Commonwealth of the Northern Mariana Islands: DHS Implementation of U.S. Immigration Laws

The 1976 covenant defining the political relationship between the CNMI and the United States exempted the CNMI—a U.S. territory north of Guam—from certain federal immigration laws. However, the covenant preserved the right of the U.S. government to apply federal law in these exempted areas. The CNRA, which amended a joint resolution approving the covenant, generally established federal control of CNMI immigration beginning in 2009.

In 2009, DHS began implementing, among other things, a foreign worker permit program to address CNRA provisions specific to the CNMI. DHS also began using its discretionary authority under the INA to parole certain groups of individuals into the CNMI (i.e., allow them to be temporarily present). Congress has amended the CNRA several times with provisions that affected the total number of permits allocated and the distribution of permits. Proposed bill H.R. 560 would further modify the CNRA by establishing a CNMI resident status for certain individuals. Among its other provisions, the CNRA allows CNMI employers to petition for H-2 visas for temporary workers without counting the visas against a numerical restriction.

Drawing from ongoing work, this testimony discusses DHS's implementation of (1) selected CNRA provisions regarding foreign workers, among others, in the CNMI and (2) its discretionary parole authority under the INA as applied in the CNMI. GAO updated information from May 2017 ( GAO-17-437 ) and February 2018 ( GAO-18-373T ), reviewed relevant legal documents, and analyzed DHS data.

Under the Consolidated Natural Resources Act of 2008 (CNRA), the Department of Homeland Security (DHS) established the nonimmigrant Commonwealth of the Northern Mariana Islands (CNMI)–Only Transitional Worker program in 2011. Through the program, eligible foreign nationals can obtain CNMI-Only Transitional Worker (CW-1) permits to work temporarily in the CNMI. Under H.R. 560, foreign nationals who meet additional eligibility requirements could be eligible to receive CNMI resident status if they were admitted annually to the CNMI as a CW-1 worker in fiscal years 2015 through 2018. GAO's preliminary analysis of DHS data found that 2,875 (about 32 percent) of 8,995 workers with CW-1 permits for fiscal year 2018 had maintained continuous employment each fiscal year since 2015 (i.e., received a CW-1 permit annually). While DHS data show the number of approved CW-1 permit holders declined from fiscal year 2017 to fiscal year 2018 (see figure), the number of H-2B beneficiaries—who often fill construction jobs—increased from 0 to 3,058. In January 2019, DHS removed the Philippines from the list of countries eligible for the H-2B program.

In 2009, DHS began granting discretionary parole that authorized temporary stays for certain CNMI residents, such as spouses and children of U.S. citizens. These individuals may have been inadmissible or otherwise ineligible for admission to the United States, according to DHS. However, in December 2018, DHS announced that it was terminating parole for certain categories of residents in response to Executive Order 13767, issued in 2017. The order called on DHS to take appropriate action to ensure that parole authority is exercised only on a case-by-case basis, among other things. According to DHS, 1,039 individuals in the terminated categories had been granted parole until December 31, 2018. Under H.R. 560, some of these individuals could be eligible to apply for CNMI resident status.

Thank you for the opportunity to discuss preliminary observations from  our ongoing work regarding the implementation of federal immigration  laws in the Commonwealth of the Northern Mariana Islands (CNMI).

The 1976 covenant defining the political relationship between the CNMI  and the United States exempted the CNMI—a U.S. territory north of  Guam—from certain federal immigration laws. However, the covenant  preserved the right of the U.S. government to apply federal law in these  exempted areas. The Consolidated Natural Resources Act of 2008  (CNRA), which amended the joint resolution approving the U.S.–CNMI  covenant, generally established federal control of CNMI immigration  beginning in 2009.

Under the CNRA, the Department of Homeland Security (DHS)  established the CNMI-Only Transitional Worker program to provide for an  orderly transition from the CNMI immigration system to the U.S. federal  immigration system during a transition period, currently set to expire in  fiscal year 2029. Through this program, qualified nonimmigrant workers  can obtain CNMI-Only Transitional Worker (CW-1) permits allowing them  to work temporarily in the CNMI. Also under the CNRA, certain financial  investors who met specified eligibility requirements under the act were  allowed to remain in the CNMI during the transition period. In addition,  under the Immigration and Nationality Act of 1952 (INA), DHS has  exercised its discretionary parole authority to allow certain groups of  individuals who were ineligible for admission under federal law to remain  temporarily in the CNMI, according to DHS. Proposed bill H.R. 560  would amend the CNRA to establish a CNMI resident status for certain  individuals.

In my statement today, I will draw on data and preliminary results from  our ongoing work to discuss DHS’s implementation of (1) CNRA  provisions regarding foreign workers and investors in the CNMI and  (2) DHS’s discretionary parole authority under the INA as it has been  applied in the CNMI. Our ongoing work updates information from two  prior products related to implementation of U.S. immigration law in the  CNMI, published in May 2017 and February 2018.

For the ongoing work on which this statement is based, we reviewed  relevant provisions in the U.S.–CNMI covenant, the joint resolution  approving the covenant, the CNRA, the INA, an executive order, and  proposed legislation on CNMI immigration. We also reviewed DHS rules  and regulations, policies, and other documents used to implement federal  immigration laws in the CNMI. We obtained data from DHS’s U.S.  Citizenship and Immigration Services (USCIS), which administers the  CNMI-Only Transitional Worker program and other federal immigration  programs in the CNMI. We used these data to conduct preliminary  analysis of the numbers of CW-1 permits that USCIS approved for foreign  workers in the CNMI for fiscal years 2012 through 2018. We also  obtained information about other foreign workers, investors, and  individuals to whom USCIS had granted parole.

To determine the reliability of the USCIS data, we interviewed cognizant  USCIS officials in Washington, D.C., and at the USCIS California Service  Center, which adjudicates petitions for CW-1 permits and petitions for  other types of status. We also discussed our methodologies and  assumptions for analyzing CW-1 data and the results of our preliminary  analysis with USCIS officials. We conducted electronic testing of the  data to identify and resolve inconsistencies in personally identifiable  information for CW-1 permit holders and to ensure accuracy in tracking  these individuals over time. We determined that the USCIS data were  sufficiently reliable for our purposes.

We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.

The United States took control of the Northern Mariana Islands from  Japan during the latter part of World War II. After the war, the U.S.  Congress approved a trusteeship agreement making the United States  responsible to the United Nations for the administration of the islands. In  1976, the District of the Mariana Islands entered into a covenant with the  United States establishing the island territory’s status as a self-governing  commonwealth in political union with the United States.

The covenant granted the CNMI the right of self-governance over internal  affairs and granted the United States complete responsibility and  authority for matters relating to foreign affairs and defense affecting the  CNMI. The covenant also preserved the CNMI’s exemption from certain  federal laws that had previously been inapplicable to the Trust Territory of  the Pacific Islands, including certain federal minimum wage provisions  and immigration laws, with certain limited exceptions.

Application of Federal Immigration Law to the CNMI

In 2008, the CNRA amended the joint resolution approving the U.S.– CNMI covenant to generally apply federal immigration law, including the  INA, to the CNMI, with a transition period for foreign workers and  investors. In addition, the INA provides DHS with discretionary authority  to grant parole to certain noncitizens, on a case-by-case basis, allowing  them to be temporarily present in the United States, including the CNMI.

To provide for an orderly transition from the CNMI immigration system to  the U.S. federal immigration system under the immigration laws of the  United States, DHS, through USCIS, established the CNMI-Only  Transitional Worker program in 2011. Through the program, employers  petition for nonimmigrant CW-1 permits that allow foreign workers who  meet certain requirements to work temporarily in the CNMI. The CNRA  limits the number of permits DHS may issue annually and reduces that  number each year until the end of the transition period.

Since 2008, Congress has amended the CNRA several times, with  provisions that affected the length of the transition period, the number of  CW-1 permits allocated, and the distribution of permits (see table 1).

Figure 1 shows the past numerical limits on CW-1 permits established by  DHS and the current and future numerical limits for permits specified in  the Northern Mariana Islands U.S. Workforce Act of 2018, Pub. L. No.  115-218. The limits shown are the maximum number of permits  available for each fiscal year through the end of the transition period and  may not reflect the number of permits for which employers would petition  and that DHS would approve.

