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Office of the Inspector General Semiannual Report to Congress (NUREG-1415, Vol. 8, No. 2)

• Publication Information
• Memorandum to the Chairman

Table of Contents

• Publication Information
• Memorandum to the Chairman
• Reporting Requirements Index
• Executive Summary
• AUDITS
• INVESTIGATIONS
• The U.S. Nuclear Regulatory Commission
• The Office of the Inspector General
• The Audit Program
• Audit Summaries
• Audits in Progress
• Significant Recommendations Not Yet Completed
• The Chief Financial Officers Act
• Principal Financial Statements
• Opinion of Management's Assertion About the Effectiveness of Internal Controls
• Compliance With Laws and Regulations
• The Investigative Program
• Investigative Case Summaries
• Investigative Statistics
• Special Feature: Millstone
• The Investigation
• Background
• Investigative Findings
• Legislative and Regulatory Review
• Summaries
• Other Activities
• President's Council on Integrity and Efficiency
• OIG Publications
• Appendices
• Audit Listings
• Audit Tables
• Abbreviations
• Glossary
• The Inspector General Hotline

Publication Information

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Manuscript Completed: April 1996
Date Published: June 1996
Reporting Period: October 1, 1995 - March 31, 1996

Office of the Inspector General
U.S. Nuclear Regulatory Commission
Washington, DC 20555

Availability Notice

Memorandum to the Chairman

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We are pleased to submit to you the Nuclear Regulatory Commission's (NRC's)Office of the Inspector General (OIG) Semiannual Report to Congress for the period October 1, 1995, to March 31, 1996.

During this reporting period, we completed 8 audits of NRC's programs and operations and analyzed 13 contract audits as issued by the Defense Contract Audit Agency. The contract audit work resulted in questioning $87,973 in costs. As a result of our internal audit work, we made 8 recommendations to NRC management. We also completed 63 investigations and 2 event inquiries. Much of our investigative work involved issues concerning the NRC's regulation of Northeast Utilities Millstone Unit 1 Nuclear Power Station.

We are committed to preventing fraud, waste, and abuse and to improving the economy and efficiency of NRC's programs and operations. We value the open lines of communications the OIG has with agency managers, which contributes to OIG products continuing to be useful and meaningful.

Reporting Requirements Index

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The Inspector General Act of 1978, as amended (1988), specifies reporting requirements for semiannual reports. The requirements are listed and indexed to their applicable pages.

Executive Summary

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The following two sections highlight selected audits and investigations completed during this reporting period. More detailed summaries appear in other sections of this report.

AUDITS

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• In recent years, there has been considerable debate within NRC and the utility industry about the consistency of the agency's power reactor inspection program. The OIG found several factors that may contribute to the industry's perception that NRC has not implemented this program consistently. The OIG audit report cites three recommendations that should minimize the potential for inconsistency in the agency's inspection program.

• The Federal Managers' Financial Integrity Act (FMFIA) requires Federal managers to establish a continuous process for evaluating, improving, and reporting on internal controls and accounting systems. The OIG found during its review that while NRC had complied with the requirements of the FMFIA and that the agency's redesigned management control system met the Office of Management and Budget's recently revised Circular A-123, the process could be strengthened. OIG made four recommendations to achieve that end.

• The Chief Financial Officers Act of 1990 (CFO Act) requires annual audits of NRC's financial statements. Beginning with Fiscal Year 1995, OIG performed this function in-house. We issued an unqualified opinion on NRC's principal statements, including the statements of financial position, operations and changes in net position, cash flows, and budget and actual expenses for the fiscal year ending September 30, 1995. Our audit also noted that while NRC had three reportable conditions related to internal controls, corrective action was being taken to address these issues.

• NRC established a Senior Management Team (SMT) to evaluate the continued need for a Licensing Support System (LSS) and to address issues previously reported by the OIG. This follow up survey found that both the SMT and the Commission continue to support the need for an LSS. The report also noted the important role the LSS Advisory Review Panel plays in the development and implementation of an LSS, and OIG urged its continuation.

INVESTIGATIONS

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• The OIG conducted an investigation based on a petition alleging that the NRC knowingly allowed the Northeast Utilities Company to operate the Millstone Unit 1 Nuclear Power Station for 20 years in violation of its operating license and beyond its design basis. The investigation, which generated substantial public and Congressional interest, developed evidence that the licensee operated outside of its design basis, that the plant operating license may have been violated and that NRC personnel had not conducted an adequate evaluation of certain design basis issues. An unprecedented public meeting was held during which the Inspector General discussed the investigative findings.
• During past investigations, the OIG identified deficiencies in NRC programs related to alleger protection. During this reporting period, the OIG conducted an Event Inquiry to assess the agency's progress in implementing recommendations to improve it. OIG found that about one-half of the recommendations have been fully implemented.
• The OIG received a number of allegations that computer equipment had been stolen. As a result of OIG investigations, stolen computer equipment was retrieved, and three individuals involved with the thefts were sentenced.
• The OIG continues to conduct investigations involving the unauthorized use of the American Express Travel Card by agency employees. OIG investigations have resulted in disciplinary action against five employees who were using the cards for personal purchases.
• An OIG investigation revealed that a materials licensee firm falsely claimed small entity status to avoid full payment of the proper licensee fees. As a result of the investigation, the NRC is considering taking civil action against the firm under the Program Fraud Civil Remedies Act (PFCRA).
• In 1987 and 1988, a series of misadministrations involving 33 patients receiving medical treatments occurred at a medical facility located in Maryland. Maryland is an Agreement State (See glossary). NRC received allegations regarding the inadequacy of the State of Maryland's investigation into the matter.
  The OIG conducted an inquiry and found no records to indicate that the NRC staff ever evaluated specific allegations about how the State of Maryland was handling the investigation. Other deficiencies were also noted in the agency's approach to handling allegations of wrongdoing involving NRC Agreement States.
• The OIG received an allegation that the NRC mishandled an issue associated with the decommissioning of Sequoyah Fuels Corporation, a former nuclear fuel processing facility. An OIG investigation disclosed an inconsistency in the agency's handling of Sequoyah's Site Characterization Plan and other process deficiencies.

