcome As of September 30, 2018, the NRC was not involved in any cases with a possible likelihood of an adverse outcome.

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 fiscal year 2018.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 52

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 general property, plant, and equipment 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 IT infrastructure, and individual capital asset purchases with a cost equal to or greater than

$50,000. The NRC did not include non-capitalized property, plant, and equipment with a cost of less than $50,000, which is 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, 2018, and 2017.

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 of structures and equipment.

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 agencys leased space, such as diesel generators and chillers for the Incident Response Center, the local area network, and power cooling. Equipment requiring FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 53

Chapter 2 Financial Statements and Auditors Report 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 NRCs Facilities Management Branch at the headquarters facilities performs 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 on site 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 the NRC-occupied facilities.

Deferred Maintenance and Repairs for Information Technology Infrastructure and Systems The NRC did not have any DM&R for IT Infrastructure and Systems for FY 2018. 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 include 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 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 54

Chapter 2 Financial Statements and Auditors Report support similar to that provided by the Customer Support Center at the NRC Headquarters, which includes contract support and Federal full-time equivalent (FTE) personnel.

• Telecommunications services include 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 involves local telecommunications, which includes contract support and Federal FTE personnel.

• 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, Policy for a Common Identification Standard for Federal Employees and Contractors, which requires all Federal executive departments and agencies to implement a Governmentwide standard for secure and reliable forms of identification for access to Federal facilities and information systems.

For IT systems, whether computer-off-the-shelf or internally developed software, the NRC relies on the project and program managers to establish an 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 The NRCs IT infrastructure operations and maintenance (O&M) and development, modernization and enhancement (DME) activities are performed by various vendors under several different contracts. For example, the enterprise-wide IT Infrastructure and Support Services (ITISS) contract supports data center and network operations, and the Global Infrastructure Development Acquisition (GLINDA) End User Computing Services Blanket Purchase Agreement (BPA) supports the Agencys personal computing requirements. As a result of the FY2017 ITISS restructuring, the government became the owner of the Agencys hardware and software assets. OCIO, in its management of IT hardware, plans refresh dates based on a number of criteria (type of hardware, manufacturer end-of -support, current condition, etc.); refreshes are then prioritized and implemented based on balancing those requirements and the available contract and budget resources.

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 ITISS contract, the main ranking factor is the age of the asset (e.g., desktop, laptop, printer, BlackBerry), 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 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 55

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

Office of Nuclear Salaries and For the fiscal year ended September 30, 2018 Inspector Facility Total Expenses General Fees Budgetary Resources:

Unobligated balance from prior-year budget authority, net $ 45,684 $ 3,542 $ - $ 49,226 Appropriations 909,069 12,859 - 921,928 Spending authority from offsetting collections 4,004 - - 4,004 Total Budgetary Resources $ 958,757 $ 16,401 $ - $ 975,158 Memorandum Entry:

Net adjustments to unobligated balance brought forward $ 9,494 $ 204 $ _ $ 9,698 October 1 Status of Budgetary Resources:

New obligations and upward adjustments (total) (Note 12) $ 920,576 $ 13,438 $ - $ 934,014 Unobligated balance, end of period:

Apportioned, unexpired accounts 37,645 1,930 - 39,575 Exempt from apportionment, unexpired accounts 431 - - 431 Unapportioned, unexpired accounts - 3 - 3 Unexpired unobligated balance, end of year 38,076 1,933 - 40,009 Expired unobligated balance, end of year 105 1,030 - 1,135 Unobligated balance, end of year 38,181 2,963 - 41,144 Total Status of Budgetary Resources $ 958,757 $ 16,401 $ - $ 975,158 Outlays Net:

Outlays, net 888,324 12,542 - 900,866 Distributed offsetting receipts - - (781,825) (781,825)

Agency Outlays, Net $ 888,324 $ 12,542 $(781,825) $ 119,041 Office of Nuclear Salaries and For the fiscal year ended September 30, 2017 Expenses Inspector Facility Total General Fees Budgetary Resources:

Unobligated balance from prior-year budget authority, net $ 53,239 $ 3,221 $ - $ 56,460 Appropriations 905,000 12,129 - 917,129 Spending authority from offsetting collections 5,626 - - 5,626 Total Budgetary Resources $ 963,865 $ 15,350 $ - $ 979,215 Memorandum Entry:

Net adjustments to unobligated balance brought forward $ 14,283 $ 220 $ _ $ 14,503 October 1 Status of Budgetary Resources:

New obligations and upward adjustments (total) (Note 12) $ 928,346 $ 12,181 $ - $ 940,527 Unobligated balance, end of period:

Apportioned, unexpired accounts 32,348 2,723 - 35,071 Exempt from apportionment, unexpired accounts 532 - - 532 Unapportioned, unexpired accounts 2,570 - - 2,570 Unexpired unobligated balance, end of year 35,450 2,723 - 38,173 Expired unobligated balance, end of year 69 446 - 515 Unobligated balance, end of year 35,519 3,169 - 38,688 Total Status of Budgetary Resources $ 963,865 $ 15,350 $ - $ 979,215 Outlays Net:

Outlays, net 907,631 11,903 - 919,534 Distributed offsetting receipts - - (789,648) (789,648)

Agency Outlays, Net $ 907,631 $ 11,903 $(789,648) $ 129,886 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 56

Chapter 2 Financial Statements and Auditors Report Inspector Generals Letter Transmitting Independent Auditors Report UNITED STATES NUCLEAR REGULATORY COMMISSION WASHINGTON, D.C. 20555-0001 OFFICE OF THE INSPECTOR GENERAl.

November 8, 2018 MEMORANDUM TO: Chairman Svinicki FROM: Hubert T. Bell IRAI Inspector General

SUBJECT:

RESULTS OF THE AUDIT OF THE UNITED STATES NUCLEAR REGULATORY COMMISSION'S FINANCIAL STATEMENTS FOR FISCAL YEARS 2018 AND 2017 (OIG-19-A-D2)

The Chief Financial Officers Act of 1990, as amended (CFO Act) , requires the Inspector General (I G) or an independent external auditor, as determined by the IG, to annually audit the United States Nuclear Regulatory Commission's (NRC) financial statements in accordance w ith applicable standards. In compliance with this requirement, the Office of the Inspector General (OIG) retained Acuity Consulting, Inc. (Acuity) to conduct this annual audit. Transmitted with this memorandum is Acuity's audit report. Acuity examined NRC's Fiscal Year (FY) 2018 Agency Financial Report , which includes comparative financial statements for FYs 2018 and 2017. Acuity's 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 entity's 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.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 57

Chapter 2 Financial Statements and Auditors Report Acuity's audit included , among other things , obtaining an understanding of 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 2018 Audit Results The results are as follows:

Financial Statements

• Unmodified opinion .

Internal Control over Financial Reporting

• Unmodified opinion .

Compliance with Laws and Regulations

• No instances of noncompliance noted.

OIG Oversight of Acuity 's Performance To fulfill our responsibilities under the CFO Act and related legislation for ensuring the quality of the audit work performed, we monitored Acuity's audit of NRC's FY 2018 and 2017 financial statements by:

• Reviewi ng Acuity's audit approach and planning .

• Evaluating the qualifications and independence of Acuity's auditors.

• Monitoring audit progress at key points.

• Examining the working papers related to planning and perfonning the audit and assessing NRC's intemal controls.

• Reviewing Acuity's audit report to ensure compliance with Govemment Auditing Standards and Office of Management and Budget Bulletin No. 19-01.

• Coordinating the issuance of the audit report.

• Perfonning other procedures deemed necessary.

2 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 58

Chapter 2 Financial Statements and Auditors Report Acuity is responsible for the attached auditor's report, dated November 7, 2018, and the conclusions expressed therein. OIG is responsible for technical and administrative oversight regarding the firm's performance under the terms of the contract. Our oversight, 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:

• NRC's financial statements.

• Effectiveness of NRC's internal control over financial reporting.

• NRC's compliance with laws , regulations, contracts , and grant agreements.

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

Meeting with the Chief Financial Officer At the exit conference on November 7, 2018, representatives of the Office of the Chief Financial Officer, OIG, and Acuity discussed the results of the audit.

Comments of the Chief Financial Officer In her response , the Chief Financial Officer agreed with the report . The full text of her response follows this report .

We appreciate NRC staff's cooperation and continued interest in improving financial management within NRC.