In addition, the INA provides authorization for several types of visas for  nonimmigrant workers and their families—for example, H-2B visas for  temporary nonagricultural workers—that became applicable to the CNMI  with the passage of the CNRA. The CNRA allows CNMI employers to  bring temporary workers to the CNMI under the H-2B program without  counting against the numerical restriction for H-2B visas.

The CNRA and its implementing regulations established E-2 CNMI  Investor (E-2C) status, a classification for certain foreign investors who  previously had been lawfully admitted to the CNMI under the territory’s  immigration system and who met certain eligibility requirements. Such  investors could petition for E-2C status prior to January 18, 2013,  according to USCIS. Eligibility criteria include, among others, providing  evidence of maintaining financial investments in the CNMI of at least  $50,000. DHS may grant E-2C status for up to 2 years, and such status  can be renewed.

Under the INA, DHS has discretionary parole authority to allow certain  noncitizens, on a case-by-case basis, to be temporarily present in the  United States. DHS has used this authority to grant parole to individuals  who may be inadmissible or otherwise ineligible for admission to allow  them to remain in the CNMI, according to DHS.

In 2017, the President issued Executive Order 13767, calling for, among  other things, the Secretary of Homeland Security to take appropriate  action to ensure that parole authority is exercised only on a case-by-case  basis in accordance with the plain language of the statute and, in all  circumstances, only when an individual demonstrates urgent  humanitarian reasons or a significant public benefit derived from such  parole.

Proposed Legislative Changes Affecting the CNRA

Proposed bill H.R. 560 includes several provisions, among others, that  would provide CNMI resident status to eligible individuals. To be eligible  for CNMI resident status under H.R. 560, an individual must have been lawfully present in the CNMI under U.S. immigration laws  on the date of enactment or on December 31, 2018; be admissible as an immigrant to the United States under the INA,  although no immigrant visa is required; have resided continuously and lawfully in the CNMI from November  28, 2009, through the date of enactment; and not be a citizen of the Federated States of Micronesia, Republic of the  Marshall Islands, or Republic of Palau.

Individuals who meet each of these four criteria would be eligible to apply  for CNMI resident status if they fall into one of the categories shown in  table 2.

DHS Implementation of CNRA Foreign Worker and Investor Provisions

As figure 2 shows, the number of CW-1 permits approved by USCIS  remained well under the annual numerical limits established by DHS for  fiscal years 2012 through 2015 and exceeded or neared the annual  limits for fiscal years 2016 and 2017.

According to USCIS data, most individuals with approved CW-1 permits  for fiscal years 2015 through 2018 were born in the Philippines or China.  In addition, as table 3 shows, four times more CW-1 permits were issued  to Chinese nationals for fiscal years 2016 and 2017 than for fiscal year  2015. As we reported in 2017, firms involved in building a new casino in  Saipan have primarily employed Chinese workers.

About one-third of fiscal year 2018 CW-1 permit holders had maintained  continuous employment in the CNMI since 2015 and could be eligible for  CNMI resident status under H.R. 560, if they had been admitted every  year under CW-1 status and were otherwise eligible. USCIS CW-1  permit data for fiscal years 2015 through 2018 show that, of the 8,995  foreign workers with CW-1 permits approved by USCIS for fiscal year  2018, 2,875 workers (about 32 percent) had maintained continuous  employment in the CNMI since fiscal year 2015. (Of this group, 2,287—80  percent—were born in the Philippines.) Under H.R. 560, a foreign national  who meets additional eligibility requirements, including having resided  continuously and lawfully in the CNMI from November 28, 2009, through  the date of enactment, may be admitted to the CNMI under CNMI  resident status if that individual was admitted to the CNMI as a CW-1  worker during fiscal year 2015 and during every subsequent fiscal year  beginning before July 24, 2018. As a result, according to our analysis of  USCIS data, 2,875 workers could be eligible under H.R. 560 to apply for  CNMI resident status if they were admitted as CW-1 workers every fiscal  year until 2018 and met all other eligibility conditions. Table 4 shows the  numbers of foreign workers who received CW-1 permits for fiscal year  2018 and had maintained continuous employment in the CNMI since  fiscal years 2012 through 2017.

USCIS data show a reduction from fiscal year 2017 to fiscal year 2018 in  the number of CW-1 permit holders and a significant increase in the  number of H-2B beneficiaries. While the number of approved CW-1  permit holders declined from 12,889 in fiscal year 2017 to 8,995 in fiscal  year 2018, the number of H-2B beneficiaries for those years increased  from 0 to 3,058. In addition, our analysis of USCIS data found that the  number of CW-1 permit holders for the construction trade declined from  2,981 to 545—by 82 percent—from fiscal year 2017 to fiscal year 2018.

Meanwhile, the number of H-2B beneficiaries for the construction trade in  the CNMI increased from 0 for fiscal year 2017 to 1,801 for fiscal year  2018.

In August 2017, Congress amended the CNRA to, among other things,  restrict CW-1 permits for workers in construction and extraction  occupations (as defined in the U.S. Department of Labor’s Standard  Occupational Classification system) by allowing only extensions of CW-1  permits first issued before October 1, 2015. The CNRA allows CNMI  employers to petition for H-2 visas to bring temporary workers, such as  construction workers, to the CNMI without counting against the numerical  restriction for such visas. According to a senior USCIS official, the new  casino employer in Saipan began petitioning in 2018 for foreign workers  under the H-2B program instead of petitioning for CW-1 permits for its  construction workers. The official noted that Pub. L. No. 115-53’s  restriction on the use of CW-1 permits for construction trade workers may  account for the decrease in petitions for CW-1 permit holders and  increase in petitions for H-2B beneficiaries from fiscal year 2017 to fiscal  year 2018.

Table 5 shows the numbers of approved CW-1 permit holders and H-2B  beneficiaries for the construction trade in fiscal years 2016 through 2018.

In October 2016, DHS announced the list of countries whose citizens  were eligible to participate in the H-2 program from January 18, 2017, to  January 18, 2018. Asian countries on the list included the Philippines,  South Korea, Taiwan, and Thailand, among others, but did not include  China. In January 2019, because of concerns about overstays and  human trafficking, DHS removed the Philippines from the list of countries  eligible for the H-2B program. CNMI government and Chamber of  Commerce officials have voiced concerns that the removal of the  Philippines from the list will make it difficult to hire construction workers in  the aftermath of two recent typhoons.

USCIS began approving 2-year E-2C status for eligible foreign long-term  investors and their dependents in the territory in fiscal year 2011.  According to USCIS, as of February 5, 2019, 56 investors who had  previously resided in the CNMI as investors under CNMI immigration law  were residing in the CNMI with E-2C status. Under H.R. 560, foreign  nationals who otherwise meet additional eligibility requirements may be  granted CNMI resident status if they resided in the CNMI as investors  under CNMI immigration law and are presently resident under E-2C  status. As a result, under H.R. 560, these 56 investors could be eligible to  apply for CNMI resident status if they met all other eligibility conditions.

DHS Implementation of Parole Authority under the INA

According to USCIS testimony, after the CNRA was passed in 2008,  USCIS implemented DHS’s discretionary parole authority by making  parole available to groups of individuals residing in the CNMI who would  not be covered by INA classifications and for whom the classifications  established in the CNRA did not appear to be appropriate. These  individuals previously had immigration status under CNMI immigration law  that allowed them to potentially remain in the CNMI indefinitely, according  to USCIS. Without USCIS action, these individuals would have been  deemed unlawfully present in the United States, according to USCIS  documents.

To provide such individuals with a means to remain temporarily in the  CNMI during the transition period, USCIS announced several  discretionary parole policies to cover the following groups, among others,  which were potentially eligible for parole:

CNMI permanent residents, immediate relatives of CNMI permanent  residents, spouses and children of deceased CNMI permanent  residents, and immediate relatives of citizens of the freely associated  states (November 2009)

Certain in-home foreign national caregivers of CNMI residents  (October 2011)

Immediate relatives of U.S. citizens, especially parents of U.S. citizen  children, and stateless individuals in the CNMI (November 2011)

In response to Executive Order 13767, on December 27, 2018, USCIS  announced the termination of parole for immediate relatives of U.S.  citizens and certain stateless individuals; CNMI permanent residents,  immediate relatives of CNMI permanent residents, and immediate  relatives of citizens of the freely associated states; and certain in-home  foreign worker caregivers of CNMI residents. To provide an opportunity  for individuals in these categories to prepare to depart or seek a different  lawful status, USCIS announced that the affected individuals were  allowed to remain in the CNMI with a transitional parole status for up to  180 days, not to extend beyond June 29, 2019.