The U.S. Nuclear Regulatory Commission

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The NRC was established as an independent Federal agency by the Energy Reorganization Act of 1974, as amended. This act, along with the Atomic Energy Act of 1954, as amended, provides the framework for regulating the Nation's commercial nuclear power industry.

The agency's scope of responsibility is complex and multifaceted. The NRC's mission is to ensure that civilian uses of nuclear materials in the United States--in activities ranging from the operation of nuclear power plants to medical, industrial, or research applications--are accomplished with the foremost regard for the protection of public health and safety, the environment, and national security.

The NRC fulfills its responsibilities through licensing and regulatory activities that support three program areas:

• Reactor Program (Reactor Program)
• Management and Support Program (Management and Support)
• Nuclear Materials and Nuclear Waste Program (Nuclear Materials and Waste)

The NRC's FY 1996 budget is approximately $473 million, which includes the OIG's budget of $5 million.

The Office of the Inspector General

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In 1978, the U.S. Congress passed the Inspector General Act to ensure integrity and efficiency within the Federal Government and its programs. In 1988, this act was amended to provide for the establishment of an independent OIG within the NRC. The OIG's primary mission is to assist the agency by identifying ways to improve NRC's programs and operations through the prevention and detection of fraud, waste, and abuse. The OIG accomplishes its mission by performing audits, special evaluations, investigations, and event inquiries.

The OIG's audit staff conducts performance and financial audits, as well as special evaluations. Performance audits focus on NRC's administrative and programmatic operations. Through financial audits, OIG reviews NRC's internal control systems, transaction processing, and financial systems. The OIG conducted special evaluations to examine the implications of NRC's programs that affect national issues.

The NRC is relatively unique among Federal agencies because it is required by the Omnibus Budget Reconciliation Act of 1990 to recover approximately 100 percent of its budget authority. In FY 1996, the NRC will collect approximately $457 million in fees from the industries that it regulates. Therefore, the agency must employ sound financial practices to fully comply with its legislative mandates. OIG's financial audits help the agency to meet these objectives.

The OIG's investigative staff conducts investigations and event inquiries. The staff investigates violations of law or misconduct by NRC employees and contractors and allegations of fraud, waste or abuse affecting NRC programs and operations. The event inquiry is an investigative report documenting examination of events or agency actions that do not focus specifically on individual misconduct. These reports identify institutional weaknesses that led to or allowed a problem to occur.

The OIG shares in NRC's responsibility to provide adequate assurance for the protection of public health and safety in the commercial use of nuclear materials and in the operation of nuclear facilities. The OIG assists the agency by assessing and reporting on NRC's efforts to ensure that its safety-related programs are operating effectively.

Of additional importance is the NRC's responsibility for ensuring that individuals who identify nuclear safety concerns regarding the use of nuclear materials do not suffer adverse job actions as a result of reporting these concerns. The OIG continually evaluates NRC's efforts to combat this type of unlawful discrimination.

The Audit Program

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In keeping with the goal of helping the agency improve its effectiveness, the OIG completed 8 performance and financial audits and analyzed 13 contract audit reports issued by the Defense Contract Audit Agency (DCAA). The performance audits resulted in 8 recommendations to NRC management.

Audit Summaries

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Survey Observations on NRC's New Rulemaking Process (Management and Support)

NRC revised the agency's rulemaking process in January 1995. The revised process requires the development of a rulemaking plan consisting of upfront planning, coordination, and early management consensus building. NRC also plans to improve the tracking and publicizing of rulemakings. Collectively, the agency believes these changes will shorten the overall rulemaking process and use staff resources more efficiently. The revised goal for completing a rulemaking is 18 months from approval of the rulemaking plan to publication of the final rule, compared to the previous goal of 24 months from initiation to publication.

Since it is too soon to assess the effectiveness of the revised process, OIG made no recommendations, but will monitor NRC's implementation of the new process.

Review of NRC's Individual Plant Examination Program (Reactor Program)

NRC tasked an internal study group in May 1995 to look into the concerns expressed by a contractor employee. His primary concern centered on NRC's ability to use Individual Plant Examination (IPE) results for future risk-based regulation. In July 1995, the study group issued its report to the Director, Office of Nuclear Regulatory Research.

On the basis of our review of the study group's report, we abbreviated our audit work because the report addressed the major concerns expressed by the contractor employee, as well as most of the issues that we had planned to audit. OIG was also advised that NRC plans to implement the study group's recommendations. Therefore, we believe the agency's actions should go a long way toward resolving the contractor employee's concerns, including clarification of how the IPE results can and should be used. OIG intends to track the agency's implementation of the study group's report recommendations.

Annual Report of the NRC's Compliance With 31 USC 1352 - Anti-Lobbying Act (Management and Support)

Under Section 1352 of Title 31 U.S.C., the heads of Federal agencies are required to collect and compile certifications filed by contractors on Federal procurement actions and any modifications to these actions, if either exceeds $100,000. OIG reviewed 25 contracts to determine if NRC had collected the required certification and found that NRC had obtained all except one of the certifications.