Attachment:

As stated cc: Commissioner J. Baran Commissioner S. Burns Commissioner A. Caputo Commissioner D. Wright M. Doane, OEOO M. Wylie , OCFO H. Rasouli, OEDO J. Jolicoeur, OEDO J . Bowen , OEDO EDO_ACS_Distribution RidsOCFOMailCenter Resource 3

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 59

Chapter 2 Financial Statements and Auditors Report Independent Auditors Report 1'1', T-'

.;~ )\udit ,o f the Nuclear Regulatory Commission's h

Annuar Financial Statements FY 2018 Financial Statements Independent Auditor's Report FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 60

Chapter 2 Financial Statements and Auditors Report

~~J\CUITY 1"" . INDEPENDEN T AUDITOR 'S RE PORT To: Inspector General United States Nuclear Regulatory Commission Chaimlan United States Nuclear Regulatory Commission In OUf audits of the fiscal years 2018 and 2017 financial statem ents of the Nuclear Regulatory Commission (NRC), we found

• NRC 's financial statements as of and farthe fi scal years ended September 30, 2018, and 2017 are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles;

• NRC maintained, in a\1 material respects, effective internal control over finan cial reporting as ofSeplember 30, 2018; and

• no reportable noncompliance for fi scal year 2018 with prov isions of applicable laws, regulations, contracts, and grant agreements we tested.

The following sections discuss in more detail (1) our report on the financial statem ents and on internal control over financial reporting, which includes required supplem ental infornlation (RSI)! and other infonnation included with the financial statements ;2 (2) our re port on compliance with appli cable laws, regulations, contracts, and grant agreements; and (3 ) agency comments.

Rep0l1 on the Financial Statements and on Internal Control over Financial Reporting In accordance with contract D17PD00255, we have audited N RC 's financial statements . NRC's financial statem ents comprise the balance sheets as of September 30, 2018, and 2017; the related statem ents of net cost, changes in net pos ition, and budgetary resources for the fi scal years then ended ; and the related notes to the financial statements. We have al so audited NRC 's internal control over finan cial reporting as of September 30, 201 8, based on criteria established under 31 U.S.C. § 3512(c), (d), commonly known as the Federal Managers ' FinanciallntegrifyAct (FMFIA).

We conducted our audits in accordance with U .S. generally accepted government auditing stand..'1fds. 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 Management's Discussion and Analysis, Deferred }.Jaintenance and Repairs, and the Combining Statement of Budgetary Resources, which are included with the financial statements Z Other information consists of infonnation included with the fmancial statements, other than the RSI and the auditor's report.

Page 1 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 61

Chapter 2 Financial Statements and Auditors Report

~~J\CUITY 1"" . INDEPENDEN T AUDITOR 'S RE PORT Management's Responsibility NRC management is res ponsible for (1) the preparation and fair presentation of these finan cial statements in accordance with U.S. generally accepted accounting principles; (2) preparing, measuring and presenting the RSI in accordance with U.S. generally accept ed accounting principles; (3) preparin g and presentin g other infomlation included in documents containin g the audited financial statements and auditor's report, and en suring the consistency oflhal information with the audited finan cial statements and RSI; (4) maintaining effective internal control over financial reporting, including the des ign, implementation, and maint enance 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 criteria established under FMFIA; and (6) its assessment about the effectiveness of internal control over financial reporting.

Auditor's Responsibility Our responsibility is to express an opinion on these financial statem ents and an opinion on N RC' s internal control over financial reporting based on our audits . u.s. generally accept ed government auditin g standards require that we plan and perfonn the audits to obtain reasonabl e assurance about whether the financial statements are free from material misstatement, and whether effective internal control over financial repoding was maintained in all material respects. We are also responsible for applying certain limited procedures to RSI and other infonnation included with the finan cial statements.

An audit of financial statements involves perfonning procedures to obtain audit evidence about the amounts and di sclosures in the financial statements. The procedures se lected depend on the auditor's judgment, including the auditor' s assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's 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 accountin g estimates made by management, as well as evaluating the overall presentation of the finan cial statements .

An audit of internal control over financial reporting involves perfonning procedures to obtain evidence about whether a material weakness exists.3 111e procedures se lected depend on the auditor 's judgment, including the assessment of the risk that a material weakness exists. An audit of internal control over financial repoding also includes obtaining an understanding of internal 3 A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entity*s financial statements will not be prevented, or detected and corrected, on a timely basis. 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 perfonning their assigned functions, to prevent, or detect and correct, misstatements on a timely oosis.

Page 2 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 62

Chapter 2 Financial Statements and Auditors Report

~~J\CUITY 1"" . INDEPENDEN T AUDITOR 'S RE PORT control over financial reporting, and evaluating and testing the design and operating effecti veness of intemal control over financial reporting based on the assessed risk. OUf audit of intemal control also considered N RC's process for evaluating and reporting on internal control over finan cial reporting based on criteria established IUlder FMFIA. Our audits also included p erfoffiling such other procedures as we considered n ecessary in the c irCIUllS"L'U1Ces .

We did not evaluate all internal controls rel evant to operating objecti yes as broadl y 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 effecti ve 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 that are less severe than a material weakness.

Definitions and Inherent Limitations of Internal Control over Financial Reporting An entity's internal control over financial reporting is a process effected by those charged with governance, managem ent, and other personnel, the objectives of which are to provide reasonable assurance that (1) transaction s are properly recorded, processed, and summarized to pernlit the preparation of financial statements in accordance with u.s. generall y accepted accounting principles, and assets are safeguarded against loss from unauthorized acquisition, use, or disposition ; and (2) tr,msactions are executed in accordance with provis ions of applicable laws, including those governin g the use of budget authority, regulation s, 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 nol prevent, or det ect 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, NRC 's finan cial statements present fairl y, in all material respects, NRC 's financial position as of September 30, 2018, and 2017, and its net cost of operations, changes in net position, and budgetary resources for the fi scal years then ended in accordance with U.S.

generall y accepted accounting principles.

Opinion on Internal Control over Financial Reporting In our opinion, NRC maintained, in all material respects, effective internal control over financial reporting as of September 30, 201 8, based on criteria established under FMFIA.

Page 3 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 63

Chapter 2 Financial Statements and Auditors Report

~~J\CUITY 1"" . INDEPENDEN T AUDITOR 'S RE PORT Other Matters Required Supplementary !nfonnation U.S. generall y accepted accounting principl es issued by the Federal Accounting Standards Advisory Board (F AS AB) require that the RSI be presented to supplement the finan cial statements. Although the RSI is not a part of the financial statements, FAS AB considers this infonnation 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 U.S. generally accepted government auditing standards, which consisted of inquiries of management about the methods of preparing the RSI and comparing the infomlation for consistency with management's responses to the auditor's inquiries, the financial statements, and other knowledge we obtained during the audit 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 Infonnation NRC's other infonnation contains a wide range ofinfonnation, some of which is not directl y related to the financial statements. 'This infonnation is presented for purposes of additional analysis and is not a required part of the financial statements or the RSI. We read the other information included with the financial statements in order to identify material inconsistencies, if any, with the audited finan cial statements. Our audit was conducted for the purpose offonning an opinion on NRC 's finan cial statements. We did not audit and do not express an opinion or provide any assurance on the other infonnation.

Rep0l1 on Compliance with Laws, Regulations, Contracts and Grant Agreements In connection with our audits of NRC ' s financial statements, we tested compliance with selected provis ions of applicable laws, regulations, contracts, and grant agreements consistent with our auditor's responsibility discussed below. We caution that noncompliance may occur and not be detected by these tests. We perfonned our tests of compliance in accordance with U.S. generally accepted govenunent auditing standards.

Management's Responsibility NRC management is responsible for complying with laws, regulations, contracts, and grant agreements applicable to NRC.

Page 4 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 64

Chapter 2 Financial Statements and Auditors Report

~~J\CUITY 1"" . INDEPENDEN T AUDITOR 'S RE PORT Auditor's Responsibility OUf responsibility is to test compliance w ith se lected provi sions oflaws, regu lations, contracts, and gnmt agreements applicabl e to NRC that have a direct effect on the detemlination of material amounts and disclosures in NRC' s financial statements, and perform certain other limited procedures. Accordingly, we did not test compliance with all laws, regulations, contracts, and grant agreements applicable to NRC.