According to a senior USCIS official, from December 2, 2016, through  December 14, 2018, USCIS had granted parole until December 31, 2018,  to 1,039 individuals in the terminated parole categories. Under H.R. 560,  some of these individuals could be eligible to apply for CNMI resident  status if they met all other eligibility conditions.

Vice Chairman Sablan, Republican Leader Gonzalez-Colon, and  Members of the Committee, this completes my prepared statement. I  would be pleased to respond to any questions you may have at this time.

If you or your staff have any questions about this testimony, please  contact David Gootnick, Director, International Affairs and Trade, at  (202) 512-3149 or gootnickd@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement.

GAO staff who made key contributions to this testimony are Emil Friberg  (Assistant Director), Julia Ann Roberts (Analyst in Charge), Sada  Aksartova, Andrew Kurtzman, Reid Lowe, and Alexander Welsh.  Technical support was provided by Kathryn Bernet, Justin Fisher,  Christopher Keblitis, Mary Moutsos, and Moon Parks.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.

This testimony discusses the Department of Homeland Security's management of immigration in the Commonwealth of the Northern Mariana Islands, a U.S. territory. Foreign workers make up a large part of the workforce. Proposed legislation could let some longer-term foreign workers and others gain CNMI resident status.

DHS issues transitional permits that let qualified workers stay for up to a year. The numerical limits for these permits have changed several times.

In 2019, DHS removed the Philippines from a list of nations whose residents can obtain H-2B work visas. Mariana officials said this will make it hard to find construction workers.

[This text was changed to correct terminology in some areas.]


Nuclear Regulatory Commission: Fee-Setting, Billing, and Budgeting Processes Have Improved, but Additional Actions Could Enhance Efforts

NRC regulates the commercial nuclear industry. In that role, the agency provides services for regulated entities that hold licenses—that is, licensees. NRC recovers the majority of costs for these services by setting fee rates and using those rates to bill licensees. In 2017 and 2018, GAO recommended actions to improve NRC's fee-setting, billing, and budgeting processes, and NRC OIG and internal agency initiatives recommended additional actions. However, industry stakeholders continue to identify challenges with these processes.

GAO was asked to review NRC's (1) fee-setting, (2) billing, and (3) budgeting processes. This report examines NRC's progress since 2017 implementing changes to those processes in response to GAO, NRC OIG, and internal agency findings and recommendations.

GAO identified relevant GAO, NRC OIG, and internal agency recommendations and evaluated NRC's progress implementing those using evidence such as NRC's fee rules and budget documentation. GAO also spoke with NRC officials and interviewed a non-generalizable sample of NRC licensees, who were selected based on the amount of fees NRC charged them from fiscal years 2014 through 2018.

Since 2017, the Nuclear Regulatory Commission (NRC) has implemented changes to its fee-setting, billing, and budgeting processes in response to GAO, the NRC Office of Inspector General (OIG), and internal agency findings and recommendations:

Fee-Setting . NRC has improved the clarity, consistency, and transparency of its fee-setting process by, among other things, defining key terms used in the calculation of its hourly-fee rate and by developing and meeting performance measures for the transparency and timeliness of the fee-setting process.

Second, NRC did not clearly define what costs are included across all its public cost estimates for common regulatory actions. NRC created the estimates as a transparency measure to assist stakeholders—including licensees and potential applicants—with planning for the costs of future NRC oversight activities. However, NRC did not specify what costs are included across these cost estimates, such as those related to project management. According to GAO's analysis of NRC documents, such costs for some NRC actions can account for about two thirds of total hours billed. By clearly defining the costs in its public cost estimates, NRC could enhance transparency and increase the value of the estimates as a budgeting and planning tool for stakeholders, in accordance with NRC's Principles of Good Regulation .

Budgeting . NRC has made some changes to its budgeting process to better enable stakeholders to determine how it spent its appropriation. For example, starting in fiscal year 2018, NRC began presenting actual obligation data and more detailed information on the status of funds it carried over from prior fiscal years in its annual budget justification.

GAO recommends that NRC (1) develop guidance on when to communicate work progress information to licensees, and (2) ensure costs are clearly defined in its public cost estimates. NRC neither agreed nor disagreed but plans to review these processes. GAO believes its report supports implementation of these recommendations.

The Nuclear Regulatory Commission (NRC) is the federal agency  responsible for regulating the commercial nuclear industry—which  includes nuclear power plants and other civilian uses of radioactive  material—through licensing, inspection, and enforcement of its  regulations. NRC recovers the cost of inspections and other services  provided to companies that hold an NRC license, or licensees, by  assessing fees for work performed and billing licensees. As required by  the Omnibus Budget Reconciliation Act of 1990, as amended, NRC  annually assesses and collects fees totaling about 90 percent of its  annual budget authority. To reach this amount, NRC establishes two  types of fees:  1.  Service fees, which recover the costs of licensing and other services  provided by NRC and are charged by applying an hourly fee rate,  and;  2.  Annual fees, which recover the remainder of budgeted costs not  covered by service fees.

To establish these service and annual fee rates, NRC uses an annual  rulemaking process. NRC issues a proposed fee rule and final fee rule,  both of which are published in the Federal Register, and also prepares  and makes available on its website work papers that provide more  detailed information on the agency’s fee calculations. After NRC’s fee  rates are determined through this annual rulemaking process, NRC uses  those rates to bill its licensees.

From fiscal year 2005 through fiscal year 2010, NRC’s budget, and hence  its regulatory fees, grew as it hired additional staff in anticipation of a  substantial increase in NRC’s workload due to a projected large number  of applications for new nuclear power plants and interest in new reactor  designs, among other things. However, the expected growth in the  nuclear power sector did not materialize, and instead the commercial  nuclear industry decreased in size, with nine operating reactors closing  between January 2013 and January 2020 and only one new operating  reactor entering service during that time. In this context, NRC undertook  several initiatives aimed at streamlining agency processes and better  positioning the agency to respond to these changes in external  conditions, such as standardizing its billing codes.

In 2017 and 2018 we reported on various actions to improve NRC’s fee- setting, billing, and budgeting processes, and NRC’s Office of the  Inspector General (OIG) recommended additional actions on these  topics. For example, we recommended that NRC clearly present  information in NRC’s proposed fee rule, final fee rule, and fee work  papers by defining and consistently using key terms. Additionally, we  reported that NRC was undertaking an initiative to transition to electronic  billing, and we recommended various actions to improve its planning for  that transition.

Since we last reported on these issues, NRC’s budget authority and  regulatory fees have declined. Specifically, the total amount NRC  collected in fees from licensees fell to $776.3 million in fiscal year 2019— a 14.9 percent decrease from fiscal year 2015. Additionally, NRC has  undertaken several additional initiatives aimed at improving its fee-setting,  billing, and budgeting processes, including a Fees Transformation  Initiative that was meant to improve fee transparency through multiple  process and policy improvements. However, industry stakeholders— including licensees and industry organizations whose members include  companies with NRC licenses—continue to identify additional challenges  they encounter with these three NRC processes.

You asked us to review NRC’s fee-setting, billing, and budgeting  processes. This report examines NRC’s progress implementing changes  to those three processes since 2017 in response to GAO, NRC OIG, and  internal NRC findings and recommendations.

To determine NRC’s progress implementing changes to its fee-setting  process, we reviewed: (1) the requirements of the Independent Offices  Appropriations Act of 1952 and Omnibus Budget Reconciliation Act of  1990, as amended, (2) NRC’s proposed and final fee rules for fiscal years  2016 through 2019 and associated work papers, and (3) NRC’s policies  and guidance related to its fee-setting process. To determine NRC’s  progress implementing changes to its billing process, we reviewed NRC  policy and guidance related to its billing process and NRC planning  documents related to recent actions it has taken to improve billing,  including its standardized billing validation process and its electronic  billing initiative. To determine NRC’s progress implementing changes to  its budgeting process, we reviewed NRC’s budget justifications and  budget execution information. Specifically, we analyzed budget request,  enacted, obligation, and carryover data from NRC’s budget justifications  for fiscal years 2011 through 2020 and budget execution data for fiscal  year 2019 that we obtained from NRC. We assessed the reliability of  these data by conducting interviews with NRC officials and reviewing the  data for obvious errors. We determined these data to be sufficiently  reliable for the purposes of our report.