The act also requires the Inspector General to report (1) all alleged violations of the requirements of subsections (a) and (b) of Section 1352 relating to the agency's Federal actions referred to in such subsections during the year covered by the report, and (2) the actions taken by the head of the agency in each year, with respect to alleged violations occurring in the current or previous years.

We found that NRC had not received any allegations of prohibited activities. We concluded that NRC had for the most part, collected and reported required information. Our report was included with NRC's submission of the agency's FY 1997 budget.

Adequacy of the Controls to Prevent Violations of Ethics Requirements (Management and Support)

At the request of the NRC Chairman, the OIG surveyed the adequacy of the controls to prevent ethics violations by individual experts serving the agency. The OIG also examined the features of the oversight function for work placed with the Department of Energy (DOE) laboratories.

OIG found that NRC had taken steps to prevent the recurrence of ethics rules violations by increasing employees' knowledge of the requirements. We concluded that current internal management controls developed to govern this area appear adequate for individual experts hired by the agency. Our survey also disclosed that NRC has taken measures to improve its management and oversight of work placed with DOE laboratories.

The success of these measures depends on how aggressively the agency implements them and the level of accountability taken by relevant offices. This should be revealed in time.

Factors Contributing to Inconsistency in the Operating Reactor Inspection Program (Reactor Program)

There has been considerable debate within the agency and utility industry in recent years regarding the consistency of the NRC's reactor inspection program. During its review, the OIG identified several factors that may contribute to the industry's perception that NRC has not implemented the inspection program consistently.

First, NRC's on-the-job training (OJT) program for inspectors is not well structured or closely monitored. In addition, agency training does not provide adequate guidance for certain "how to" aspects of conducting inspections. Second, NRC management has not clearly communicated its expectations to inspection staff about the relationship between conducting "performance-based" inspections and the need to cite violations. Finally, NRC's decentralized program management responsibility allows regional offices to implement the program and administer enforcement actions differently, which can create program inconsistencies.

We recognized that NRC has and continues to take steps to improve the inspection program, but recommended that NRC minimize the potential for program inconsistency by (1) evaluating the content and mix between formal classroom training and OJT, (2) clearly communicating to inspectors and supervisors management's expectations in crucial inspection areas, and (3) considering streamlining the inspection program by shifting responsibility for implementing the inspection program from regional offices to headquarters.

Review of NRC's Implementation of the Federal Managers' Financial Integrity Act for 1995 (Management and Support)

The Federal Managers' Financial Integrity Act (FMFIA) requires Federal managers to establish a continuous process for evaluating, improving, and reporting on the internal controls and accounting systems for which they are responsible.

NRC recently redesigned and streamlined its management control program in accordance with the National Performance Review recommendations and the Office of Management and Budget's (OMB's) 1995 revision to OMB Circular A-123. The redesigned program required offices designated as the highest risk offices to submit management control plans and reasonable assurance letters to an Executive Committee for Management Controls.

To assist NRC in evaluating its management control program, OIG annually reviews this program. Because the new program is in its infancy, we reduced the scope of this year's audit and confined our review to (1) an overall assessment of NRC's compliance with FMFIA and OMB Circular A-123, and (2) a review of management control plans and reasonable assurance letters for conformance with the criteria established for those documents. We did not assess the significance or accuracy of the issues reported.

Overall, we found that NRC has complied with the requirements of the FMFIA during FY 1995 and that the redesigned management control program meets the intent of the 1995 revision to OMB Circular A-123. No material weaknesses were identified during 1995. However, to enhance the agency's management control program, we recommended that NRC ensure that (1) required management control plans are submitted and reviewed for completeness, (2) office managers understand reporting criteria, and (3) managers receive appropriate and timely feedback on reviews of their management control plans.

Survey of NRC's Information Management Needs for Current and Future Licensing Demands for Disposal of High-Level Nuclear Waste (Nuclear Materials and Waste)

In response to a prior OIG audit report entitled "NRC Needs to Provide Strong Direction for the Licensing Support System (LSS)," the Executive Director for Operations (EDO) appointed a Senior Management Team (SMT) to re-evaluate the purpose and need for the LSS and to address the issues raised by our report. We found that the SMT adequately addressed previous concerns raised by OIG.

The Commission also recently reaffirmed the need for an LSS and encouraged the staff to take a stronger leadership role in fundamental issues involving the LSS. The Commission also directed the staff to keep it informed on key issues relating to system development and implementation. The EDO advised the Commission that the SMT will develop an action plan to address their concerns by July 31, 1996.

Our report also noted the important role the LSS Advisory Review Panel (ARP) plays in the development and implementation of an LSS and concluded that NRC should continue to support the ARP.

Audits in Progress

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Review of NRC's Decommissioning Financial Assurance Requirements for Federal Licensees

NRC requires commercial licensees to have sufficient funding to decommission their nuclear power plants. Federal licensees, however, are allowed to use a statement of intent to meet this requirement. This audit is reviewing NRC's basis for allowing Federal licensees to use this mechanism.

Review of NRC's Accountability and Control of Property and Equipment Purchased for Use at Department of Energy Laboratories

In response to Commissioner Rogers' request, during this review, the OIG will follow up on NRC's efforts to correct financial and administrative weaknesses identified in a prior OIG report.

Review of NRC's Part 170 License Fee Billing System

The objective of this review is to determine the reliability of the Part 170 billing system, including assessing the effectiveness of management controls. This review was prompted by billing issues that surfaced in our audits of the FY 1994 and FY 1995 financial statements.