Results afOur Tests for Compliance with Laws Regulations Contracts and Grant Agreements Our tests for compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements disc losed no instances oflloncompiiance for fi scal year 2018 that would be reportable lmder U. S. generally accepted government auditing standards. However, the objective of our tests was not to provide all opinion on compliance with laws, regulations, contracts, and grant agreements applicable to NRC. Accordingly, we do not express such an opinion.

Int ended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements TIle purpose of this report is so lel y to describe the scope of our testing of compliance with se lected provisions of applicable laws, regulations, contracts, and grant agreements, and the results of that testing, <md not to prov ide an opinion on compliallce. This report is illl integral part of an audit perfonned in accordance with U. S. generall y accepted government auditing standards in considering compliance. Accordingly, this report on compliance with laws, regulations, contracts, and grant agreements is not s uitable for any other purpose.

Agency Comments In commenting on a draft of this report, NRC stated it was in agreement with the report. TIle complete text of NRC's response is reprinted in the Agency Finallcial Report.

Ac uity Consulting, hIC.

Alexandria, Virginia November 7, 2018 Page 5 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 65

Chapter 2 Financial Statements and Auditors Report Managements Response to the Independent Auditors Report UNITED STATES NUCLEAR REGULATORY COMMISSION WASHINGTON, D.C. 20555~001 November 7, 2018 CHIEF FINANCIAL OFFICER MEMORANDUM TO: Brett M. Baker Assistant Inspector General for Audits Office of the Inspector General FROM: Maureen E. Wylie IRAJ Chief Financial Officer

SUBJECT:

AUDIT OF THE FISCAL YEAR 2018 FINANCIAL STATEMENTS We appreciate the collaborative relationship between the Office of the Inspector General, the auditors , and the Office of the Chief Financial Officer in supporting our continuing effort to improve financial reporting. We have reviewed the Independent Auditor's Report of the Agency's fiscal year 2018 financial statements and are in agreement 'Nith it.

cc: M. Doane EDO R. Lewis, AOJOEDO H. Rasouli , DAOI OEDO J. Jolicoeur, OEDO J. Bowen, OEDO FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 66

Chapter 2 Financial Statements and Auditors Report Chapter 3: Other Information FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 67

Chapter 3 Other Information Inspector Generals Assessment of the Most Serious Management and Performance Challenges Facing the NRC UNITED STATES NUCLEAR REGULATORY COMMISSION WASHINGTON, D.C. 20555-0001 October 23, 2018 OFFICE OF THE INSPECTOR GENERAL MEMORANDUM TO: Chairman Svinicki FROM:

/iJ~J, Hubert T. Bell

~

Inspector General

SUBJECT:

INSPECTOR GENERAL'S ASSESSMENT OF THE MOST SERIOUS MANAGEMENT AND PERFORMANCE CHALLENGES FACING THE NUCLEAR REGULATORY COMMISSION (NRC) IN FY 2019 (0IG-19-A-01)

In accordance with the Reports Consolidation Act of 2000, I am providing what I consider to be the most serious management and performance challenges facing the NRC in FY 2019. Congress left the determination and threshold of what constitutes a most serious management and performance challenge to the discretion of the Inspectors General. I have defined serious management and performance challenges as mission critical areas or programs that have the potential for a perennial weakness or vulnerability that, without substantial management attention, would seriously impact agency operations or strategic goals.

tNTRODUCTION NRC is an independent Federal agency established to license and regulate the Nation's civilian use of radioactive materials to ensure adequate protection of public health and safety, promote the common defense and security, and protect the environment.

NRC performs critical functions to ensure the safe and secure use of radioactive materials in the United States and to protect both the public and radiation workers from radiation hazards that could result from the use of radioactive materials. NRC provides licensing and oversight activities for 98 commercial nuclear power reactors as well as FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 68

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing the NRC in FY 2019 nuclear fuel cycle facilities, research , test, and training reactors; and radioactive materials used in medicine, academia , and industry.

NRC's principal regulatory functions are to establish regulatory requirements and conduct confirmatory research to support requirements ; issue licenses to facility operators and owners, possessors, and users of nuclear materials; oversee these licensees to ensure they are in compliance with NRC requirements and operate safel y and securely; and respond to emergencies in volving regulated acti vities.

NRC also participates in international work that is integral to the agency's mandate to protect public health and safety and promote the common defense and security. To carry out its mission, NRC's appropriation for FY 2019 is $898.35 million.

Based on NRC's mission and objectives, the Office of the Inspector General (OIG) annually identifies what it considers to be the most serious management and performance challenges facing NRC. Our goal is to focus attention on these issues to enhance the effectiveness of NRC programs and operations. Please note , challenges do not necessarily equate to problems; rather , the y should be considered areas of continuing important focus for NRC management and staff.

MANAGEMENT CHALLENGES The FY 2019 management and performance challenges are directly related to NRC's mission areas (commercial nuclear reactors and nuclear materials) and address security, information technology, financial programs, and administrative functions. Our work in these areas indicates that while program improvements are needed, NRC is continually making progress to address DIG recommendations and improve the efficiency and effectiveness of its programs. The FY 2019 management and performance challenges are as follows:

1. Regulation of nuclear reactor safety and security programs.

2. Regulation of nuclear materials and radioactive waste safety and security programs.

3. Management of information and information technology.

4. Management of finan cial programs.

5. Management of corporate functions.

2 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 69

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing the NRC in FY 2019 During previous management and performance challenges reports, the DIG used six categories to organize the challenge areas for the agency . For the FY 2019 report , we restructured the challenge areas into the five categories shown above to more closely align with the NRC mission areas of external regulatory oversight and internal operations.

From the FY 2018 challenge of management of security over internal infrastructure (personnel , physical , and cyber security) and nuclear security , we moved the internal infrastructure personnel and physical security components under the management of corporate functions challenge. W e also moved the internal infrastructure cyber security component under the management of information and information technolog y challenge . Finally, w e moved nuclear security to be shown along with the safety of nuclear plants and materials to form the challenges for nuclear plant safety and security and nuclear materials safety and security.

These challenges represent what OIG considers to be inherent and continuing program challenges relative to maintaining effective and efficient oversight and internal management controls. As a result , some are likely to remain challenges from year to year, while others ma y be remo ved from the list as progress is made toward resolution .

Attached is a brief synopsis of each management and performance challenge along with summaries of DIG audits and planned work that has informed the decision-making process. A complete list of reports can be found at: https:llwww.nrc.go v/reading-rm/doc-collections/insp-genl 3

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 70

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019

1. Regulation of nuclear reactor safety and security programs.

NRC is responsible for maintaining an established regulatory framework for the safe and secure use of civilian nuclear reactors, including commercial nuclear power plants as well as research . test. and training reactors. There are currently 98 civilian nuclear power reactors licensed to operate in the United States, which generate about 20 percent of the Nation's electriCity. as well as two plants under construction (Vogtle 3 and 4). There are also 31 licensed research and test reactors.

NRC's regUlatory oversight responsibilities in the reactor arena include developing policy and rule making , licenSing and inspecting reactors, licensing reactor operators, and enforcing regulations.

In FY 2018, the agency implemented its nuclear reactor safety program with $449 million and 2 ,048 full-time equivalent employees. However, in its FY 2019 congressional budget justification , NRC requested approximately $475 million to support 1 ,925 full-time equivalent employees. This anticipated reduction of 123 personnel underscores the importance of implementing nuclear reactor safety oversight acti vities as effectively and efficiently as possible .

Key reactor safety and security oversight challenges for NRC include the following:

• Ensuring an adequate and efficient reactor and operator licensing process, accounting for safety impacts of major changes to plant configuration , and sufficiently evaluating older plants for license extensions.

• Providing an adequate number of trained inspectors for sufficient oversight , and ensuring inspection procedures are adequate and are being followed .

• Ensuring adequate construction oversight of new power reactors , adequately revie wing and approving design changes that are occurring concurrent with the construction , and verifying w hether plants are built in accordance with the intended design .

• Ensuring appropriate and reasonable application of the agency's Reactor Oversight Process, Construction Reactor Oversight Process, Enforcement Policy, generic 4

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 71

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 requirements and backfit process, safety culture policy, and Alternative Dispute Resolution .

• Incorporating operating experience from the domestic and international nuclear industries into NRC's regulatory program , and identifying generic requirements .

