ML20045B840

Chairman Semiannual Rept to Congress,Mgt Decisions & Final Final Actions on Ofc of Inspector General Audit Recommendations,921001-930331

ML20045B840
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Issue date:	03/31/1993
From:	Selin I, The Chairman NRC COMMISSION (OCM)
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I The Chairman's Semiannual I

Report to the Congress

.g nl MANAGEMENT DECISIONS AND FINAL ACTIONS ON l

OFFICE OF THE INSPECTOR GENERAL AUDIT RECOMMENDATIONS l

g October 1,1992 - March 31,1993 l

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The Chairman's Semiannual g

Report to the Congress I

MANAGEMENT DECISIONS AND I

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AUDIT RECOMMENDATIONS I

I October 1,1992 - March 31,1993 I

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l U.S. Nuclear Regulatory Commission Washington, DC 20555 I

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l FOREWORD i

i I am forwarding the U.S. Nuclear Regulatory Commission's semiannual report, I

" Management Decisions and Final Actions on Office of the inspector General [OlG]

l Audit Recommendations." The report covers the 6 months from October 1,1992, to j

March 31,1993, and is required by Section 106(b) of the Inspector General Act I

Amendments (P.L.100-504). It complements the report prepared by the OlG on audit reports issued during the same 6 months and provides information on actions taken in g

response to audit reports.

There were 14 OlG audit reports and 5 internal control review reports issued during the reporting period. This is the greatest number of reports and recommendations issued I

by the OlG in any reporting period since their office was established within the NRC.

Management has devoted significant attention to responding to the 56 recommenda-tions identified in the reports and reviews. During this period,25 recommendations I

have been implemented, including those that resulted in over $6 million being put to better use within the agency.

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The NRC will submit its first audited financial statement in August 1993. As part of the conduct of the audit, five internal control reviews have been conducted. Some short-l comings in our financial systems have been identified during the reviews; these have l

been corrected or are currently in the process of being corrected.

NRC management works closely with the OlG during the conduct of audits and contin-ues to place emphasis on resolution of the problems identified by the OlG.

I Ivan Selin, Chairman U.S. Nuclear Regulatory Commission I

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CONTENTS Page FOREWORD..

i I NTR O D U CTI O N....................................

1 BACKGROUND.........

1 STATUS ON RECOMMENDATIONS REMAINING FROM THE PREVIOUS PERIOD.........

1 MANAGEMENT DECISIONS ON REPORTS ISSUED DURING THIS PERIOD..

2 STATISTICAL TABLE REVIEW.......................

6 STATISTICAL TABLE I Disallowed Costs....

7 STATISTICAL TABLE 11 Funds To Be Put To Better Use..................

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MANAGEMENT DECISIONS NOT IMPLEMENTED WITHIN ONE YEAR...

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I INTRODUCTION This is the eighth semiannual report to the Congress on management and final actions taken by the U.S. Nuclear Regulatory Commission (NRC) in response to the recommenda-tions resulting from the audits performed by the Office of the Inspector General (OlG).This report provides the status of open recommendations existing at the beginning of the re-I porting period, recommendations made during the reporting period, and recommenda-tions remaining open for more than a year. Management disagreed with four audit recom-mendations during the reporting period. A disagreement from the previous reporting period also remains unresolved. These unresolved recommendations are discussed in the sections titled " Status on Recommendations Remaining From the Previous Period" and

" Management Decisions issued During This Period."

l The staff also conducted six followup reviews of previously closed audits. The reviews sub-stantiated the adequacy of previous actions to resolve recommendations. In a few in-stances, the staff made additional recommendations to further enhance management's I

actions in correcting the initial OlG recommendations.

BACKGROUND Section 5a of the Inspector General Act of 1978, as amended, requires each agency in-spector general to submit to the agency head a semiannual report on the audits conducted by the inspector general during the reporting period. Section Sb of the act requires the agency head to transmit the report to the Congress with the agency head's comments and other information such as management decisions and final actions taken pursuant to audit recommendations.