We reviewed the findings and recommendations of relevant GAO and  NRC OIG reports, as well as NRC internal initiatives, including the  agency’s Fees Transformation Initiative, aimed at improving the three  processes—fee-setting, billing, and budgeting. We interviewed NRC staff  in the Office of the Chief Financial Officer, which has responsibility over  these processes, and NRC staff in three program offices with  responsibility for developing cost estimates of common NRC oversight  activities. We also interviewed a nongeneralizable sample of nonfederal  licensees selected from six of NRC’s nine fee classes to obtain their  views on NRC’s fee-setting, billing, and budgeting processes and the  changes NRC has made to those processes since 2017. We selected  11 licensees for our sample using NRC data on service and annual fee  collections. For five of NRC’s nine fee classes, we selected and  interviewed the licensee that was assessed the highest amount of total  fees from fiscal year 2014 through 2018—the most recent full year of data  at the time of our review. For NRC’s operating reactor fee class, we  selected and interviewed the four licensees that were assessed the  highest amount of fees from fiscal year 2014 through 2018, and two  additional operating reactor licensees that we randomly selected. We also  excluded three fee classes from our sample—transportation, rare earth,  and import/export—because no licensees in these fee classes were  assessed service and annual fees from fiscal year 2014 through 2018.  Using this process, we selected a sample that included licensees of  varying size and scope, as well as licensees with operating reactors in  regulated and deregulated markets. We interviewed licensees using a standard set of questions to collect consistent information. We then  analyzed licensee responses to identify key themes and grouped their  responses into common categories. Views from these licensees cannot  be generalized to all nonfederal licensees but provide illustrative  information. We also compared NRC’s current fee-setting, billing, and  budgeting practices against NRC’s Principles of Good Regulation, NRC’s  Organizational Values, and federal internal control standards related to  communicating quality information.

We conducted this performance audit from March 2019 to February 2020  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

NRC was established by the Energy Reorganization Act of 1974 and is  headed by five commissioners, collectively referred to as the  Commission, with members appointed by the President and confirmed by  the Senate. One commissioner is designated by the President to serve as  the Chair, who, among other things, serves as the official spokesperson  of the Commission. The Commission is responsible for, among other  things, revising budget estimates and determining the distribution of  appropriated funds according to major programs and purposes. NRC staff  from program offices in headquarters and four regional offices implement  the agency’s programs for developing regulations, licensing, inspection,  enforcement, and emergency response, among other responsibilities. In  addition, NRC’s Office of the Chief Financial Officer establishes,  maintains, and oversees the implementation and interpretation of the  agency’s regulatory user fee policies and regulations and is responsible  for assessing annual and service fees to licensees for each license they  hold and sending invoices to licensees. The Office of the Chief Financial  Officer also leads the agency’s budget formulation and execution  processes.

NRC’s authority to charge service and annual fees is derived from two  laws: the Independent Offices Appropriations Act of 1952 and the  Omnibus Budget Reconciliation Act of 1990, as amended. The  Independent Offices Appropriations Act of 1952 provides broad authority  to federal agencies, including NRC, to assess user fees or charges to  identifiable beneficiaries through regulation. The Omnibus Budget  Reconciliation Act of 1990 requires that NRC recover approximately 90  percent of its annual budget authority through fees assessed to licensees,  excluding amounts appropriated for any one of a number of specified  purposes. The law requires that NRC first use its authority from the  Independent Offices Appropriation Act of 1952 to collect service fees for  specific services provided. However, because those fees do not equal 90  percent of NRC’s budget authority, NRC also assesses annual fees. To  the maximum extent practicable, the annual fees assessed must have a  reasonable relationship to the cost of the regulatory services provided  and may be based on how NRC allocates resources for regulating  licensees or fee classes. The licensees regulated by NRC encompass a  broad range of commercial uses of nuclear material such as use in  commercial nuclear power reactors; the use of radioactive materials in  medical, academic, and industrial settings; and the transport, storage,  and disposal of radioactive materials and waste. For the purpose of  setting service and annual fees, NRC established nine fee classes.  Figure 1 shows NRC’s total budget authority and the amounts NRC  collected through service and annual fees from licensees for fiscal years  2014 through 2019.

NRC sets its service fees and annual fees through the federal rulemaking  process every year. Under this process, NRC first drafts and then  publishes a proposed fee rule in the Federal Register, after which  interested parties have 30 days to comment. NRC develops the proposed  fee rule by allocating its resources for regulating the fee classes and  calculating its proposed hourly fee rate, which is the same rate for all fee  classes, and annual fees, which vary by fee class. NRC bases its  calculations for the proposed fee rule on its appropriation for the current  fiscal year, if enacted. If the agency has not received its appropriation by  the time it begins calculating fees, it bases these calculations on the  President’s Budget. As part of this process, NRC generally posts fee work  papers providing additional details to support the proposed fee rule. After  the 30-day comment period, NRC adjusts its hourly fee rate for service  fees and annual fees, as needed, and drafts a final fee rule. Finally, NRC  publishes a final fee rule that includes its responses to comments  received on the proposed fee rule. The final fee rule becomes effective 60  days after publication.

In recent years, GAO and NRC internal initiatives identified several key  findings and made recommendations to improve NRC’s fee-setting  process, including the following:  In 2016, NRC’s Fees Transformation Initiative recommended process  improvements related to updating NRC’s fee rules and associated  work papers.

In 2017, we recommended that NRC clearly present information in  NRC’s proposed fee rule, final fee rule, and fee work papers such as  by defining and consistently using key terms so that stakeholders  could understand fee calculations.

In 2017, we also recommended that NRC develop objective,  measurable, and quantifiable performance goals and metrics that  would enable NRC to assess its efforts to improve the transparency  and timeliness of its fee-setting process.

NRC’s billing process for annual fees is based solely on the annual fee  rate that is set through the rulemaking process. NRC’s billing process for  service fees begins by identifying work that can be billed to a specific  licensee and ends when the licensee pays its invoice for service fees.  Once NRC determines that billable work needs to be done, NRC program  office staff and contractors perform the work. NRC follows the steps in the  billing process shown in figure 2.

NRC assigns an activity code under which billable work is accomplished.  Both NRC staff and contractors can perform work under the same billing  codes. Once the hours charged have been reviewed, NRC aggregates  the charges in its financial accounting system. Then, NRC staff and  supervisors verify the hours billed to that activity code on a monthly basis  through a formal, agency-wide billing validation process. On a quarterly  basis, NRC will send invoices through the U.S. Postal Service or  electronically to licensees, who have 30 days from issuance of the invoice  to review and pay the invoice before being assessed late fees. Licensees  may also dispute charges at this point. According to NRC staff, most  disputes are handled informally and generally entail explanations of the  agency’s billing or licensing policies.

NRC provides licensees information on billing through other methods as  well. For example, as part of the Fees Transformation Initiative, NRC  posted public cost estimates for common regulatory actions to help  licensees better plan for the cost of those actions. In addition, during the  course of regulatory actions, NRC staff are to communicate with  licensees about the status of the work being performed, and NRC can  provide licensees biweekly estimates of charges from NRC staff and  contractors to supplement its billing invoices.

Over the years, GAO, NRC’s OIG, and NRC internal initiatives identified  several key findings and made recommendations to improve NRC’s billing  process, including the following:

NRC began an initiative aimed at improving its billing codes in 2013,  and in 2017, NRC’s Cost Accountability and Management Project plan  stated that NRC’s methods for requesting and managing billing codes  place the agency at risk of collecting inaccurate data. In 2018, we  found that NRC was working to improve internal controls over the  billing codes NRC staff use to record their work hours, which did not  describe the work being performed and did not have a consistent  naming convention. Relatedly, in 2015, NRC’s OIG recommended  that NRC establish policies and procedures to centralize control of its  billing code structure, link billing codes to specific tasks, and design  and implement controls regarding the billing codes to which staff can  charge time.