• Ensuring effecti ve oversight of physical and personnel security at nuclear power plants.

The following synopses are examples of work that OIG has completed or is ongoing pertaining to nuclear reactor safety and security programs.

5 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 72

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Audit of NRC's Special and Infrequently Performed Inspections OIG-18-A-13, May 16, 2018 The NRC may conduct special and infrequent inspections using criteria in Inspection Manual Chapter (IMC) 2515 Appendix C. These inspections are in addition to baseline inspections conducted at commercial nuclear powe r plants in support of the Reactor Oversight Process.

NRC conducts these special and infrequent inspections in response to safety and security events at nuclear power plants, and to ensure the safety of infrequent, but major, plant licensing and maintenance activities.

The audit objectives were to assess NRC's processes for (1) identifying conditions that warrant special and infrequently performed inspections at commercial powe r reactors under IMC 2515 Appendix C, and (2) conducting the se inspections in accordance with agency guidance.

NRC staff are required to review IMC 2515 Appendix C inspection procedures on a 4-yea r periodic basis . Hovvever, NRC staff do not consistently review alllMC 2515 Appendix C inspection procedures on a periodic ba sis as required because there is conflicting guidance and low staff awareness of procedural requirements for conducting these reviews. As a result ,

outdated IMC 2515 Appendix C inspection procedures could reduce the efficiency and effectiveness in the planning and performance of these inspections .

Additionally, NRC management is respo nsible for developing application controls to achieve validity, completeness , and accuracy of data processed in an information system. However, NRC staff incorrectly coded inspections under IMC 2515 Appendix C in the agency's legacy Reactor Program System. This occurred because application controls in the Reactor Program System, operational before October 2017, we re not sufficient to ensure proper coding of inspections to IMC 2515 Appendix C. Reliable data is important for effective management and oversight of NRC's inspection activities.

This report made six recommendations regarding periodic assessments of IMC 2515 Appendix C inspection procedures and application controls in the Replacement Reactor Program System

-Inspections Module .

The full report is available at: https:/JVNv'W'.nrc.govJdocsJML1813JML18136A734.pdf 6

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 73

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Audit of NRC's Process for Modifying and Communicating Standard Technical Specifications, OIG-18-A-15, June 18, 2018 Technical specifications are part of an NRC license authorizing the operation of a nuclear production or utilization facility. The Standard Technical Specifications are guidance for modifying the approved nuclear pO\oVer plant's operating license in accordance with Section 36 of Part 50 of Title 10 of the Code of Federal Regulations , "Technical specifications" (10 CFR 50.36).

The Standard Technical Specifications are published for each of the reactor types in a set of NUREG*series publications , NRC modifies the Standard Technical Specifications through a process initiated by the industry*sponsored Technical Specifications Task Force, Vvtlich submits proposed changes to NRC. The submissions are referred to as Travelers.

The audit objective vvas to assess the effectiveness and efficiency of NRC's process for modifying Standard Technical Specifications and communicating these modifications to staff and licensees. NRC generally modifies Standard Technical Specifications in an efficient and effective manner. Howeve r, NRC's Standard Technical Specification modification process could be strengthened in the followi ng areas:

- Implementation of structured knowledge management practices to fully implement knowledge sharing practices directed at succession planning , training, and guidance for the Traveler modification process . Establishing a more structured approach to knowledge management

'"AK) uld reduce the risk of regulatory inconsistency and inefficiency.

- Implementation of quality assurance measures for Traveler data in the Replacement Reactor Program System-Licensing Module to prevent staff hour discrepancies and billing misallocations. NRC is taking corrective action to address the staff hour discrepancies and billing misallocations, howeve r, these actions are not yet complete .

This report made eight recommendations to strengthen Technical Specifications Branch knowledge management practices and enhance quality assurance measures for program data.

The full report is available at: https:/fw.tvw.nrc.gov/docs/ML 1816/ML18169A142.pdf 7

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 74

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing the NRC in FY 2019

2. Regulation of nuclear materials and radioactive waste safety and security programs.

NRC is responsible for maintaining an established regulatory framework forthe safe and secure use of nuclear materials; medical , industrial, and academic applications; uranium reco very activities; and high-level and low-level radioactive waste . NRC is authorized to grant licenses for the possession and use of radioactive materials and establish regulations to govern the possession and use of those materials. NRC's oversight of material licensees is done through its regional offices, Region I, Region III ,

and Region IV. Region I handles the oversight for licensees in the Region II area .

Region II handles oversight for all of NRC's fuel cycle licensees.

Upon a State's request , NRC may enter into an agreement to relinquish its authority to the State to regulate certain radioactive materials and limited quantities of special nuclear material. The State must demonstrate that its regulatory program is adequate Non-Ag ree n;!~t~g~~8~mem States to protect public health and safety and compatible with NRC's program . The States that enter into an agreement assuming this regulatory authority from NRC are called Agreement States. On September 25, 2018 , the NRC entered into an agreement with the state of Wyoming , transferring regulatory authority to the state over certain radioactive materials. Effective September 30, 2018 , Wyoming became Source: e-mail from Chief, NMSSIMSTRIASPB, SEP 26 the 38th Agreement State. With the 2018 agreement, the NRC is transferring to Wyoming the responsibility for licensing, rulemaking , inspection and enforcement activities necessary to regulate source material invol ved in uranium or thorium milling and the management and disposal of milling waste , or mill tailings. Fourteen uranium reco very licenses will be transferred to Wyoming's jurisdiction.

NRC regulates high-level radioactive waste generated from commercial nuclear power reactors. High-level radioactive waste is either spent (used) reactor fuel when it is accepted for disposal or waste material remaining afier spent fuel is reprocessed.

Because of its highly radioactive fission products, high-level radioactive waste must be handled and stored with care . Since radioactive waste becomes harmless only 8

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 75

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing the NRC in FY 2019 through decay (which can take hundreds of thousands of years for high-le vel waste),

the material must be stored and ultimately disposed of in a way that provides adequate protection of the public for a very long time . Due to the lack of a permanent repository for high-level radioactive waste in the United States, NRC continues to license and regulate the storage of high-level radioactive waste at Independent Spent Fuel Storage Installations across the country.

Low-level radioactive waste is typically produced at nuclear power reactors , hospitals, research facilities, and clinics from the use of nuclear materials for industrial and medical purposes. NRC regulates the management, storage , and disposal of radioactive waste produced as a result of NRC-licensed activities. Low-level radioactive waste includes contaminated protective clothing , equipment and tools, medical supplies, and laboratory animal tissues. Currently, all of the country's disposal facilities are located in Agreement States.

In addition , the number of nuclear power reactors being decommissioned continues to increase as more reactors reach the end of their licensed life or face challenging financial conditions. The decommissioning of nuclear power reactors continues to be a challenge for NRC and many licensees.

A large number of materials licenses are also terminated each year. Most of these license terminations are routine , and the sites require little remediation to meet NRC's criteria for unrestricted release. Howe ver, some of these decommissioning facilities present technical and policy challenges that could require large expenditures of NRC staff resources.

Key nuclear materials and radioactive waste safety and security oversight challenges for NRC include the following:

• Ensuring that licensing activities are conducted consistent with NRC requirements.

• Providing effective oversight of licensees' radioactive materials programs to preclude loss or theft .

• Staying current with emerging technologies, particularly with medical uses of radioactive materials.

• Tracking radioactive materials.

9 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 76

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing the NRC in FY 2019

• Ensuring that nuclear materials are safe and accounted for during exporting and importing activities.

• Ensuring that Agreement State programs are adequate to protect public health and safety and the environment, and are compatible with NRC's program.

• Providing effective oversight for the safe and secure interim storage of increasing quantities of high-level radioactive waste until a permanent repository for high-level radioactive waste is operational.

• Ensuring the management of licensee programs for the safe storage and disposal of low-level radioacti ve waste produced as a result of NRC-licensed activities.

• Managing complex decommissioning activities.

• Continuing to pursue the need for new regulations focused on unique requirements of nuclear power plants undergoing decommissioning , in order to align the requirements with the reduction in risk that occurs over time , while maintaining safety and security.

The following synopses are examples of work that OIG has completed or has underway in the nuclear materials and radioactive waste safety and security programs.