STATUS ON RECOMMENDATIONS REMAINING FROM THE PREVIOUS PERIOD g

Progress has been made on closing open recommendations during the reporting period.

Final action was completed for six recommendations, and three audit reports were closed.

I Of the six reports remaining open from the previous reporting period, two are discussed below and four have recommendations open for more than a year and are discussed in the last section of the report, " Management Decisions Not implemented Within One Year."

REVIEW OF NRC'S CONTRACT CLOSEOUT PROCESS During the first half of fiscal year 1992, the OlG conducted an audit of the process used by I

the Division of Contracts and Property Management (DCPM) to close out commercial con-tracts. The audit shows that, on the basis of a sampling of 55 contracts, approxiolately $8.1 million was available for deobligation from 800 expired contracts. The OlG recommended I

that the agency (1) develop a plan to reduce the backlog and increase the use of incentives for follow-on contracts charged with assisting DCPM in its closeout activity; (2) review the validity of the 5-percent reserve and revise the amount held in reserve, as appropriate; and I

(3) deobligate available balances on the 800 expired contracts. DCPM has completed ac-tions on all items. DCPM has closed 343 contracts and deobligated $7,215,697 since April 1,1992. DCPM continues to deobligate available balances on all expired contracts 1

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I within 90 days after a contract becomes eligible for closeout. A backlog of no more than 300 contracts will be maintained after July 1994.

IMPROVEMENTS NEEDED IN NRC'S PROCESS FOR APPROVING PAYMENTS TO l

THE DEPARTMENT OF ENERGY (DOE)

During this audit, the OlG staff reviewed the project management practices in the Office of Nuclear Regulatory Research (RES) related to the acquisition of goods and services at DOE national laboratories. The audit report contained three recommendations that cen-tered on the review and approval of cost vouchers and subsequent verification of RES work performed. Two of the three recommendations remain open. The audit report also ad-dressed the need for an internal quality control process to ensure that DOE vouchers are reviewed and approved in accordance with agency policy and procedures. RES imple-E mented a quality control process, and the NRC Controller implemented a followup proce-E dure to ensure that approved vouchers are on file to support DOE payments. This require-ment is being placed in a management directive that is planned to be issued September 30, g

1993. NRC management disagreed with a recommendation in this audit report concerning 3

the timing of recording expenscs in the NRC accounting system and requested a decision from the Comptroller General to resolve this issue. The Comptroller General has recently g

responded to this request for clarification. It is anticipated this disagreement will be re-E solved by July 1993.

MANAGEMENT DECISIONS ON REPORTS ISSUED DURING THIS l

PERIOD There were 14 new audit reports containing 28 recommendations and 5 internal control l

reviews also containing 28 recommendations issued during this period. NRC management agreed with all recommendations with the exception of four recommendations appearing in the internal control reviews. Of the 14 audit reports issued,7 did not contain any recom-l mendations. Management completed action on 22 of the 56 recommendations made dur-ing the reporting period. Most of the audit recommendations centered on the establish-ment of plans or development of policies. Internal program audits did not reflect any indications of fraud, waste, or abuse. However, the agency has reported four material weaknesses in the area of management controls largely based on the recommendations contained in the OlG reports.

l FREQUENT FLYER BENEFITS The OlG audited the NRC program to manage and administer frequent-flyer benefits as a l

result of allegations that certain agency personnel had used frequent-flyer benefits ac-quired from official travel for personal use. The OlG made four recommendations to g

strengthen NRC policy and procedures for using frequent-flyer benefits. In response to two 3

of the recommendations, the NRC distributed guidance to all employees and strengthened administrative procedures to ensure that travelers and travel management officials clearly g

understand their responsibilities with respect to frequent-flyer benefits.