In 2014, NRC’s Fee Billing Process Improvement Project report  recommended that NRC standardize and document its fee-billing  validation process, along with developing and issuing guidance for the  process. In 2018, we found that NRC’s billing validation procedures  for verifying the accuracy of time charged to licensees was not  standardized across the regional and program offices, but NRC was  planning to pilot a standardized process. Relatedly, in 2015, NRC’s  OIG recommended that NRC design and implement a plan to improve  its billing validation process. Similarly, in 2017, NRC’s OIG  recommended that NRC implement a streamlined and consistent  billing validation process and define the roles and responsibilities for  billing validation staff.

In 2016, NRC’s Fees Transformation Initiative recommended process  improvements related to the information NRC provides to licensees  through cost estimates and on invoices. In 2017, NRC’s OIG  recommended that NRC create consistent, well-defined processes  and reporting to calculate and explain its cost estimates. In 2018, we  found that NRC had posted cost estimates for common regulatory  activities to its public website.

In 2018, we recommended that NRC formally communicate to  licensees the availability of supplemental billing information, including  biweekly reports and monthly status reports on contractor charges.  Relatedly, in 2015, NRC’s OIG recommended that NRC design and  implement a process to provide information regarding contractor  charges on invoices that identifies the specific tasks performed and  related reimbursable contractor costs.

In 2018, we found that NRC intended to transition to electronic billing  to address challenges some licensees were experiencing with the  format and timeliness of invoices, but did not have planning  documents for this transition. We recommended that NRC develop a  project plan for the transition to electronic billing incorporating plans  for schedule and cost, steps that involve soliciting and considering  licensee feedback, and steps to assess the results of implementing  electronic billing.

NRC submits an annual budget justification to Congress with estimates  and other information that support the policies and proposed spending  decisions represented in the President’s Budget. This includes  information on what NRC plans to achieve with the resources the agency  requested. After Congress enacts appropriations providing NRC’s budget  authority for the fiscal year, NRC allocates these appropriated funds to its  offices, which obligate them to carry out the agency’s mission. Though  NRC receives its funding from these congressional appropriations, the  agency then collects approximately 90 percent of its budget from service  and annual fees, and the fees collected are then deposited to the U.S.  Treasury.

NRC’s budget structure is currently grouped by programs and business  lines, among other subsets. For fiscal year 2020, NRC’s two major  programs are (1) Nuclear Reactor Safety and (2) Nuclear Materials and  Waste Safety. Under these two programs, seven business lines relate to  key regulatory groups of licensees as follows:

New Reactors (including Advanced Reactors)

The Nuclear Materials and Waste Safety Program

Decommissioning and Low-Level Waste  In addition to these seven programmatic business lines, there is a  Corporate Support business line which encompasses agency-wide support activities, including acquisitions, administrative services, financial  management, human resource management, information management,  information technology, outreach, policy support, and associated training  and travel. The Corporate Support business line supports all of the  programmatic business lines, and Corporate Support costs are allocated  across the other business lines in NRC’s budget.

Over the years, GAO, NRC’s OIG, and NRC internal initiatives identified  several key findings and made recommendations to improve NRC’s  budgeting process, including the following:

NRC’s OIG reported in 2013 and we similarly reported in 2017 that  NRC’s budget justification and related systems did not align with its  budget execution. NRC’s OIG recommended NRC enforce the  consistent use of financial management system codes to help address  this issue. Relatedly, in 2016, an NRC internal initiative identified the  need to present actual obligation data in its budget justifications. In  2017, we found that NRC did not present actual obligation data in its  budget justifications for fiscal years 2010 through 2017, which made it  difficult for users of the budget justification—including Congress and  licensees—to understand how NRC spent its appropriations.

NRC Has Improved Its Fee-Setting Process by Using Clear and Consistent Terms and Developing and Meeting Performance Measures

Since 2017, NRC has implemented changes to its fee-setting process in  response to GAO and internal NRC findings and recommendations.  Those changes have improved the fee-setting process in two main areas:  (1) the clarity and consistency of terms used in fee rules, and (2)  performance goals and measures for transparency and timeliness of  NRC’s fee-setting process.

NRC Used Clear and Consistent Terms in Its Fee Rules

NRC began using clear and consistent terms in its fee rules in response  to GAO and internal NRC recommendations. Specifically, in 2017 we  recommended that NRC clearly present information in NRC’s proposed  fee rule, final fee rule, and fee work papers by defining and consistently  using key terms, providing complete calculations for how fees are  determined, and ensuring the accuracy of the fee rules and work  papers. In addition, NRC’s Fees Transformation Initiative identified  process improvements related to updating NRC’s fee rules and  associated work papers.

Beginning with NRC’s fiscal year 2017 proposed fee rule, NRC made the  following changes:

NRC provided definitions of key terms used in the calculation of its  hourly-fee rate for service fees. After providing these definitions in its  fee rules and workpapers for fiscal years 2017 and 2018, NRC  codified these definitions in its regulations in June 2018.

NRC posted fee-related spreadsheets in electronic format on its public  website to supplement the proposed and final fee rules. Specifically,  NRC included an additional supplemental spreadsheet with  downloadable data comparing budgeted resources from the proposed  fee rule to the prior year’s amounts to enhance transparency on  changes from year to year.

Seven of the 11 licensees we interviewed said that NRC uses clear and  consistent information in its fee rule and associated work papers. One  licensee said that that the language in the fee rule and work papers is  difficult to follow given the finance terminology but noted that its  organization has not done a thorough review of the fee rule. Another  licensee said that the fee rule has a large amount of data that is easy to  follow given NRC’s detailed work papers, but the licensee would like to  see additional narrative information in the fee rule justifying increases or  decreases to fee categories. The remaining two licensees had no  comment.

Additionally, one of the seven licensees who said NRC uses clear and  consistent information in its fee rule also told us that determining what  licensees pay for through NRC’s fees at a more detailed level is difficult  because NRC does not stipulate which NRC actions are specifically  recovered through service fees and which are recovered through annual  fees. In 2017, we reported that NRC’s budgeting system is not designed  to provide information on which budget items are recovered specifically  through service fees and which are recovered through annual fees. At  that time, NRC staff told us that the agency was trying to determine if its  budget formulation system could be modified to address this concern.  According to NRC officials, since we last reported, NRC has modified the  system so that, beginning with its fiscal year 2021 budget justification, the  agency can provide more detailed information for the operating reactor  fee class in accordance with legislative requirements in the Nuclear  Energy Innovation and Modernization Act. NRC officials said that this  information will include which budgeted activities are proposed to be  recovered through service fees versus through annual fees for the  operating fee class. The agency has not made similar modifications to  its budgeting system to provide more detailed information for the other fee  classes, according to NRC officials, because NRC has prioritized making  system upgrades to address legislative requirements and is only required  to provide more detailed information for the operating reactor fee class,  as well as because the formulation of NRC’s budget is done two years in  advance of the fee rule and the information is subject to change.

NRC Developed Performance Goals and Measures for Transparency and Timeliness of Its Fee- Setting Process

NRC developed performance goals and measures for the transparency  and timeliness of its fee-setting process in response to a GAO  recommendation and internal NRC findings and recommendations.  Specifically, in 2017 we recommended that NRC develop objective,  measureable, and quantifiable performance goals and measures to  enhance the transparency and timeliness of NRC’s fee-setting process.

NRC established three performance goals for its fee-setting process: (1)  increased transparency, (2) increased equitability, and (3) increased  timeliness. To meet the first two performance goals of increased  transparency and equitability, NRC developed several performance  measures, including  implementing 80 percent of identified improvements in NRC’s Fees  Transformation Initiative, holding two public outreach meetings with stakeholders on fee-setting  or billing topics, and  soliciting public comments on improvement activities.

For NRC’s performance goal of increasing timeliness, its performance  measure is to meet NRC’s planned date for issuance of the proposed and  final fee rules. NRC’s goal is to issue its proposed fee rules in January  and final fee rules in May of a given fiscal year. However, NRC finalizes  its fee rule after it receives its annual appropriations, and according to  NRC officials, NRC’s publication of the final fee rule may be delayed  depending on when NRC receives its annual appropriations.