10 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 77

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing the NRC in FY 2019 Audit of NRC's Oversight of the National Materials Program OIG-18-A-11 , April 4, 2018 OIG found that the National Materials Program provides a frameVYQrk for carrying out NRC and Agreement State radiation safety regulatory programs ; howeve r, opportunities for improvement exist with regard to effectiveness. Specifically, NRC should improve its documentation and communication of the program framework.

The National Materials Program framework is not vve ll understood by stakeholders. In order for a program to be effective at accomplishing its mission, stakeholders should share a common understanding of a program. However, the National Materials Program framework is not well documented or communicated and lacks a champion. As a result, Agreement States are not satisfied with the level of influence they have on the Program.

This report included two recommendations to improve the effective ness of NRC's oversight of the National Materials Program through improving documentation and communication of the Program framework.

The full report is available at: https:/Iwww.nrc.gov/docs/ML1 809/ML18094A280.pdf 11 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 78

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Audit of NRC' s Transition Process for Decommissioning Power Reactors (To be initiated in FY 2019)

When a powe r company decides to close a nuclear power plant permanently, the facility must be decommissioned by safely removing it from service and reducing residual radioactivity to a level that permits release of the property and termination of the operating license . The NRC's regulatory process for transitioning power reactors from operation to decommission ing ha s been a challenge for many licensees.

The largest amount of licensing activity is expected to occur during the transition from operation to decommissioning. During this period a number of modifications - both technical and organizational- are needed to adapt the plant to meet new objectives and requirements as stated in several NRC regulations.

The NRC's tran sition period typically concludes with the transfe r of regulatory responsibility from the operating reactor organization, NRR, to the nuclear materials program organization, the Office of Nuclear Material Safety and Safeguards (NMSS).

The number of nuclear power reactors being decommissioned may increase in the coming years as more reactors reach the end of their original or extended licensed life, and as some plants face challenging financial conditions.

This audit objective is to determine Vv'hether the process NRC uses to transfer responsibility for oversight of commercial reactors transitioning from operating to decommissioning status ensures licensees meet applicable reQuirements and protects public health and safety.

12 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 79

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019

3. Management of information and information technology.

Technology advances rapidly. The challenge is supporting a future-ready workforce equipped w ith modern tools. technologies . skills. and knowledge necessary to meet both current and future mission needs. NRC must also meet the regulatory and statutory Federal mandates for Information Technologyl lnformation Management (ITIIM). The responsibility of the NRC's ITIIM program is to maintain and enhance services and infrastructure to enable the mission. This goal refiects the NRC's commitment to openness and is essential for effective agency operations.

Key information technology and information management challenges for NRC include the following :

• Ensuring that data is securely accessible from anywhere. at any time . on any device to support the agency's workforce.

• Leveraging innovative technologies to coordinate, securely share, and collaborate on information w ith both domestic and international partners.

NRC manages information and employs information technology (IT) to enhance information access and strengthen physical security and agency performance in carrying out its mission . NRC must continue to use robust, proactive measures to protect its infrastructure - the buildings. personnel , and information - from both internal and external threats. Moreover, as the nature of the threat continues to evolve , NRC faces challenges w ith oversight of the protection of operating facilities and facilities undergoing decommissioning, the use of nuclear materials, sharing of sensitive information , emergency preparedness and incident response .

Key internal security oversight challenges for NRC include the following:

• Increasing numbers, types, and sophistication of cyber threats highlight the need to reinforce the security over NRC 's information systems. For example ,

advanced perSistent threats where an adversary that possesses sophisticated le vels of expertise and significant resources can attack using multiple means such as cyber, physical, or deception to achieve its objectives. pose increasing risks.

13 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 80

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing the NRC in FY 2019

• Directing agency-wide information resource planning to ensure that agency information technology , information management, and information technology security resources are selected and managed to pro vide maximum value to the agency.

• Executing the insider threat prevention and detection program for detecting ,

deterring, and mitigating insider threats to address protection of classified and safeguards information from exploitation , compromise , or unauthorized disclosure.

• Managing risk-based information security strategies to protect against sophisticated cyber-attacks.

• Executing the Federallnformafion Security Modernization Act of 2014 , to strengthen the security of computer networks.

• The biggest challenge to IT in the future is security. Security could negatively impact connectivity to public networks.

The following audit report synopses are examples of work that OIG has completed in the IT/1M and information security programs.

14 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 81

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Evaluation of NRC' s Shared " 5" Drive OIG-18-A-06, December 21, 2017 On July 6, 2017, OIG identified and accessed an employee's bank account information on a personal check that was scanned and saved to the agency's shared "S" drive.

After finding that the sensitive information was not protected by access controls, OIG reviewed the shared "S" drive for Personally Identifiable Information (PII) and identified a folder dated 2011 , which had 35 subfolders for several offices in the agency. Of the 35 subfolders , 17 contained PII without appropriate access controls.

The objective was to assess how NRC effectively manages and protects PII stored on the shared "S" drive in accordance with Federal regulations.

OIG evaluated NRC's shared drives to assess how the agency effectively manages and protects PII stored on the shared "S" drive in accordance with Federal regulations . OIG found weaknesses in the following areas:

-NRC staff store PII on the shared "S" drive w ithout appropriate safeguards.

-NRC does not manage PII stored on the shared "S" drive.

This report made four recommendations to improve NRC's procedures and process for managing and protecting PII stored on the shared "S" drive .

The full report is available at: https:/Iwww.nrc.gov/docs/ML1735/ML17355A433.pdf 15 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 82

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 U.S. Nuclear Regulatory Commission Office of the Inspector General External Vulnerability Assessment and Penetration Test OIG-18-A-14, June 6, 2018 The Federal Information Security Modernization Act of 2014 (FISMA) outlines the information security management requirements for Federal agencies, which includes an annual independent evaluation of the agency's information security program and practices to determine their effectiveness.

FISMA requires the annual evaluation to be performed by the agency's OIG or by an independent auditor. The NRC OIG retained Richard S. Carson & Associates, Inc. , to perform the fisca l year 2017 FISMA evaluation, including conducting an external vulnerability assessment and penetration test.

The objective of the testing was to verify the presence of netlM:>rk devices, identify vulnerabilities in external systems that could be exploited by external threats through the Internet, determine risk, and aid management in countering or mitigating associated risks.

OIG conducted a vulnerability assessment and penetration testing of external Internet systems on the NRC computer network. The testing was conducted from Carson, Inc. Penetration Testing Lab in Bethesda, Maryland and the Washington , DC, metro area .

As a result of the assessment and testing , OIG made one recommendation to the Executive Director fo r Operations that wil l improve NRC's information security program.

The full report is Official Use Only and not publically available.

16 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 83

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Summary Report of FISMA Evaluations Conducted in Fiscal Year 2017 OIG-18-A-08, December 21, 2017 The DIG issued this memorandum report to summarize the findings and recommendations of the six Federal Information Security Modernization Act of 2014 (FISMA) evaluations conducted in Fiscal Year (FY) 2017. FISMA outlines the information security management requirements for Federal agencies , which includes an independent evaluation of the agency's information security program and practices to determine their effectiveness.

Each regional office and the Technical Training Center (TTC) is responsible for implementing the NRC information security program at their location. In order to evaluate the effectiveness of NRC's information security program and practices across the entire agency, NRC OIG conducts periodic independent evaluations at the regional offices and nc.

Overall, the six FY 2017 FISMA evaluations at Headquarters (HQ) , the Regions, and TTC resulted in nine findings and 14 recommendations to address those findings.

There 'NaS one management issue identified, but there were no recommendations made. As such , there are no new recommendations in this summary report .

The full report is available at: https :/Iwww.nrc.gov/docs/M L 1735/ML17355A502.pdf 17 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 84

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019

4. Management of financial programs.

NRC is required by the Omnibus Budget Reconciliation Act of 1990 to collect fees totaling approximately 90 percent of its annual budget authority. The agency's budget authority for FYs 2017 and 2018. including carryover. was approximately $935 million and $911 million. respectively . The NRC estimated that $881 million for FY 2017 and

$800 million for FY 2018 should be recovered from invo iced fees . NRC is required to establish a schedule of charges that fairly and equitably assesses the fees to license holders and license applicants. In recent years. multiple external stakeholders ha ve questioned NRC's budget and fee structure . Moreo ver, NRC has been reducing its budget and full-time equi va lents. with the exception of a FY 2019 request to increase funding for resources for the High-Level Waste program and activities related to preparing to review advanced nuclear reactor technologies. In recent years, NRC has initiated projects to improve its fee calculation process and fee billing structure . To maintain transparency, NRC must continue to implement solid internal controls over financial management and reporting.