Review of NRC's PAY/PERS System

NRC is currently phasing in a new integrated payroll/personnel system. The objective of this review is to assess whether good business practices have been followed and whether it meets NRC's identified payroll/personnel needs. We will also review the implementation schedule, internal controls, and costs of the new system.

Review of the Office of Information Resources Management's Oversight of Its Projects

This audit focuses on NRC's Office of Information Resources Management (IRM's) oversight of its projects and whether they are completed within budget and on schedule. IRM expends over $30 million annually on contracts for various information technology (IT) projects.

Review of Videoconferencing Capabilities and Utilization

During a recent OIG briefing to Federal, State, and local officials, OIG discussed several low cost alternatives as ways for NRC to maintain the LSS ARP, including the use of videoconferencing. As a result of our inquiries into this area, we initiated a review to evaluate NRC's videoconferencing capabilities and plans for using this technology.

Survey of Contract Cost Overruns

At the request of the EDO, OIG initiated a survey to assess cost overruns on NRC contracts. This survey also covers NRC's intended use of its advance procurement plans.

Evaluation of NRC's Contract with M-Cubed

A Deputy EDO requested OIG's assistance in determining what went wrong on the M-Cubed contract resulting in a stoppage of the work in progress on several critical systems. OIG is drafting a lessons-learned report of its observations on this contract.

Survey of NRC's Information Resources Management Program

This survey focuses on NRC's IT strategic planning and the IT initiatives performed by various NRC offices. OIG has temporarily suspended work on this broad survey because of higher work priorities, but plans to resume this survey in the near future.

Significant Recommendations Not Yet Completed

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• When OIG issued its last semiannual report, NRC had not yet completed action on one recommendation from its November 1990 report entitled, "NRC's Management of Reporting Requirements Under 10 CFR Part 21." The recommendation addressed the agency's need to revise 10 CFR Part 21 to accommodate reporting requirements for materials licensees. This revision was initially determined to be necessary to comply with Section 206 of the Energy Reorganization Act of 1974, as amended.

NRC's Office of the General Counsel determined that the agency had no legal authority to require 10 CFR Part 21 reports from Agreement State licensees. The NRC staff advised OIG that they were conducting a study to determine which material licensees could experience a component failure that could create a substantial safety hazard. Preliminary results of the study were obtained from the contractor, and a proposed rulemaking was expected in late 1995.

However, in November 1995, after reviewing the results of the contractor study and performing an in-depth review of NRC Part 21 reporting statistics, the NRC staff determined that it was more appropriate to terminate this proposed rulemaking and is developing a Commission Paper recommending this course of action. Accordingly, action on this recommendation is not yet completed.

• On March 17, 1995, OIG issued a report entitled, "NRC Needs to Provide Strong Direction for the Licensing Support System (LSS)." The Nuclear Waste Policy Act of 1982 requires that NRC approve or disapprove the construction of a high-level waste repository within 3 to 4 years of receiving a DOE construction license application. To meet this deadline, NRC enacted a rule requiring the development of an electronic information management system to reduce the time needed for discovery during the license hearing process. The rule requires that DOE design and develop the system and that NRC operate and maintain it.

The OIG report stated that the program had stalled for the past 5 years for several reasons. Many of the delays were attributed to inadequate definition and agreement on the roles and responsibilities of DOE and NRC. As a result, OIG recommended that NRC obtain a formal commitment from DOE in the form of an interagency agreement or Memorandum of Understanding on key aspects of the LSS. While NRC continues to make progress on this recommendation, action is not yet completed.

The Chief Financial Officers Act

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The Chief Financial Officers Act of 1990 (CFO Act) gave the Inspectors General for 23 departments and agencies added responsibilities to conduct financial statement audits of Federal trust funds, revolving funds, and commercial activities. Because the NRC is required by law to collect approximately 100 percent of its budget through the assessment of fees, the agency is regarded as a commercial activity. Therefore the financial statements for fee collection are subject to audit.

The CFO Act was passed to help reform financial management in the Federal Government. This Act created the need for a Chief Financial Officer in each of 23 Federal departments and agencies. The audit of the NRC's principal statements for the fiscal year ending September 30, 1995, included an assessment of the agency's internal control structure and compliance with laws and regulations.

In prior years, NRC's financial statement audits were conducted primarily by an Independent Public Accountant, with assistance by the OIG. In FY 1995, however, OIG staff performed this audit.

Also, in FY 1995, NRC requested to be and was designated one of six pilot agencies that would produce an annual Accountability Report. This new consolidated report will include the Principal Statements and Independent Auditor's Report, Status of Management Controls, Performance Measurement Data, Prompt Pay Data, the Civil Monetary Penalty Report, the Report on Receivables Due From the Public, and the Chairman's Semiannual Report to the Congress-Management Decisions and Final Actions on Office of the Inspector General Audit Recommendations.

OIG issued its audit report on the FY 1995 financial statements on March 1, 1996, and NRC issued the agency's Accountability Report on March 31, 1996. The results of each major audit area are described below.

Principal Financial Statements

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We issued an unqualified opinion on NRC's principal statements, including the statements of financial position, operations and changes in net position, cash flows, and budget and actual expenses for the fiscal year ending September 30, 1995.

This is the fourth year that OIG has audited the agency's financial statements, and the second consecutive year that an unqualified opinion on the principal statements was issued.