Based on our review of NRC documents and interviews with agency  officials, we have determined that NRC has met these performance  measures. Specifically, NRC closed as implemented about 93 percent of  improvements—37 of 40—NRC identified as a part of its Fees  Transformation Initiative. Further, NRC has held numerous public  outreach meetings on these topics since 2017 and solicited public  comments, with the most recent public meeting occurring on February 13,  2019, to discuss key features of NRC’s fiscal year 2019 fee rule. For  fiscal years 2017 through 2019, NRC issued its proposed fee rule in  January. NRC published its final fee rules for fiscal years 2017 and 2018  in June, and published its fiscal year 2019 final fee rule in May.

NRC Has Taken Action to Improve the Transparency, Accuracy, and Timeliness of Its Billing Process, but Some Information Is Still Not Transparent

Since 2017, NRC has implemented changes to its billing process in  response to GAO, NRC OIG, and internal NRC findings and  recommendations to improve the transparency, accuracy, and timeliness  of the process, but some billing information NRC provides licensees is still  not transparent. NRC improved transparency by standardizing its billing  codes, updating its invoices, formally communicating some supplemental  billing information, and creating public cost estimates, but it has not  ensured the estimates clearly define what costs are included or provided  work progress information throughout the course of ongoing regulatory  activities. NRC also implemented a standardized process to validate  charges to licensees to improve accuracy. In addition, NRC enhanced the  timeliness of its billing process by implementing an electronic billing  system.

NRC Improved Billing Transparency but Has Not Provided Work Progress Information on Its Invoices or Clearly Defined Costs Across Its Estimates

NRC implemented changes to increase the transparency of its billing  process in response to GAO, NRC OIG, and internal NRC findings and  recommendations, in four main areas: (1) standardized billing codes, (2)  updated invoices, (3) supplemental billing information, and (4) public cost  estimates.

NRC improved its standardized billing codes—codes that NRC staff use  to record their work hours on time cards—in response to GAO findings  and NRC OIG recommendations as well as NRC internal initiatives.  Specifically, in 2018 we reported that NRC’s billing codes did not  adequately describe work performed and did not have a consistent  naming convention, which increased the risk of staff charging their time to  the wrong billing codes. We reported that this, in turn, could lead to  billing errors. In addition, in 2015 NRC’s OIG recommended, among  other things, that NRC establish policies and procedures to centralize  control of billing codes. Moreover, NRC began an initiative aimed at  improving its billing process in 2013, and in 2017, NRC’s Cost  Accountability and Management Project plan stated that NRC’s methods  for requesting and managing billing codes place the agency at risk of  collecting inaccurate data.

Based on our review of NRC’s updated billing codes, the agency’s  Enterprise Project Identifiers, (EPID)—umbrella codes for regulatory  actions such as inspections, licensing actions, and licensing renewals— now have a consistent naming structure, and NRC has centralized control  of billing codes. In particular, the EPID alpha-numerical naming structure  denotes the type of regulatory work, the calendar year the work began,  and includes a 4-digit number to make the code unique, among other  elements. NRC also created and implemented Cost Activity Codes  (CAC), which are numerical codes that capture the ways in which NRC  staff spend billable time working on an EPID, including the time spent  preparing and documenting an action as well as performing the direct  work. In addition, NRC added controls to ensure staff charge the correct  billing codes. For example, NRC management must now grant staff  permission before they are able to charge these codes.

Eight of the 11 licensees we interviewed said that NRC has consistently  used both EPIDs and CACs after NRC revised the accounting structure.  The remaining three licensees we interviewed had no comment on the  revised EPIDs and CACs. NRC officials stated that while they have  completed standardizing the billing codes, they are continuously working  on refining them to respond to stakeholder feedback, and NRC started a  working group in November 2019 to further review the codes.

NRC updated the service fee invoices it sends to licensees in response to  internal NRC initiatives, but it has not implemented an internal NRC  recommendation to provide licensees with information on the progress of  work performed on ongoing regulatory actions.

As part of our prior review of NRC’s billing process, we found that NRC  expected to issue updated invoices to licensees. We were unable to assess licensees’ satisfaction with the updated invoices because NRC  issued them after we had completed our review. In January 2018, NRC  updated the service fee invoices it sends to licensees, in response to  NRC internal initiatives, to include the names of NRC staff and of  contractors billing time, along with the updated EPIDs and CACs.  According to our analysis of a sample of invoices from before and after  January 2018, NRC has consistently made these changes to invoices. As  shown in figure 3, NRC’s updated invoices provide the quarterly total of  all charges for a given regulatory action as an EPID total. CACs are no  longer specific to a project or site and can now be reused to represent the  same type of work for different EPIDs. NRC staff and contractors can  charge multiple CACs to the same EPID during a given quarter.

All 11 licensees we interviewed stated that the changes NRC made to the  invoices were positive. Seven licensees stated that the inclusion of staff  names made it easier to understand what they were being billed for, and  five licensees stated that the inclusion of CACs improved NRC’s billing  process.

In 2016, NRC’s Fees Transformation Initiative recommended a process  improvement to include information on the progress of work performed on  inspection reports, but NRC ended this initiative in 2018 without making  updates to the inspection reports. NRC determined that the updated  information on invoices, described previously, resulted in sufficient  improvements to transparency. However, two licensees we interviewed  told us that including information on the progress of work performed  would assist licensees with their planning and budgeting. According to our  analysis of NRC documents and a licensee we interviewed, some NRC  regulatory oversight actions can take several years to complete, with  charges to licensees from a single action spanning multiple quarterly  invoices. One licensee explained that, as a result, not having information  on the progress of work performed on ongoing regulatory actions can  make it more difficult to budget. This is because the licensee does not  know how far NRC is in completing an activity, and NRC may invoice for  a large amount of additional costs that the licensee did not anticipate.

One of NRC’s program offices has a policy regarding when to  communicate information on the progress of work performed on ongoing  regulatory actions, but the remaining NRC program offices we spoke with  do not. Specifically, the Office of Nuclear Reactor Regulation has a  policy to communicate with operating reactor licensees if it anticipates  significant changes to the forecasted completion date or hours billed to  complete the action. Furthermore, officials in this office said that it has a  practice to notify the licensee when it estimates that NRC will expend  over 125 percent of the initial estimate of hours for a given regulatory  action. These officials said that the office created this policy and  practice to improve its communication with licensees, in support of NRC’s  Principles of Good Regulation, which includes guidance on transparency.  They further stated that this policy and practice benefit licensees by  allowing them to better budget and plan for NRC’s work. Additionally, they  benefit NRC by helping the agency to better manage its resources and  workload, according to these officials.

In contrast, officials from the Office of New Reactors and the Office of  Nuclear Material Safety and Safeguards stated that they do not have a  policy regarding communicating with licensees about the progress of work  performed on ongoing regulatory actions. Furthermore, there is no  agencywide policy or guidance regarding this communication. Officials from the Office of New Reactors stated that the office tracks percent  completion as an internal metric, but does not communicate this  information to licensees. The Office of Nuclear Material Safety and  Safeguards does not track regulatory actions by percent completion. NRC  officials told us that it is difficult to provide accurate estimates of work  progress to licensees because NRC’s ability to meet anticipated cost and  schedule estimates depends on the complexity of the NRC action. NRC’s  Principles of Good Regulation and NRC’s Organizational Values list  openness as a key principle and value, respectively. According to those  documents, being open—that is, transparent and forthright—should guide  every action NRC takes, how it performs administrative tasks, and how it  interacts with stakeholders, such as licensees. Additionally, Standards for  Internal Control in the Federal Government state that management  should externally communicate the necessary quality information to  achieve the entity’s objectives.

According to NRC officials, NRC generally provides licensees with an  estimate of the number of hours and length of time NRC anticipates it will  take to complete certain regulatory actions upon beginning the action.  NRC officials said that NRC project managers are in regular contact with  licensees about the status of ongoing NRC activities; however, three  licensees we interviewed stated that NRC’s project managers do not  always communicate about the status of the regulatory action, which can  make planning and budgeting more difficult. This is in part because the  program offices do not each have a policy regarding when NRC should  provide updates on cost and schedule. Formalizing when NRC staff are to  communicate information to licensees on the progress of work performed  could enhance transparency and make planning and budgeting easier for  licensees, as they would have more information about when an action is  expected to be completed or when it will cost more than NRC’s initial  estimate.