Key financial management and reporting challenges include the following:

• Developing and implementing the agency's budget in accordance with Federal laws, regulations , and guidelines.

• Maintaining a fee structure in accordance w ith laws and regulations and that is fair to agency licensees.

• Improving controls over license fee billing.

• Maintaining effecti ve controls over financial reporting , contracts, and grants.

• Improving agency guidance for decommissioning programs.

The following audit report synopses are examples of completed. initiated or planned OIG work pertaining to financial programs.

18 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 85

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Audit of NRC's Grants Awards Process (Initiated in 2018, and will continue in 2019.)

In FY 2018, NRC awarded 51 individual grants totaling $15 million to universities for scholarships , fellowships , and faculty development grants. In addition, the Agency made grants to trade schools and community colleges . NRC 's intends grant funding to help support education in nuclear science , engineering , and related trades to develop a workforce capable of the design, construction, operation , and regulation of nuclear facilities and the safe handling of nuclear materials.

The Office of Management and Budget requested NRC develop performance metrics for the grants program and require grantees to address those metrics in 6-month performance progress reports. While NRC's grant program supports over 500 students annually, it directs most grant money to university faculty and curriculum development. NRC also notes a critical workforce need in the trade and craft areas of nuclear education and obse rves that outreach to pre-college students is essential to enable students to make informed decisions about pursuing the study of nuclear technolog y.

The audit objectives are to determine if (1) NRC's policies and procedures for revie'A'ing grant proposals and making awards comply with applicable federal regulations, and (2) internal controls over the pre-award and award process are adequate.

19 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 86

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Audit of NRC's Process for Managing Intra-Government Payment and Collection System Payments (To be initiated in FY 2019)

Federal agencies frequently provide services to other agencies. These se rvices require an exchange of money when the agencies enter into an agreement and services are performed .

Federal agencies use the Department of Treasury's Intra-Government Payment and Collection (IPAC) system to transfer funds from one agency to another with standardized descriptive data.

While the Department of Treasury administers the I PAC system , NRC has to ensure that transactions in the system are accurate and paid in a timely manner.

NRC processes approximately $80 million a year through the IPAC system. The agency's Office of the Chief Financial Officer receives the IPAC payment or reimbursement request and then forvvards the I PAC action to the corresponding NRC Contracting Officer's Representative (COR) for review and approval.

In recent years, there ha ve been concerns about IPAC payment requests being sent to incorrect NRC CORs, payments not being submitted in a timely manner, and insufficient data being provided to review I PAC transactions.

The audit objective is to assess whether NRC has established and implemented an effective process to ensure that IPAC payments are processed in a timely and accurate manner.

20 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 87

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019

5. Management of corporate functions.

NRC should continue exploring ways to gain administrative efficiencies while maintaining the appropriate corporate support to carry out agency operations. During FY 2018 . the NRC workforce totaled appro ximately 3 ,133 available staff positions. To support the agency's technical staff, NRC pro vides corporate support services such as contract support and multiple human resource programs. While NRC has implemented multiple programs to support agency staff, NRC continues to operate in a Federal Government en vironment of reduced full time equivalents (FTE) with only a recent small increase in the budget request for FY 2019. Because of this, the agency needs to ha ve an appropriate balance between administrative functions and technical needs. In addition , NRC must be able to effectively recruit , train , and transfer knowledge to new hires, if applicable. This includes maintaining up-ta-date guidance to effectively transfer knowledge and train current staff. NRC initiated Project Aim with the purpose of, among other things, identifying inefficiencies in work processes, and right-sizing the agency to retain skill sets needed to accomplish the agency's mission .

Key NRC corporate support function challenges include the following

• Reducing related costs while continuing to provide essential administrative functions that help the agency carry out its mission .

• Maintaining agency headquarters operations while complying with Federal space utilization guidelines and carbon footprint reduction targets.

• Recruiting , training , and effectively transferring know ledge to NRC new hires, if applicable.

• Providing current staff with the training and tools to maintain and/or improve the skills needed to effectively perform their jobs.

• Keeping NRC policies and procedures current.

The following audit report synopses are examples of work that OIG has conducted or is planning to conduct pertaining to NRC's administrative functions.

21 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 88

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Audit of NRC's Knowledge Management Program (To be initiated in FY 2019)

Knowledge management is a discipline that promotes an integrated approach to identifying, capturing, evaluating, retrieving, and sharing an enterprise's information assets. These assets may include databases, documents, policies , procedures, and previously un-captured expertise and experience in individual workers.

Howe ver, efforts to reduce NRC's staffing and budget ha ve raised knowledge management concerns affecting the performance of the agency. Additionally, OIG 's FY 2018 management challenges report noted a key NRC corporate support function challenge includes "recruiting, training, and effectively transferring knowledge to NRC new hires. "

The audit objective is to assess the effectiveness of NRC's knowledge management program in helping the agency capture and transfer knowledge for the purposes of meeting its mission.

22 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 89

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Audit of NRC's Contract Administration Process (To be initiated in FY 2019)

NRC obligated over $402 million through contracts for products and services as of December 31,2016. This spending accounted for almost 40 percent of the agency's discretionary spending , indicating that NRC is greatly reliant on contractors to execute its mission.

Because contract spending consumes a large portion of the agency's discretionary budget, contract obligations pose significant risks if effective contract oversight is not in place. As a result, OIG has taken steps to strengthen and enhance oversight of contracting practices.

During FY 2017, OIG completed the Audit of NRC 's Contract Administration Process and found that , while internal controls go verning NRC's contract administration practices are adequate, opportunities exist to improve the effectiveness of internal controls for management of contractor invoices and supporting documentation, and contract closeout procedures follo wed by agency CORso Based on the results of IM)rk for the FY 2017 contract administration audit, OIG plans to perform follow-up audits or evaluations of NRC's contract administration functions , processes, and procedures.

The audit objective is to identify additional areas for improvement of NRC's contract administration processes and assess whether CORs are carefully monitoring the wo rk of contractors , reviewing invoices for accuracy and adhering to contract terms and regulations .

23 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 90

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 Evaluation of NRC's Headquarters Operations Center Staffing OIG-18-A-16, June 21, 2018 The NRC Headquarters Operations Center (HOC) maintains direct contact with nuclear power plants and receives reports from reactor , fuel cycle , and nuclear materials licensees as required by regulations ,

The HOC is staffed 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day, 365 days a year with qualified watch standers. In serving as NRC's initial contact for all incident reports, HOC staff are responsible for maintaining awareness of NRC-licensed facilities and materials, and for performing independent situational analysis of incidents in order to ensure that licensees are implementing appropriate protective measures and to notify appropriate NRC staff.

The OIG found that response and coordination activities were able to be supported by the HOC during calendar year 2017, but under sub-optimal conditions that strained available staff resources .

Resource reduction , HOC staff departures, and hiring delays combined to produce a staffing shortage throughout calendar year 2017. Management underestimated the magnitude of programmatic impacts from the staff resource reduction and had not adequately planned how to maintain staffing levels. The number of available HOC staff dropped to the point of requiring that a non-qualified second person fill shifts.

Staffing conditions resulted in reducing the HOC's available capacity to support the agency's response and coordination role . Current staffing has improved through ongoing management efforts, and can be further strengthened .

This report included three recommendations to improve the management of HOC staffing .

The full report is available at: https:/Iwww.nrc.gov/docs/ML1817IML18172A159.pdf 24 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 91

Chapter 3 Other Information IG's Assessment of the Most Serious Management and Performance Challenges Facing t he NRC in FY 2019 TO REPORT FRAUD, WASTE, OR ABUSE Please

Contact:

Email: Online Form Telephone: 1-800-233-3497 TTYITDD: 7-1-1 , or 1-800-201-7165 Address: u.s. Nuclear Regulatory Commission Office of the Inspector General Hotline Program Mail Stop 05-E13 11555 Rockville Pike Rockville, MD 20852 COMMENTS AND SUGGESTIONS If you wish to provide comments on this report , please email OIG using this link .

In addition , if you ha ve suggestions for future OIG audits, please provide them using this link .