3 The two remaining recommendations addressed strengthening NRC policy to (1) clearly reflect expectations for using benefits to reduce overall travel costs to the agency, and (2) to 2

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I clearly state that personal use of frequent-flyer benefits earned through official travel is a criminal violation subject to the penalties of the law. The General Accounting Office (GAO) is currently reconsidering its position that frequent-flyer benefits earned through official travel are the property of the government. Consequently, the NRC has deferred implementing an'j policy changes until GAO renders its decision; however, the associated NRC mt re-ment directive will be revised to clearly define the use of frequent-flyer benefits for cucial travel in accordance with our current policy.

IRM'S MANAGEMENT OF ITS CONTRACTS The OlG staff completed a review of contracts managed by the Office of information Re-sources Management (IRM). IRM relies heavily on commercial contracting to meet its mis-l sion and in Fiscal Yen (FY) 1992 spent about $36.6 million on more than 50 contracts. The review found that IRM had taken steps to improve its oversight of individual contracts but needed to (1) establish office-wide policies and procedures to govem its management of I

contracts and to ensure adherence to applicable laws and regulations and (2) issue a man-agement bulletin to IRM project officers outlining unauthorized procurement actions and reminding them that violations will not be tolerated. The office-wide policies and proced-l ures were completed on March 31,1993, and the management bulletin is planned to be issued by July 30,1993.

l IRM'S COMPUTER SECURITY PROGRAM The OlG staff examined the results of an independent compliance review of the IRM com-puter security program and IRM actions tc implement the recommendations stemming I

from that review. The compliance review conducted by the Los Alamos National Labora-tory lLANL) identified 30 recommendations that would strengthen the computer security pro, ram. Atthe time of the OlG review, NRC had already implemented 15 of the 30 recom-I mendations. The OlG determined that the uncorrected deficiencies warranted immediate agency attention and recommended (1) a detailed action plan be developed to address the remaining weaknesses identified in the LANL report and (2) that the agency report the

.I weakness in the,omputer security program as a material weakness in the annual Federal Managers' Finan.:ial Integrity Act report. Both recommendations have been completed.

The computer security program will continue to be reported as a material weakness until all I

items have been completed on the detailed action plan.

REVIEW OF NRC'S IMPLEMENTATION OF THE FEDERAL MANAGERS' I

FINANCIAL INTEGRITY ACT (FMFIA) 1992 in response to recommendations in the OlG annual audit of the management control pro-l gram, the NRC agreed to revise its management directive on management controls to add quality assurance provisions that include (1) annual FMFIA activities and (2) the guidance that currently is provided to the staff for reporting and documenting management control reviews. Additionally, the due date for completion of management control reviews will be escalated to allow time for NRC managers to perform any additional work needed to satisfy the intent of the FMFIA management control reviews when the OlG or the NRC Internal l

Control Committee determines that insufficient work was performed.

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I PERFORMANCE CRITEHIA AND BETTER MANAGEMENT OVERSIGHT NEEDED TO ENHANCE NRC'S RESEARCH PROGRAM CONTRIBUTIONS During 1992 and 1993, the OlG conducted a review of the NRC process for managing re-search. The review found that (1) neither RES nor any other NRC office had established criteria to measure the performance and contributions of the research program and sup-porting projects and (2) there was a lack of strong internal management controls to guide NRC research. In addressing these recommendations, RES has reviewed its criteria for evaluating research projects as defined in the " Nuclear Regulatory Research Philosophy."

Also, procedures are now in place that require these criteria be used to evaluate each RES g

project before it is initiated, to validate annually the project's continuance, and to evaluate 3

each project's usefulness upon ccmpletion. Further, these criteria will be used annually at mid-year and when RES senior management submits its budget.