Opinion of Management's Assertion About the Effectiveness of Internal Controls

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Beginning in FY 1995, the Statements on Standards for Attestation Engagements 2, changed the manner for reporting on internal controls. Auditors are no longer permitted to give an opinion on internal controls. Instead, auditors may give an opinion on management's assertion about the effectiveness of internal controls. For FY 1995, we reported that NRC management fairly stated that those controls, in place on September 30, 1995, provided reasonable assurance that losses, noncompliance, or misstatements material in relation to the Principal Statements would be prevented or detected on a timely basis. Management made this assertion based upon criteria established under the FMFIA of 1982 and OMB Circular A-123, Internal Control Systems.

While our review did not disclose material weaknesses, we reported three reportable conditions. The conditions concerned NRC's fee recovery system, NRC funds spent at DOE laboratories, and NRC's payroll system.

Compliance With Laws and Regulations

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NRC's principal financial statements for the fiscal year ending September 30, 1995, includes about $110 million of reimbursable expenses incurred by the DOE, which represents approximately 20 percent of the agency's total expenses. OIG's assessment of compliance with laws and regulations did not provide for a review of DOE's extent of compliance with laws and regulations for the NRC funds they expended. Our assessment was limited to testing the controls maintained at NRC over the disbursing and recording of these funds.

In March 1995, the U.S. General Accounting Office (GAO) provided NRC an opinion that the issue of ensuring that NRC funds spent by DOE contractors at the National Laboratories are spent in accordance with laws and regulations rests with DOE's OIG. This opinion placed the issue of audit risk with DOE.

Our report also addressed the issue of properly billing licensees for direct benefits received in accordance with the requirements in 10 CFR Part 170. We noted that about 56,000 inspection hours were not billed to licensees that received the services.

The Investigative Program

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During this reporting period, the OIG received 242 allegations, initiated 63 new investigations, closed 56 cases, and 2 event inquiries. In addition, 38 referrals were made to NRC management.

Investigative Case Summaries

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Implementation of Recommendations to Improve NRC's Program for Protecting Allegers Against Retaliation (Reactor Program and Nuclear Materials and Waste)

Alleger protection has been an issue of longstanding concern to the OIG. Past OIG investigative efforts identified deficiencies in NRC programs related to alleger protection. As a result, in 1993, the agency established a Review Team to reassess the NRC alleger protection program. In January 1994, the Agency Review Team made a number of recommendations to improve the existing program. In 1996, OIG conducted an Event Inquiry to assess the agency's progress in implementing the 1994 Review Team recommendations. OIG found that about one-half of the recommendations have been fully implemented. Final resolution of many of the remaining recommendations is tied to the revision of agency documents such as a Management Directive and Commission Policy Statements. In most cases, the staff has issued interim policy guidance on the pending recommendations to address identified deficiencies.

IMPACT: This OIG inquiry identified a significant delay in final implementation of a number of recommendations made to improve the agency's program for protecting allegers against retaliation. In response to this report, the agency has recently renewed efforts to finalize implementation of the remaining recommendations.

Theft of NRC Computer Equipment (Management and Support)

Three individuals were sentenced during this reporting period for theft of NRC computer equipment. In one case, an NRC contract employee was sentenced to 2 years probation and 200 hours of community service and ordered to make full restitution. In another case, two individuals were given 6 months probation and received suspended sentences. In both cases, OIG was able to retrieve the stolen computer equipment.

Unauthorized Use of American Express Travel Card (Management and Support)

OIG continues to conduct investigations involving the unauthorized use of government-provided American Express travel cards by agency employees. To date, OIG has completed five investigations of NRC employees who misused travel cards issued to them for official use only. In these cases, the employees were using the card for personal purchases unrelated to official travel. These investigations were presented to the appropriate U.S. Attorney's office. Prosecution was declined in all cases. However, the cases were subsequently forwarded to NRC management, and disciplinary action was taken ranging from suspension without pay to removal from government service. The OIG and the NRC's Office of the Controller (OC) have now established a procedure by which the OC identifies suspect accounts and refers them to the OIG for investigation. Further, Congress has recently expressed interest in this area of abuse.

IMPACT: The "American Express Government Program Agency Performance" reports show NRC's performance as one of the best in the Government.

False Certification of Licensee Small Entity Status (Nuclear Materials and Waste)

OIG received information that the president of an NRC byproduct materials licensee firm falsely claimed small entity status to receive a lower annual license fee. OIG investigated whether the president of the corporation falsified his certification to the NRC that his company qualified for small entity status. OIG determined that the president submitted three certifications of small entity status to the NRC and avoided $4,200 in annual license fees. The Department of Justice (DOJ) declined criminal prosecution. The case was subsequently referred to the NRC's Office of the General Counsel for consideration of civil action under the Program Fraud Civil Remedies Act.

NRC Staff's Actions Associated with 1987-88 Medical Misadministrations (Nuclear Materials and Waste)

In 1987 and 1988, a series of misadministrations involving 33 patients receiving medical treatments occurred at a medical facility located in Maryland, an NRC Agreement State. A 1993 Congressional hearing raised questions about the medical misadministrations, including the appropriateness of NRC staff actions in response to this event. The NRC staff established a team to review the initial investigation by the State of Maryland into these misadministrations. OIG was tasked to review the NRC staff's actions following the events.

From the investigation, OIG determined that the Chairman of the State Radiation Control Advisory Board contacted the NRC in 1988 and made allegations about the adequacy of the State's investigation into the misadministrations. During the inquiry, OIG found no records to indicate that NRC staff ever evaluated the allegations. Further, they found no indication that NRC staff discussed the allegations with State officials.

OIG's investigation also revealed that during this period (1987-88), the NRC did not have any formal policy addressing how allegations regarding an NRC Agreement State should be handled.