25 FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 92

Chapter 3 Other Information Summary of Financial Statement Audit and Management Assurances Summary of Financial Statement Audit for FY 2018 Audit Opinion Unmodified Restatement No Beginning Ending Material Weaknesses New Resolved Consolidated Balance Balance None 0 0 0 0 0 Total Material Weaknesses 0 0 0 0 0 Summary of Management Assurances for FY 2018 Effectiveness of Internal Control over Financial Reporting (FMFIA § 2)

Statement of Assurance Unmodified Beginning Ending Material Weaknesses New Resolved Consolidated Reassessed Balance Balance None 0 0 0 0 0 0 Total Material Weaknesses 0 0 0 0 0 0 Effectiveness of Internal Control over Operations (FMFIA § 2)

Statement of Assurance Unmodified Beginning Ending Material Weaknesses New Resolved Consolidated Reassessed Balance Balance None 0 0 0 0 0 0 Total Material Weaknesses 0 0 0 0 0 0 Conformance with Financial Management System Requirements (FMFIA § 4)

Statement of Assurance Federal systems conform to financial management system requirements Beginning Ending Non-conformances New Resolved Consolidated Reassessed Balance Balance None 0 0 0 0 0 0 Total Non-conformances 0 0 0 0 0 0 Compliance with Federal Financial Management Improvement Act (FFMIA)

Agency Auditor

1. Federal Financial Management Systems No Lack of Compliance Noted No Lack of Compliance Noted Requirements

2. Applicable Federal Accounting Standards No Lack of Compliance Noted No Lack of Compliance Noted

3. United States Standard General Ledger at No Lack of Compliance Noted No Lack of Compliance Noted the Transaction Level FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 93

Chapter 3 Other Information Payment Integrity Risk Assessment The NRC is required to complete risk assessments to determine whether any programs were susceptible to making significant improper payments in accordance with IPIA as amended by IPERA and IPERIA. At this time, only intragovernmental transactions are exempt from IPERIA requirements.

The NRC performed a risk assessment as of September 30, 2017. Management identified commercial payments, grant payments, employee payments, payroll, and Government charge cards as potential areas to include in the IPIA risk assessment. In FY 2017, the NRC reviewed FY 2016 disbursements of selected programs to determine the appropriate threshold to conduct a risk assessment and possible testing. For FY 2016, total commercial payments were

$207.1 million; total grants payments were $17.5 million; total employee payments were

$15.7 million; and total payroll payments were $476.0 million. The NRC did not conduct a risk assessment over its purchase cards (total disbursements of $3.3 million) and travel cards (total disbursements of $4.6 million) since disbursement totals for each were below $10.0 million.

Conducting a risk assessment over those two programs would not produce an error rate that would meet the minimum threshold set by the OMB ($10.0 million and 1.5 percent of total program payments).

For the programs selected for testing, as part of the qualitative and quantitative risk assessment, the NRC used its best judgment to select samples from each program under review, based on the universe of payments, which were reconciled to the general ledger. This sample was not meant to be statistically valid, as testing was performed to support the risk assessment process versus conducting full IPIA testing for high-risk programs. The testing was further refined through the identification of select attributes for each program to determine whether the right recipient received the right payment amount for the right goods or services at the right time.

The results of the FY 2017 risk assessment did not identify any programs that were susceptible to making significant improper payments. Although the results of the FY 2017 risk assessment identified programs as low risk, the NRC continued to monitor its payment processes, in addition to conducting periodic reviews of key controls for IPIA programs identified by management. The NRC will continue to conduct risk assessments on a triennial basis, in accordance with the IPIA, as amended by IPERA and IPERIA as well as OMB guidance. The next IPIA risk assessment will take place in FY 2020. However, the NRC will conduct risk assessments, as needed, if there are material changes in the way programs operate or if the agency establishes new programs. More detailed information on improper payments can be found at https://paymentaccuracy.gov.

Recapture of Improper Payments Reporting As noted above, the NRC conducted a risk assessment in FY 2017 and discovered no improper payments. Therefore, the agency determined that recovery or recapture audits are not cost effective. The NRC conducts risk assessments every 3 years by as required by IPERIA.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 94

Chapter 3 Other Information Agency Improvement of Payment Accuracy with the Do Not Pay Initiative The NRC uses the Treasurys Do Not Pay automated tools to monitor and reduce improper payments. This process has not resulted in the capture of any improper payments. Instead, the NRC captures improper payments through the agencys internal controls. The NRC uses the Federal Awardees Performance and Integrity Information System and other data systems such as the System for Award Management and financial reports to establish whether a contractor has the integrity and business ethics to receive a Federal contract and is otherwise responsible, which is consistent with applicable statutes and regulations.

To date, the NRC awards grants only to educational institutions and other entities, not individuals. The NRC uses the System for Award Management and other data systems to ensure that only responsible and otherwise eligible applicants receive the NRC grants. The agency uses the same monitoring practices for both grantees and commercial vendors. The NRC reviews for debarments and suspensions as part of the pre-award risk review for eligibility and takes appropriate action internally to debar and suspend grant recipients, as appropriate.

The NRC continues to follow the lead of the Office of Federal Procurement Policy on award recipients and continues to implement any changes directed by the policy. The NRC will also continue to use Do Not Pay to review and monitor improper payments.

Overpayment Recaptures without Recapture Audit Programs ($ in millions)

Certain NRC contracts are subject to independent audits by the Defense Contract Audit Agency (DCAA). DCAA questioned costs of $1.6 million for Fiscal Years 2011 through 2013 paid to a single vendor on two contracts. An NRC contracting officer reviewed these costs and made a final decision that $664,777 is unsupported and an overpayment. The costs are disallowed because of a lack of supporting documentation that demonstrates the allocatability of the costs to the NRC. These costs are considered improper payments. The NRC is working with the contractor to recover these costs and settle the debt.

Overpayments Recaptured outside of Results for FY 2018 Payment Recapture Audits Program or Activity Amount Identified Amount Recaptured Nuclear Regulatory Commission - 31000001 $0.96 million* $0.29 million Total $0.96 million $0.29 million

• The chart includes the improper payment of $664,777 discussed above.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 95

Chapter 3 Other Information Fraud Reduction Report Historically, the NRC has had appropriate processes and control mechanisms in place to mitigate the low level of fraud risk within the NRC operations. As a result, the NRC did not implement any additional financial or administrative controls as a result of the Fraud Reduction and Data Analytics Act. The NRC has determined that the agency is at low risk of fraud for many reasons, including the following:

• The NRC uses the U.S. Department of the Interior to manage its payroll and does not make any entitlement payments.

• Grants at the NRC represent less than 1.5 percent of the overall the NRC program.

• Over the past few fiscal years, there have been no instances of fraud identified through internal nor external reviews.

The NRC mitigates fraud risk through existing activities such as the following:

• The NRC follows a fully operational Enterprise Risk Management famework as coordinated by the Office of the Executive Director for Operations and OCFOs Internal Control and Planning Team. Through this framework, the NRC conducts quarterly enterprise risk assessments, including an assessment of fraud risk within the NRC operational activities.

The agency established the ERM program in FY 2013, when the CFOs Internal Control and Planning Team facilitated risk assessments with each of the NRCs business lines to identify programmatic and cross-cutting risks. The cross-cutting risks identified during these risk assessments became the initial baseline ERM risks.

• Business Line Control Plans are developed by the NRCs operational units and updated quarterly. These plans are independently reviewed by the Internal Control and Planning Team. At a summary level, this review centers on the relatively high risk areas including those that have recently been affected by changes or are perceived to have the potential for fraud, waste, or abuse.

• The NRC consistently adheres to the requirements of OMB Circular A-123, Appendix A (financial business processes) and Appendix B (purchase cards), and triennial implementation of Appendix C (improper payments). As the NRC has previously determined and documented that it is at low risk of improper payments, it performs a risk assessment every 3 years to determine whether there is sufficient risk to apply additional IPERIA requirements. The FY 2017 risk assessment confirmed that the NRC remains at low risk with regard to improper payments, including those that would arise from fraud.

• The NRC uses analytical tools to monitor and manage the NRCs issued travel charge cards, including an automated comparison of travel charges against the eTravel System, a creditworthiness check that will result in reduced credit limits for those with lower credit scores, and the analysis of Merchant Category Codes so that the NRC travel cards may not be used at inappropriate locations.