NRC formally communicated to licensees that supplemental billing  information about contractor charges is available and developed guidance  on how that information should be provided in response to two GAO  recommendations. Specifically, we reported in 2018 that, upon request,  NRC can provide information on contractor charges to licensees through  a summary of work performed or a biweekly summary of charges that lists  all billable activities charged during a 2-week period. NRC officials  stated that the purpose of the biweekly summaries is to provide licensees  with information on costs that accrued in that particular period to help  licensees estimate their quarterly bill amount. We recommended that  NRC formally communicate to all licensees that these two supplemental  billing reports were available and how to request them, as we found that  not all licensees were aware this information was available. We also  recommended that NRC develop policy and guidance on what billing  information related to contractor charges NRC staff could provide to  licensees and how it should be provided.

In January 2019, NRC formally communicated to licensees that  supplemental billing information about contractor charges is available, but  it has yet to formally communicate to licensees that biweekly summaries  of charges are also available. Specifically, NRC created a process for  licensees to request narrative information on contractor charges through  a standard form, and formally communicates that process to licensees  through a reference to the form on agency invoices. NRC also developed  guidance on what billing information related to contractor charges NRC  staff can provide to licensees, along with a process map for how to  respond to licensee requests for contractor information.

In contrast, while NRC has continued to provide biweekly summaries to  licensees upon licensee request, the agency has not formally  communicated the existence of these reports to licensees. Seven of the  11 licensees we interviewed receive the biweekly reports, and five of  these licensees said the reports allow them to better track billable activity  through the quarter. The remaining four licensees we interviewed were  unaware that NRC can provide these reports. Agency officials stated that  they do not have the capacity to provide these biweekly reports to all  licensees, as the current process is manual and labor-intensive. However,  NRC officials stated that they plan to create an automated process to  provide these biweekly summaries as an enhancement to the agency’s  electronic billing initiative. NRC plans to implement this enhancement by  March 2020, according to NRC officials.

NRC created and posted public cost estimates for common oversight  activities to its website in response to an internal NRC recommendation,  but it has not consistently updated those estimates or ensured the  estimates clearly defined what costs were included. Specifically, in 2017,  NRC’s Fees Transformation Steering Committee, chaired by a  representative in the Office of the Chief Financial Officer, tasked NRC  program officials with creating public cost estimates for common  regulatory actions to increase transparency and enhance stakeholder  awareness of the costs associated with activities such as site permitting,  design certifications, inspections, license amendments, and license  renewals. We have previously reported that licensees had identified  challenges with planning for future work and budgeting to pay future costs  because NRC had not provided certain information about the agency’s  billable work, such as cost estimates.

Beginning in September 2017, staff from several NRC program offices  posted public cost estimates relating to six types of regulated entities:  operating reactors, new reactors, fuel facilities, spent fuel storage and  transportation, decommissioning, and uranium recovery. The cost  estimates, which are based on historical expenses and are calculated  using a sample of licensing and oversight actions, include the low, high,  and average number of NRC staff hours billed for each action, as well as  some estimates for contractor charges for certain tasks. According to  agency officials, NRC does not use these estimates as part of its  budgeting and fee-setting processes since these public cost estimates  are a resource for identifying possible costs, but are not tailored to a site- specific NRC action. Instead, the estimates assist stakeholders with  planning for the costs of future NRC work.

The Fees Transformation Steering Committee created guidance that the  program offices should update the estimates periodically, and NRC also  posted on its public website that these estimates would be updated  biennially. However, we found that, as of December 2019, NRC’s  program offices had updated only two of the six estimates. When we  discussed this with NRC officials at that time, the Office of the Chief  Financial Officer sent out a reminder to the program offices to update  their estimates by January 31, 2020.

Additionally, we found that NRC program offices did not clearly define  what costs—such as project management—are included across the six  public cost estimates, which may limit stakeholders’ ability to understand  them. For example, the cost estimate for operating reactors included  “inspection support” activities and defined what types of costs are  included in this category. In contrast, the cost estimate for fuel facilities  included a category for “project management activities,” but did not define  what types of costs are included in this category. The remaining four cost  estimates did not mention project management costs, so it is unclear  whether the estimates include these types of costs. According to our  analysis of NRC documents and licensees we spoke with, project  management costs for some NRC actions can account for about two  thirds of total hours billed. Thus, increased transparency of these costs  could help stakeholders—such as NRC licensees or potential  applicants—better understand the full cost of NRC’s regulatory actions.

The Fees Transformation Steering Committee provided high-level  guidance to the program offices for developing cost estimates, but the  guidance did not specify what costs to include when creating these  estimates. According to NRC officials, the Committee did not provide  specific guidance regarding cost estimates because activities in the cost  estimates may vary based on the specific activities conducted by the  program offices and it wanted the program offices to have flexibility when  creating the estimates. We recognize that some activities in the cost  estimates will vary based on the different activities conducted by the  program office. However, certain costs, such as project management, are  relevant across all cost estimates, and it is not always clear whether  these costs are included.

As previously discussed, NRC’s Principles of Good Regulation and  NRC’s Organizational Values list openness—that is, being transparent  and forthright—as a key principle and value, and it is applicable to the  agency’s cost estimates. Additionally, Standards for Internal Control in the  Federal Government state that management is to externally communicate  the necessary quality information to achieve the entity’s objectives. By  clearly defining what costs are included in its public cost estimates, NRC  could enhance transparency and increase the value of these estimates as  a budgeting and planning tool for stakeholders.

NRC Implemented a Standardized Process to Validate Charges to Licensees to Improve Accuracy

In response to internal NRC and NRC OIG recommendations, NRC  implemented a standardized process to validate charges to licensees to  improve accuracy. Specifically, in 2014 NRC’s License Fee Billing  Business Process Improvement report recommended that NRC  standardize and document its fee-billing validation process, along with  developing and issuing guidance for the process. Furthermore, in 2017  NRC’s OIG recommended that NRC implement a streamlined and  consistent billing validation process and define the roles and  responsibilities for billing validation staff. Reinforcing these  recommendations, we reported in 2018 that NRC did not have formal  guidance on validating charges and that the process varied among NRC’s  program offices. At the time of our review, NRC was planning to  standardize the process and establish clear roles and responsibilities for  staff participating in the process.

In August 2019, NRC implemented a revised process for validating time  charged to licensees in order to improve the accuracy of invoices, identify  billing errors in a timelier manner, and standardize billing validation  throughout the agency. This revised process came out of the work of  NRC’s Fee-Billing Validation Working Group, which began work in  December 2017. NRC implemented several changes to standardize the  process agency-wide, including creating formalized roles throughout the  process, a handbook outlining the steps of the process, and an internal  controls checklist for management to complete in order to certify fee- billing validation. In addition, NRC changed the frequency of the billing  validation process from a quarterly to a monthly basis. NRC officials we  interviewed stated that the biggest changes in the new process are the  increased role of management-level personnel throughout the process  and the increased frequency of the reviews.

NRC Enhanced the Timeliness of Its Billing Process by Implementing an Electronic Billing System

NRC enhanced the timeliness of its billing process by implementing an  electronic billing system in line with a project plan the agency developed  in response to a GAO recommendation. Specifically, in 2018 we reported  that NRC was undertaking an initiative to transition to an electronic billing  system known as eBilling, but it had not developed planning documents  for the initiative. We recommended that NRC develop a project plan for  eBilling that would (1) establish plans for schedule and cost, 2) involve  licensees in developing system capabilities, and (3) include steps to  assess the results of implementing eBilling.

Based on our review of NRC’s eBilling documents, NRC implemented  these recommendations as part of its planning process. For example,  NRC solicited feedback about eBilling usability, organization, content, and  functionality from nine licensees it selected for an eBilling pilot. NRC also  established plans for schedule and cost and included metrics assessing  eBilling on the timeliness of invoices, licensee participation rates, and the  accuracy of invoices in its eBilling project plan. As a result, in September  2019, NRC was able to begin distributing electronic invoices through  eBilling and sent all licensees receiving service fee invoices an  informational brochure giving instructions for how to enroll in the program  in October 2019. Six of the 11 licensees we interviewed stated that they  anticipated eBilling would improve the timeliness of NRC’s billing process.  Figure 4 summarizes some of the key features now available to licensees  through eBilling.