IMPACT: This investigation identified weaknesses that existed during the 1987-88 timeframe in NRC's procedures for working with Agreement States. The NRC staff is finalizing procedural guidance for the staff to follow when allegations regarding an Agreement State are received. Interim guidance has been issued to the staff for direction until the procedure is finalized.

NRC Staff Handling of Decommissioning Issue (Nuclear Materials and Waste)

Following receipt of a complaint from Native Americans for a Clean Environment (NACE), OIG investigated the NRC's handling of an issue associated with the decommissioning of Sequoyah Fuels Corporation (SFC), a former nuclear fuel processing facility. SFC was included on the agency's Site Decommissioning Management Plan (SDMP) that includes those sites facing particular problems associated with decommissioning activities. The NACE allegation was that the NRC improperly excused SFC from submitting a final revised written plan for conducting site characterization. The initial draft of the plan submitted by SFC was found to be inadequate by the NRC staff. While there was no specific regulatory requirement for the NRC staff to require the submission of the revised written plan, the investigation disclosed deficiencies in the process the staff followed. Additionally, the staff handled this case in a manner inconsistent with the handling of other SDMP sites.

Investigative Statistics

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Of the 242 allegations, none were carried forward from the previous period, and 21 resulted from hotline calls.

Special Feature: Millstone

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On March 4, 1996, TIME MAGAZINE issued a cover story entitled, "Blowing the Whistle on Nuclear Safety." TIME's article addressed NRC's failure to enforce its regulations concerning the handling of spent fuel at the Millstone Nuclear Generating Station, Unit 1 (Millstone). It also acknowledged the investigative work of the NRC's Inspector General. Below is an account of the Office of Inspector General's investigation and findings regarding Millstone.

The Investigation

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In August 1995, the OIG initiated an investigation based on information submitted to the NRC in a petition filed in accordance with Section 2.206 in Title 10 of the Code of Federal Regulations (10 CFR 2.206) on behalf of a senior engineer with Northeast Utilities (NU), and the public interest group, We the People, Inc. The petition alleged that the NRC knowingly allowed NU to operate the Millstone Unit 1 Nuclear Power Station for 20 years in violation of its operating license and beyond its design basis. The petitioners maintained that during normal refueling outages at Millstone Unit 1, NU offloaded the entire fuel core. However, in the Final Safety Analysis Report (FSAR) and other documents submitted to the NRC in support of license amendments, NU described a normal discharge, initially, as a quarter, then, as a third of the core. The petitioners contended that the NU practice of offloading the full core during normal refueling outages resulted in Millstone Unit 1 operating beyond its design basis, thereby resulting in NU violating its operating license. The petitioners also asserted that NRC personnel were, or should have been, aware that the licensee's practice of offloading the full core during normal refueling outages violated the Millstone Unit 1 operating license.

The OIG investigation addressed the principal allegation of whether the NRC staff allowed NU to offload the entire core knowing that this practice was outside the design basis for Millstone Unit 1 and in violation of its operating license.

Background

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The Millstone Nuclear Generating Station, Unit 1, located in New London County, Connecticut, is a boiling-water reactor designed by General Electric. The licensee is the Northeast Utilities Company. The application for a construction permit for this facility was filed in November 1965. The construction permit was issued by the NRC in May 1966.

The initial submittal of the Millstone Unit 1 FSAR was in 1968, and the provisional operating license was issued by the NRC on October 7, 1970. In the FSAR that supported the provisional operating license, NU described the Millstone Unit 1 spent fuel pool cooling system. NU analyzed the heat load being placed in the spent fuel pool that was generated during normal reactor refueling. NU defined the normal heat load as that from removal of a quarter of the core at 150 hours after reactor shutdown plus a quarter of the core decayed in the spent fuel pool for 12 months. In the FSAR an emergency heat load was also evaluated by NU. This heat load was defined by NU as the heat generated from removal of the full core at 250 hours after reactor shutdown plus a quarter core decayed in the spent fuel pool for three months and a quarter core decayed for 15 months. On September 1, 1972, NU applied for a full-term operating license.

In June 1977, the NRC approved License Amendment No. 39 that permitted NU to make certain changes in the design of the Millstone Unit 1 spent fuel storage racks in order to increase the capacity of the spent fuel pool. The amendment allowed NU to change the Millstone Unit 1 technical specifications to increase the capability of the spent fuel storage pool. In the Safety Evaluation and Environmental Impact Appraisal that supported this amendment request, NU described a normal core offload as 25 percent of the core at 150 hours after reactor shutdown and an emergency core offload as a full core at 250 hours after reactor shutdown. This analysis also accounted for the heat being generated from fuel assemblies already in the pool as well as the heat to be generated in future refueling outages when the spent fuel pool would reach its storage capacity. This NU evaluation contained a single active failure analysis for normal and emergency heat loads.

The Systematic Evaluation Program (SEP) was initiated in February 1977 by the NRC to review the designs of older operating nuclear plants. As required by the SEP, NU provided Safety Assessment Reports to the NRC on specific topics. In March 1982, NRC issued a Safety Evaluation Report (SER) for SEP Topic IX-1, Fuel Storage. The SEP Topic IX-1, Fuel Storage for Millstone Unit 1 was reviewed in accordance with the NRC Standard Review Plan (SRP) and Regulatory Guides. The SRP contained a requirement that during normal fuel discharge, the spent fuel pool must be capable of sustaining a single failure. However, because the NRC had reviewed the spent fuel pool cooling system design during their 1977 review of Amendment No. 39, this system was not reviewed as part of the SEP.

In October 1986, the NRC issued a full-term operating license to Millstone Unit 1. Until 1986, the facility had operated under the provisional operating license granted in October 1970.