• The NRCs operational units conduct self-assessments and a variety of other reviews to measure their effectiveness and efficiency and validate that fraud, waste, and abuse are minimized.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 96

Chapter 3 Other Information Reduce the Footprint Combined Reduce the Footprint Baseline Comparison Change (FY 2017 FY 2017 Baseline FY 2018 Baseline - 2018)

Square Footage 1.134* 1.134* 0.000 (SF in millions)

• This total includes the NRC Technical Training Center, which was not included in last years report.

Reporting of Operations & Maintenance Costs - Owned and Direct Lease Buildings FY 2015 Change (FY 2015 FY 2017 Reported Cost Baseline - 2017)

Operation and Maintenance Costs N/A* N/A* N/A*

($ in millions)

• The NRC does not directly lease or own any space, but instead it has occupancy agreements with GSA.

The NRCs current office and warehouse portfolio of properties comprise a total of 1,134,068 usable square feet (USF), which is consistent with GSA occupancy agreements and remains unchanged from FY 2017. The agency is targeting additional reductions of the office and warehouse portfolio to 993,068 USF (88 percent of the FY 2017 baseline) by the end of the FY 2018 - FY 2022 planning period. The NRC plans to reach its target by renovating, reconfiguring, and releasing a total of 141,000 USF of office space at its Rockville, MD, headquarters and four regional office locations. In FY 2018, the NRC budgeted $43.2 million for rental payments to the GSA.

FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Office Target (Net 54,190 60,810 11,000 15,000 0 USF Reduction)

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 97

Chapter 3 Other Information Civil Monetary Penalty Adjustment for Inflation On November 2, 2015, the Federal Civil Penalties Inflation Adjustment Act of 1990 was amended by the Federal Civil Penalties Inflation Adjustment and Improvements Act of 2015 (Sec. 701, Pub. L. 114-74, 129 Stat. 599). This act requires that the head of each agency annually adjust for inflation the amounts of any civil monetary penalties assessed under statutes enforced by that agency.

As displayed in the table below, the NRC annually adjusts two civil penalty amounts for inflation, most recently on January 12, 2018. With respect to civil penalties for violations of the Atomic Energy Act of 1954, as amended, the NRC codifies the maximum civil penalty amount at 10 CFR 2.205, Civil Penalties, although individual penalties are assessed based on the class of licensee and severity of violation in accordance with the NRC Enforcement Policy (available at https://www.nrc.gov/docs/ML1813/ML18138A138.pdf). With respect to monetary penalties under the Program Fraud Civil Remedies Act, the NRC codifies the maximum penalty amount at 10 CFR 13.3, Basis for Civil Penalties and Assessments.

Penalty (Name of Statutory Year Date of Current Location for Penalty) Authority Enacted Current Penalty Penalty Adjustment Level ($) Update Details Maximum civil Atomic Energy 1980 January $290,875 Federal penalty for Act of 1954, as 2018 Register; 83 violations of the amended FR 1515 Atomic Energy Act (42 U.S.C. (January 12, 2282) 2018)

Fraudulent false Program Fraud 1986 January $11,181 Federal claims and Civil Remedies 2018 Register; 83 statements Act (31 U.S.C. FR 1515 3802) (January 12, 2018)

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 98

Chapter 3 Other Information Grants Oversight & New Efficiency (GONE) Act Requirements Category 2-3 Years >3-5 Years >5 Years Number of Grants/Cooperative Agreements with 8 4 -

Zero Dollar Balances Number of Grants/Cooperative Agreements with 11 4 -

Undisbursed Dollar Balances Total Amount of Undisbursed Balances $169,752.51 $16,604.28 $0.00 The NRC has 27 grants that expired before September 30, 2016, all of which are in the process of being closed out. Delays in grant closeouts occurred primarily during FY 2018, as a result of allocating resources to higher priority operational activities. Additionally, during the third quarter of FY 2018, an upgrade of the agencys acquisition system that focused on grants functionality resulted in some limitations that further delayed the closeout efforts. The NRC initiated efforts to supplement grants closeout tasks with additional resources after the year-end closeout and will be prioritizing the closeout of older grants during the first half of FY 2019.

FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 99

Chapter 3 Other Information Acronyms and Abbreviations Acronym 3WFN Three White Flint North 10 CFR Title 10 of the Code of Federal Regulations AFR Agency Financial Report AO abnormal occurrence CFO Chief Financial Officer CSRS Civil Service Retirement System DATA Act Digital Accountability and Transparency Act of 2014 DM&R deferred maintenance and repairs DNFSB Defense Nuclear Facilities Safety Board DOE U.S. Department of Energy DOL U.S. Department of Labor ECERM Executive Committee on Enterprise Risk Management ERM Enterprise Risk Management FDA U.S. Food and Drug Administration FECA Federal Employees Compensation Act of 1993 FERS Federal Employees Retirement System FFMIA Federal Financial Management Improvement Act of 1996 FMFIA Federal Managers Financial Integrity Act of 1982 FR Federal Register FTE full-time equivalent FY fiscal year GAAP generally accepted accounting principles GONE Grants Oversight & New Efficiency Act of 2016 GSA U.S. General Services Administration IPERA Improper Payments Elimination and Recovery Act of 2010 IPERIA Improper Payments Elimination and Recovery Improvement Act of 2012 IPIA Improper Payments Information Act of 2002 IT information technology ITISS IT infrastructure and support services MOX mixed-oxide fuel NRC U.S. Nuclear Regulatory Commission FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 100

Chapter 3 Other Information Acronym NUREG Nuclear Regulatory Commission document identifier NWF Nuclear Waste Fund OBRA-90 Omnibus Budget Reconciliation Act of 1990 OCFO Office of the Chief Financial Officer OIG Office of the Inspector General OMB Office of Management and Budget SBR Statement of Budgetary Resources SFFAS Statement of Federal Financial Accounting Standards SGI Safeguards Information Treasury U.S. Department of the Treasury TTC Technical Training Center UF 6 Uranium hexafluoride UO 2 Uranium dioxide U.S.C. United States Code USF usable square feet FY 2018 Agency Financial Report http://www.nrc.gov Protecting People and the Environment 101

NRC FORM 335 U.S. NUCLEAR REGULATORY COMMISSION 1. REPORT NUMBER (12-2010) (Assigned by NRC, Add Vol., Supp., Rev.,

NRCMD 3.7 and Addendum Numbers, if any.)

BIBLIOGRAPHIC DATA SHEET (See instructions on the reverse) NUREG-2220, Vol. 2

2. TITLE AND SUBTITLE 3. DATE REPORT PUBLISHED MONTH YEAR U.S Nuclear Regulatory Commission November 2018 Fiscal Year 2018 Agency Financial Report 4. FIN OR GRANT NUMBER

5. AUTHOR(S) 6. TYPE OF REPORT Anthony Rossi, April McIlwain, Susan Stengel, Susan Jones, Anh Dang, Sherry Titherington, Annual et al 7. PERIOD COVERED (Inclusive Dates)

Fiscal Year 2018

8. PERFORMING ORGANIZATION - NAME AND ADDRESS (If NRC, provide Division, Office or Region, U. S. Nuclear Regulatory Commission, and mailing address; if contractor, provide name and mailing address.)

Division of the Controller Office of the Chief Financial Officer U.S Nuclear Regulatory Commission Washington, DC 20555-0001

9. SPONSORING ORGANIZATION - NAME AND ADDRESS (If NRC, type "Same as above", if contractor, provide NRC Division, Office or Region, U. S. Nuclear Regulatory Commission, and mailing address.)

Same as above

10. SUPPLEMENTARY NOTES

11. ABSTRACT (200 words or less)

The Fiscal Year 2018 Agency Financial Report (AFR) presents the agency's financial results of operations which includes the audited annual financial statements of the NRC. The AFR also provides a summary of NRC program performance and cost.

The information is presented in accordance with applicable statutes and OMB requirements in OMB Circular A-136, Financial Reporting Requirements.

12. KEY WORDS/DESCRIPTORS (List words or phrases that will assist researchers in locating the report.) 13. AVAILABILITY STATEMENT unlimited Agency Financial Report (AFR) Fiscal Year (FY) 2018 14. SECURITY CLASSIFICATION (This Page) unclassified (This Report) unclassified

15. NUMBER OF PAGES

16. PRICE

United States Nuclear Regulatory Commission NUREG-2220, Vol. 2 November 2018