NRC Began Presenting Additional Information in Its Annual Budget Justification

Since 2017, NRC has implemented changes to its budgeting process that  address some but not all of its internal initiatives, prior GAO, and NRC  OIG findings and recommendations in two main areas: (1) NRC’s annual  budget justification, and (2) NRC’s budget formulation and budget  execution systems.

Annual budget justification. In 2017, we reported that NRC did not  present actual obligation data in its annual budget justifications for fiscal  years 2010 through 2017, and without this information, it was difficult for  users of the budget justification—including Congress and licensees—to  understand how NRC used its appropriations. We also reported that, in  spite of an agency initiative to decrease overhead costs, NRC’s  obligations for overhead—currently named Corporate Support—increased  each year from fiscal year 2011 to 2015 due to increases in rent, utilities,  and information technology investments, among other things. As a part  of its Fees Transformation Initiative, NRC planned to include additional  information on actual obligation data to better enable stakeholders to  determine how NRC spent its appropriation.

Starting with fiscal year 2018, NRC began presenting actual obligation  data in its annual budget justification. NRC data show that the agency  had about a 4 percent decrease in actual obligations for Corporate  Support from fiscal year 2016 to fiscal year 2019, from $302.9 million to  $291.2 million, as shown in table 1. These reductions were a result of  NRC’s corporate workload reductions to reflect efficiencies as well as  current and projected declines in agency workload, among other things.  However, actual obligations for Corporate Support as a percentage of  NRC’s total agency-wide obligations increased by about 2.3 percent  during this same time period. Specifically, in fiscal year 2016, Corporate  Support was about 30.4 percent of total NRC obligations ($302.9 million  of $996.6 million), whereas in fiscal year 2019, Corporate Support was  about 32.7 percent of total NRC obligations ($291.2 million of $891.5  million). In some years, reductions in Corporate Support were offset by  pay increases consistent with federal government-wide guidance and  investments in information technology, among other items. In addition,  NRC officials said that Corporate Support as a percentage of NRC’s total  obligations increased because program resources decreased as NRC’s  projected workload declined.

In addition to presenting actual obligation data in its annual budget  justification, NRC began presenting more detailed information on the  status of funds it carried over from previous fiscal years starting in its  fiscal year 2018 budget justification. Specifically, NRC began reporting  the amounts of carryover funds that were allocated in a given fiscal year  and the amounts of these funds available for obligation at the beginning  of a fiscal year, as shown in table 2. According to NRC officials, the  agency generally allocates carryover funds based on (1) congressional  direction to use carryover funds to supplement annual appropriations, and  (2) the agency’s discretion in order to address urgent mission needs.

In its fiscal year 2018 and 2019 budget justifications, NRC presented this  carryover data by appropriation funding category, while it presented the  rest of the information in its budget justification by the agency’s business  lines. According to NRC officials, the difference in presentation limited the  ability of users of the budget justification to understand where these  carryover funds were being allocated. In response, in its fiscal year 2020  budget justification, NRC began presenting data on its congressionally- directed carryover funds using the same business lines it used to present  the rest of the information in its budget justification. However, NRC did  not present its discretionary use of carryover using those business lines.  NRC officials told us that they started an initiative to enhance NRC’s  carryover tracking process, and that NRC will continue to refine how the  agency presents carryover data in future budget justifications.

In addition to presenting data in its annual budget justification, NRC  included additional information in its budget justifications to increase  transparency, in response to NRC’s Fees Transformation Initiative. For  example, in its fiscal year 2018 budget justification, NRC included a  crosswalk of business lines’ allocation to NRC’s nine fee classes with the  goal of helping licensees understand how NRC’s planned workload in its  budget formulation impacts licensees’ fees.

Budget formulation and execution system. NRC’s OIG reported in  2013 that NRC’s budget formulation process did not align with its budget  execution process, and we similarly reported in 2017 that these  processes were not aligned from fiscal years 2010 through 2015. NRC  used two different systems—one to formulate its budget and another to  execute its budget through obligation of funds. The two systems differed  in that they used different account structures for NRC’s personnel and  other costs. Specifically in 2013, NRC’s OIG found that NRC’s budget  formulation and execution processes were not aligned, recommending  NRC enforce the use of financial management system codes. In 2017, we  reported that there were no specific requirements for an agency’s budget  formulation process to align with its execution process, but without this  information, it was difficult to track how NRC used its funds in relation to  its budget authority.

According to NRC officials, the agency has prioritized making system  upgrades to address new legislative requirements in the Nuclear Energy  Innovation and Modernization Act before fully addressing other  challenges with the systems. However, as of December 2019, officials  told us that NRC recently began the planning phase of work to address  these system challenges, and that NRC plans to implement system  upgrades in fiscal year 2020, with a tentative completion date in fiscal  year 2021. Furthermore, in a 2017 letter to NRC’s OIG, NRC noted that it  had begun updating its systems to address NRC OIG’s 2013  recommendation on financial management system codes. However, the  system modifications did not accomplish the entire task, and NRC has  established a monthly process to manually reconcile the codes between  the two systems while NRC further updates its systems to meet NRC  OIG’s recommendation.

Since 2017, NRC has made a number of changes to its fee-setting,  billing, and budgeting processes in response to GAO, NRC OIG, and  internal NRC findings and recommendations, and those changes have  improved those processes and addressed some challenges previously  raised by licensees. However, additional steps could further enhance  NRC’s efforts to improve its billing process. First, NRC program offices do  not consistently provide information on the progress of work performed on  ongoing regulatory actions. By developing guidance about when NRC  staff are to communicate information to licensees on the progress of work  performed, NRC could enhance transparency and facilitate planning and  budgeting, as licensees would have more information about when an  action is expected to be completed or will cost more than NRC’s initial  estimate. Second, NRC program offices do not clearly define what costs  are included across their public cost estimates for common oversight  activities. By doing so, NRC could enhance transparency and increase  the value of these estimates as a budgeting and planning tool for  stakeholders, consistent with NRC’s Principles of Good Regulation.

We are making the following two recommendations to NRC:

The Executive Director for Operations of NRC should ensure relevant  NRC program offices develop policy and guidance for when to  communicate information on work progress to licensees, such as  through communications to licensees at specified timeframes or  thresholds. (Recommendation 1)

The Chief Financial Officer of NRC should, in consultation with NRC  program offices, develop guidance to ensure NRC staff clearly define  what costs—such as project management—are included in its public  cost estimates. (Recommendation 2)

We provided a draft of this report to NRC for review and comment. In its  comments, reproduced in appendix I, NRC neither agreed nor disagreed  with our recommendations but did describe actions that it intends to take  in response to our recommendations. NRC stated that it will review its  current practice of providing information on work progress to licensees  and develop or revise any policy and guidance where necessary. NRC  also stated that it will review its current web-based cost estimates to  determine if changes are necessary and implement those changes as  appropriate.

Although further review of NRC’s practices on providing work progress  information to licensees and cost estimates could be worthwhile, we  believe our review sufficiently demonstrated that by taking additional  steps, NRC could further enhance transparency and facilitate planning  and budgeting for licensees. As a result, we continue to believe that  implementing our recommendations on work progress and cost estimates  could further improve NRC’s processes.

NRC also provided technical comments, which we incorporated as  appropriate.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Chairman of NRC, and other interested  parties. In addition, the report will be available at no charge on the GAO  website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix II.

Appendix I: Comments from the Nuclear Regulatory Commission

Appendix II: GAO Contacts and Staff Acknowledgments

In addition to the contact named above, David Marroni (Assistant  Director), Margaret Childs (Analyst-in-Charge), and Jon Muchin made key  contributions to this report. Kevin Bray, Cindy Gilbert, Jessica Lemke,  Susan Murphy, Dan Royer, Sheryl Stein, and Doris Yanger made  additional contributions.

The Nuclear Regulatory Commission licenses, inspects, and enforces regulations for the nuclear industry, including reactors and waste operations. NRC recovers about 90% of its budget by assessing fees for work done at NRC-licensed companies.

Since 2017, NRC has altered some of its fee-setting, billing, and budgeting processes in response to previous audits. For example, NRC implemented an electronic billing system and shared more information about how it sets fees.

But, NRC’s processes still need to be more transparent to help licensees plan and budget. Our recommendations are for NRC to improve communications and cost information for licensees.