Subsequently, NU submitted an application to the NRC to grant a license amendment addressing changes to the capacity of the spent fuel pool and refueling activities at the plant.

Investigative Findings

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This OIG investigation determined that generally, NRC Region I resident inspectors were aware of NU's practice of offloading the entire core at Millstone Unit 1 during refueling outages; however, resident inspectors did not realize that this practice was inconsistent with the normal discharge scenario outlined in the FSAR. OIG found that many NRC resident inspectors were not familiar with the Millstone Unit 1 FSAR. Resident inspectors typically observed one or two refueling outages, and they did not question the licensee's practice of offloading the entire core.

Further, this investigation determined that the NRC headquarter's staff had several opportunities to review the Millstone Unit 1 refueling practices and the heat removal capability of the spent fuel pool cooling system; however, the staff did not conduct an adequate evaluation related to the capabilities of the spent fuel pool cooling system.

The OIG investigation developed evidence that NU operated Millstone Unit 1 outside of its design basis. OIG learned that during most refueling outages at Millstone, Unit 1, NU began offloading the entire core before 150 hours after reactor shutdown and concluded the entire fuel core offload in less than 250 hours after shutdown. The NU practice of offloading the entire core at 150 hours or less during normal refueling outages and their ability to meet the NRC single failure criteria under these conditions had not been analyzed.

The OIG investigation also determined that the licensee may have violated the operating license for Millstone Unit 1 because of a failure to operate in accordance with its technical specifications. One procedure required by the technical specifications is for the operation of the spent fuel cooling system. OIG uncovered information which indicates that for approximately 10 years, in order to handle the heat load from a full core offload, reactor operators at Millstone Unit 1 operated the spent fuel pool cooling system in a configuration that was not covered by a plant operating procedure.

The findings of the OIG investigation were revealed during a public meeting held on December 5, 1995 in New London, Connecticut. The Inspector General addressed concerned citizens, members of public interest groups and current and former plant employees. The meeting, which drew extensive media coverage, also included local politicians and staff members representing U.S. Congressmen and Senators from the State of Connecticut.

IMPACT: As a result of the OIG investigation, NU conducted an internal assessment to determine the causes for the inaccuracies in the updated Millstone Unit 1 FSAR. The NU internal assessment concluded in part that NU's administrative control programs did not fully address regulatory requirements; that NU did not fully implement their administrative programs; and that NU did not see the FSAR as a document that was required to be accurate.

Further, the NRC Chairman has requested that the staff review licensee implementation and NRC oversight of changes under 10 CFR 50.59. Under 10 CFR 50.59, utilities may make changes to their operating nuclear power plants without prior NRC approval.

In addition, Congressional and public interest in this investigation caused an unprecedented public meeting to be scheduled, during which the Inspector General discussed the investigative findings.

Legislative and Regulatory Review

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The Inspector General Act, 5 U.S.C. App. 3, Section 4(a)(2), requires the OIG to review existing and proposed legislation and regulations and to make recommendations concerning the impact of such legislation or regulations on the economy and efficiency of programs and operations administered by the agency.

From October 1 through March 31, 1996, OIG reviewed almost 200 agency documents, including approximately 150 Commission Papers and 50 Federal Register Notices, regulatory actions, and statutes.

Regulatory Commentaries were issued on fraud, waste, and abuse- related issues ranging from technical ethical issues to policy and procedures that may improve prevention of fraud, waste, and abuse. OIG initiated dialogue with agency managers on several policy concerns, and collegial efforts resulted in improved guidance to the agency staff in other areas. The most significant commentaries are summarized below.

Summaries

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10 CFR Part 2.206 - Petition Acceptance Criteria

Our comment on Management Directive 8.11, "Review Process for 10 Code of Federal Regulations (CFR) Part 2.206 Petitions," was a followup to our April 1995 commentary on this matter. In that commentary, the OIG noted that the exact language of 10 CFR 2.206 did not provide a basis to limit Part 2.206 processes to licensing or enforcement actions. In response, the staff was directed to clarify this management directive, "with regard to the standards for acceptance of requests for review under 2.206." Our review of the September 25, 1995, draft revision to Management Directive 8.11 found that the scope of the standards for acceptance of requests under 2.206 remained unclear. As a result of our additional comments and discussion with the staff, the management directive provision regarding acceptance of petitions was further clarified so as to enumerate and define the standards.

Agency Rights in Computer Software

The OIG commented on proposed revisions to Management Directive, 11.7, "NRC Procedures for Placement and Monitoring of Work with the Department of Energy," provisions entitled, "Copyright in Computer Software." The comment reflected concern that the revised provision was limited to describing internal DOE processes and failed to address the elements needed to support legally enforceable entitlement to copyright. The comment suggested that the agency's ability to determine and enforce it's rights in materials produced under DOE agreements would be enhanced if the statutory and regulatory criteria for establishing those rights were reflected in the management directive. The agency responded that the guidance in this management directive was, "broad enough to satisfy any reasonably foreseeable agency needs and is consistent with NRC's mission of ensuring public health and safety"... and that..."it is purely a question of management judgement..."

Theft Deterrence

In our review of Management Directive 13.1, "Property Management," the OIG concluded that the directive needed to include a reference to the OIG in order to assure that employees are aware of the obligation to report theft and diversion of NRC assets. In addition, OIG suggested inclusion of a provision in this directive advising that there is a limited expectation of privacy in warehouse spaces and that these areas are subject to monitoring and individuals in these spaces subject to search. In collegial discussions, it was agreed that a more effective vehicle for communicating this type of warning information would be an official agency announcement to all employees.