NRC'S POLICIES AND PROCEDURES FOR DEFERRING MATERIALS INSPECTIONS AND VERIFYING LICENSEE ASSERTIONS During this' audit, the OlG staff reviewed the NRC policy and guidance for deferral of sched-uled materials inspections and for rblying on and verifying licensee assertions. OlG recom-mended that Nuclear Materials Safety and Safeguards (NMSS) develop (1) policies and E

procedures for ensuring that initial materials license inspections are performed within a E

specified period following license issuance and (2) a uniform policy for deferring materials inspections. NMSS is currently finalizing these policies and procedures and is anticipating g

completion during June 1993. The OlG also recommended that NRC training programs for 5

inspectors emphasize verification of licensee assertions and the proper handling of sus-pect licensee data and misinformation. Regional offices have been directed to include E

these topics as pad of their inspector qualification program to be implemented by June E

1993. The associated management directive will be changed to incorporate these changes by August 1993.

IMPROVEMENTS NEEDED IN FINANCIAL AND ADMINISTRATIVE ACCOUNTABILITY FOR RES FUNDED WORK AT DOE LABS During late 1992 and early 1993, the OlG conducted an audit of project management prac-tices in RES ietated to the acquisition of goods and services from DOE nationallaborato-ries. The audit found that: projects were not being closed upon completion; managers could not account for NRC-funded property and equipment at DOE laboratories; project files were missing, incomplete and disorganized; key personnel and managers were not adequately trained in financial and administrative accountability; DOE laboratory perform-E ance on projects was not being evaluated; RES was not making use of available manage-E ment tools to track project status; and project managers did not review costs. On the basis of these audit findings, RES quickly developed and implemented an action plan for com-3 pleting corrective actions, some of which are already completed. Specifically, RES manag-E ers have certified that DOE project files under their cognizance are complete for FY 1992 and FY 1993; closeout procedures for RES have been implemented; action to deobligate 3

all funds from all prior year projects is underway; system requirements are defined for a E

new integrated information system to track project status, funaing, and key project data; additional RES project management training has been scheduled; and almost all vouchers 4

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for the FY 1989-1992 timeframe have been reviewed and approved / disapproved for pay-ment. Other actions under way include a pilot project in RES to test the implementation of a new management directive for doing business with DOE. Implementation of this new direc-I tive should raise awareness of cost issues related to projects placed with DOE.

OVERVIEW REPORT ON INTERNAL MANAGEMENT CONTROL BREAKDOWNS The OlG conducted a special study of its own significant OlG reports to determine if there were any trends warranting NRC management attention. While the report was commenda-tory of management actions overall, it did find that there were improvements needed in I

management controls and offered three suggestions: (1) develop a training program for senior-level managers focused on management controls, (2) require the NRC Internal Control Committee report directly to the Chief Financial Officer, and (3) develop an auto-l mated tracking system to track financial improvements. The Executive Director for Opera-tions (EDO) accepted the suggestions and is taking steps to strengthen management con-trols throughout the agency.

INTERNAL CONTROL REVIEWS OF THE NRC'S ACCOUNTING SYSTEMS in advance of the audit of the FY 1992 financial statement required by the Chief Financial l

Officers Act of 1990, the OlG reviewed the internal control structure of the generailedger, including the payroll, travel, commercial payments, property, and license fee billing sub-sidiary systems. The OlG rated the general ledger as a high-risk environment and con-l cluded that the internal control structure surrounding the system was not adequate.

The major findings focused on.the problems with subsidiary systems combining manual operations with automated ones to provide monthly summary accounting data to the gen-I eralledger. Because these systems are not integrated with the general ledger, labor inten-sive reconciliations are required.

l Management disagreed with 4 of 17 recommendations offered. The OlG determined that no further action was required on these recommendations pending the completion of the agency's FY 1992 financial statement audit.

In accordance with the agency's plan for financial management improvement, NRC changed its accounting system to the Federal Financial System (FFS) through a cross-servicing agreement with the U.S. Department of Treasury beginning in FY 1993. When fully implemented, subsidiary systems, exclusive of payroll, are totally integrated, eliminat-ing the risk inherent in manual reconciliations as cited by the OlG. Incorporation of the sub-sidiary systems into FFS is proceeding as scheduled. Commercial payments and travel accounting were implemented initially. As recommended by the OlG report, policies and procedures for reconciling property management records to the generalledger control ac-count for capitalized property will be phased in with completion in FY 1994. All NRC billings I

and collections will be fully integrated into FFS during FY 1994.