Settlement Procedures

Our last item is the result of a 1995 commentary regarding the adequacy of guidance for affecting settlement agreements in administrative proceedings. In response to that commentary, the agency and OIG embarked on a cooperative effort to create a protocol describing roles and responsibilities in coordinating settlement agreements in administrative proceedings. This joint effort produced a protocol that identifies the cognizant parties, points of contact, and procedures to ensure appropriate review and approval before the execution of settlement agreements.

Other Activities

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President's Council on Integrity and Efficiency

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The NRC OIG continued to be actively involved in the activities of the President's Council on Integrity and Efficiency, Professional Development Committee. Our involvement included significant contributions to several activities having community-wide benefits.

The Assistant Inspector General for Audits and a member of the audit staff co-authored an article published in the Journal of Public Inquiry. This timely and insightful article entitled "Business Process Reengineering: Choosing the OIG's Role" discusses the challenges that OIGs face in deciding their level of involvement, if any, in an agency Business Process Reengineering effort.

OIG Publications

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Two references were promulgated for use by OIG and agency staff. "Criminal Violations, Volume I," is a compilation of white collar crimes and fraud statutes and their elements. "Administrative Violations, Volume II," describes the elements of administrative offenses and identifies applicable case law as well as practice hints for the more common cases of misconduct. This volume also discusses administrative practices and procedures and contrasts them to those employed in criminal cases. These references were produced as an aid to the OIG and agency staff in identifying and documenting evidence of criminal conduct as well as misconduct warranting administrative adverse action.

In addition, the Journal of Public Inquiry published an article entitled, "Appellate Court Decisions Support Inspector General Independence." Its authors are Maryann L. Grodin, Counsel, NRC OIG, and Alexandra B. Keith, Counsel and AIGI, National Credit Union Administration. This article commented on two Federal Circuit Court decisions, U.S. Nuclear Regulatory Commission v. Federal Labor Relations Authority, 25 F. 3rd 229 (4th Cir. 1994) and Department of Justice (INS) v. Federal Labor Relations Authority, 39 F. 3rd 361 (D.C. Circuit 1994). In these decisions, the Fourth and District of Columbia Circuit Courts of Appeals overturned Federal Labor Relations Authority (FLRA) rulings that would have compromised the independent pursuit of investigations by OIGs. The article summarized the findings in these cases that upheld the independence of Inspectors General against administrative limitations imposed by the FLRA.

Appendices

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Audit Listings

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Audit Tables

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The NRC's dependence on commercial contract activity is relatively small. Thus, questioned costs and savings are inherently smaller than those reported by most other agencies.

During this reporting period, the OIG analyzed 13 contract audit reports issued by the DCAA. The following tables depict the cost savings from this work.

Abbreviations

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Glossary

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Agreement States

A State that has signed an agreement with the NRC allowing the State to regulate the use of radioactive material within the State.

Event Inquiry

The event inquiry is an investigative product documenting examination of events or agency actions that do not focus specifically on individual misconduct. These reports identify institutional weaknesses that led to or allowed a problem to occur. This type of investigative effort was previously referred to as an inspection.

Financial Audit

A financial audit assesses the effectiveness of internal control systems, transaction processing, financial systems, and contracts.

Funds Put To Better Use

Funds identified in audit recommendations that could be used more efficiently by avoiding unnecessary expenses.

Hotline

A toll-free telephone number (1-800-233-3497) available to anyone for reporting incidents of possible fraud, waste, and abuse to the NRC's Office of the Inspector General.

Information

An information is an accusation, under oath, of a criminal offense, not by indictment of a grand jury, but by a public officer, such as a prosecutor.

Management Decision

A final decision based on management's response to audit recommendations and findings.

Material Weakness

A specific instance of noncompliance with the FMFIA of sufficient importance to be reported to the President and the Congress. A weakness that would significantly impair the fulfillment of an agency component's mission; deprive the public of needed services; violate statutory or regulatory requirements; significantly weaken safeguards against waste, loss, unauthorized use, or misappropriation of funds, property, or other assets; or result in a conflict of interest.

Performance Audit

An OIG audit that focuses on the NRC's administrative and program operations and evaluates how managerial responsibilities are carried out.

Site Characterization

Activities undertaken to establish the nature and extent of radiological contamination.

Special Evaluation

An OIG audit report that examines the implications of NRC's programs that affect national issues, such as high-level radioactive waste disposal, nuclear power plant decommissioning, or the use of radiation by the medical community in treating disease.

Spent Nuclear Fuel

Fuel that has been removed from a nuclear reactor because it can no longer sustain power production for economic or other reasons.

Questioned Cost

A cost questioned as a result of an alleged violation of law, regulation, contract, or agreement governing the expenditure of funds (costs unsupported by adequate documentation or funds for a particular purpose that are unnecessary or unreasonable.)

The Inspector General Hotline

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A toll-free number (1-800-233-3497) was established by the OIG to provide NRC employees, contractors, and others with direct access to OIG's Hotline Program. Hotline procedures and guidelines were carefully developed to ensure the confidentiality of NRC employees wishing to report incidents of possible fraud, waste, and abuse within the NRC. Trained OIG staff are available to answer calls Monday through Friday, between 10:00 a.m. and 4:00 p.m. (eastern standard time). Individuals may also provide information to hotline personnel by writing to the address below.

U.S. Nuclear Regulatory Commission
Office of the Inspector General
Hotline Program
Mail Stop T-5 D28
Washington, DC 20555-0001

HOTLINE NUMBER:
1-800-233-3497

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