In addition, the NRC is in the process of negotiating an interagency agreement with the I

Department of Health and Human Services (HHS) for cross-servicing on the HHS inte-grated payroll /personne! system. Implementation of this p; stem is scheduled for pay year 1995. As part of this effort, an electronic link will be established with FFS to reduce manual reconciliations.

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I During 1992 the O!G also conducted a review of the "M" account. The OlG concluded that the agency needs to strengthen its financial management oversight to ensure that unex-pended obligations on inactive accounts are deobligated in a timely manner and made available for other purposes. In addition, the OlG recommended strengthening the quality assurance procedures within the Office of the Controller to ensure that errors are caught and corrected. NRC has initiated action to correct the weaknesses noted.

STATISTICAL TABLE REVIEW The following tables reflect dollar values of recommendations contained in the reports is-3 sued by the OlG. Table i presents the dollar value of disallowed costs determined through E

contract audits conducted by the Defense Contract Audit Agency (DCAA).These costs are also contained in reports subsequently issued by the OlG. Table 11 presents the dollar value g'

of recommendations for funds to be put to better use. These figures result from pre-award E

contract audits conducted by DCAA and the OlG, as well as internal program audits per-formed by the OlG. The OlG was responsible for conducting the audits in Table 11, other E

than four contract audits that account for $62,840 in Category A of the table, two contract 5

audits and $424,152 in Categories B and C, and one contract audit and $9,580 in Category D. These contract audits were conducted by DCAA. It should be noted that the Department E

of Defense also takes credit for cost savings resulting from all DCAA audits in its semiannual 5

report.

Table 11, Category C reflects the completion of the recommendation to deobligate the bal-ance of funds on expired contracts.

Table ll, Category D mainly consists of $1.4 million of RES funds associated with DOE lab projects that are in the process of being deobligated.

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STATISTICAL TABLE I MANAGEMENT REPORT ON OFFICE OF INSPECTOR GENERAL I

AUDITS WITH DISALLOWED COSTS l

For the Period October 1,1992, through March 31,1993 Number of Disallowed g

Category audit reports costs A Audit reports with management decisions on which final action had I

not been taken at the beginning of this reporting period 0

0 B Audit reports on which management decisions were made during this reporting period 2

$73,109 C Audit reports on which final action was taken during this reporting period 0

0 (i) disallowed costs that were recovered by managernent through l

collection, offset, property in lieu of cash, or otherwise 0

0 (ii) disallowed costs that were written off by management 0

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Reports on which no final action had D

been taken by the end of this reporting period 2

$73,109

• This table only includes reports containing direct questioned costs.

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STATISTICAL TABLE 11 MANAGEMENT REPORT ON OFFICE OF INSPECTOR GENERAL g

AUDITS WITH RECOMMENDATIONS THAT 5

FUNDS BE PUT TO BETTER USE I

For the Period October 1,1992, through March 31,1993 g

Recommendations that funds be put to better use by management agreed to in a Number of management Category audit reports decision A Audit reports on which final action has not been taken by the commencement of this reporting period 6

$ 9,562,840 B Audit reports on which maraage-ment decisions were made during this reporting period 3

424,152 C Audit reports on which final action was taken during this reporting period 4

8,524,152 (i)

Recommendations that were actually completed 4

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(ii) Recommendations that management has subsequently l

concluded should not or could not be implemented or completed 0

0 D Audit reports on which no final action has been taken by the end of this reporting period 2

1,409,580 I

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MANAGEMENT DECISIONS NOT IMPLEMENTED WITHIN ONE YEAR Management decisions were made before March 1992 for the four OlG audit reports dis-I cussed below, but as of March 31,1993, final actions had not been taken. The title of each report is given below with the date it was issued and a description of related activities.These reports do not contain any disallowed costs or recommendations that funds be put to bet-l ter use.

REVIEW OF NRC MANAGEMENT OF REPORTING REQUIREMENTS UNDER 10 CFR PART 21 November 30,1990 This OlG report contained five recommendations concerning NRC management of report-ing requirements under 10 CFR Part 21. Final action has been taken on all but one of these l

recommendations. The outstanding item required clarification of 10 CFR Part 21 compli-ance by non-reactor licensees and vendors. To address this issue, management is devel-oping a proposed rule to clarify that Part 21 requirements apply to all non-reactor licensees.

l However, it is proposed that other non-reactor licensees only need to develop and imple-ment procedures to notify their suppliers, who in turn would be responsible for evaluating equipment defects. The proposed amendments will clarify the evaluation and reporting requirements. Under the proposed rule, major non-reactor licensees (fuel cycle, waste dis-posal, spent fuel storage, and certificate holders) will have to comply with all the current requirements of 10 CFR Part 21, including the development and implementation of specific procedures for evaluating equipment defects. During the current reporting period, the lan-guage of the proposed rule has had extensive internal coordination and management re-view. The proposed rule was discussed with the Agreement States on October 28,1992.

l The Agreement State representatives raised possible jurisdictional and compatibility is-sues and requested that they be consulted early in the development of the rule. Conse-quently, a draft of the proposed rule was sent to the Agreement States for a 30-day com-ment period. All submitted comments will be considered when they are submitted to management in May 1993. The draft rule is scheduled to be published in August 1993 and tr.12nal rule is scheduled for August 1994.

REVIEW OF NRC'S EMERGENCY PLANNING REGULATIONS AND IMPLEMENTING GUIDANCE January 16,1991 lhis OlG report cor tained eight recommendations, five of which have been closed. The three recommendauons remaining open concern changes to the 1985 Federal Emergency Management Agency (FEMA)-NRC memorandum of understanding (MOU) on radiologi-cal emergency planning and preparedness. On February 16,1993, the Commission unani-mously approved a revised MOU. On March 1,1993, the EDO signed the revised MOU and forwarded it to FEMA for signing by the appropriate FEMA official. FEMA responded with I

additional changes which are currently being staffed.

REVIEW OF THE PROCUREMENT PRACTICES OF THE ADVISORY COMMITTEE ON REACTOR SAFEGUARDS (ACRS)

September 17,1991 The OlG reviewed the procurement practices of the ACRS in dealing with the DOE laborato-ries. Two of four recommendations remain open. The open recommendations require I

E5 oversight by DCPM for goods and services procured from the DOE laboratories and rec-ommend legal evaluation of NRC policies concerning ACRS members employed by DOE laboratories. In November 1992, the EDO delegated oversight responsibility for contract a

management at the DOE laboratories to the Office of Administration and directed the E

DCPM to establish a temporary satellite office in the Office of Nuclear Regulatory Research for the purpose of assisting in implementation of the draft management directive on a pilot basis. The pilot program began in January 1993 and will continue until June 30,1993. The results of the pilot program, along with comments received from other offices, will be incor-porated into a final directive to be issued by September 30,1993. A letter was written to the g

Comptroller General requesting his opinion on the legality of the Commission's arrange-g ments for obtaining the services of an individual from the laboratories. Although the Comp-troller General responded to another aspect of our letter, we are still awaiting a response concerning the requested opinion.

l REVIEW OF CONTRACTING FOR CONSULTING SERVICES January 29,1992 The OlG made one recommendation in its annual audit of the agency's compliance with OMB Circular No. A-120 regarding guidance on consulting services. This recommenda-tion remains open. The recommendation requires the DCPM review and approve all pro-E ject management guidance and procedures developed by NRC program offices in orderto 5

strengthen NRC oversight of the procurement process and administration of work orders placed with DOE nationallaboratories. DCPM developed a comprehensive draft manage-ment directive as outlined above for placing work with the DOE laboratories. DCPM ex-pects to issue the management directive by the end of September 1993 following comple-tion of the pilot project.

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