UNITED STATES

NUCLEAR REGULATORY COMMISSION

WASHINGTON, D.C. 20555-0001

OFFICE OF THE

INSPECTOR GENERAL

September 29, 2011

MEMORANDUM TO: R. William Borchardt

Executive Director for Operations

FROM: Stephen D. Dingbaum /RA/

Assistant Inspector General for Audits

SUBJECT: MEMORANDUM REPORT: AUDIT OF NRC’S INTERNAL 

CONTROL OVER HEADQUARTERS FITNESS CENTER 

MEMBERSHIP FEES (OIG-11-A-20)

OVERVIEW

At the request of the Office of Human Resources (HR), the Office of the Inspector 

General (OIG) conducted an audit of the effectiveness of the Nuclear Regulatory 

Commission’s (NRC) internal control over fitness center membership fees at 

headquarters. OIG determined that effective internal controls are in place over fitness 

center membership fees. Specifically, the agency recently implemented appropriate 

actions to resolve self-indentified areas of concern. The agency’s actions facilitate the 

handling of fitness center membership fees in an efficient and effective manner. 

While effective internal controls over fitness center membership fees are in place, this 

report conveys three observations that, if implemented, could further enhance 

administrative functions concerning the fitness center contract and membership fees.
Audit of NRC’s Internal Control Over Headquarters Fitness Center Membership Fees

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BACKGROUND

NRC offers a physical fitness program as part of its wellness services program for 

agency employees. The fitness program was established to provide employees a 

fitness strategy to enhance job performance, decrease absenteeism, and prepare 

employees to meet the physical requirements of specified positions. This audit focused

on the headquarters onsite fitness center (fitness center), which currently has 

approximately 700 members.

Fitness Center Contract

The agency’s current fitness center contract is with Aquila Fitness Consulting Systems, 

LTD. (contractor), to provide a comprehensive, integrated fitness program for NRC 

employees. The contractor provides services and personnel necessary to operate the 

fitness center in the NRC headquarters complex in the Two White Flint North building.

Although this audit focused on headquarters fitness center membership fees, the 

contract with Aquila has provisions for fitness center membership for NRC employees at 

the regional offices, Technical Training Center, and remote sites. 

NRC Headquarters Fitness Center

Source: OIG
Audit of NRC’s Internal Control Over Headquarters Fitness Center Membership Fees

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The current contract, effective June 1, 2010, contains a base year and four 1-year 

option periods. NRC exercised the first option period from June 1, 2011, through 

May 31, 2012, in the amount of approximately $331,000. The remaining option periods 

cover the timeframe from June 1, 2012, through May 31, 2015. The potential contract 

value, including the base year and four option periods, is approximately $1.7 million.

Program Administration and Funding

The Office of Human Resources (1) administers and manages NRC's fitness services 

program, (2) manages the contract for these services, and (3) provides oversight of the 

headquarters fitness center. These responsibilities have been primarily assigned to an 

HR project officer. That office has approximately 0.4 full-time equivalents dedicated to 

administering the fitness center contract. 

The fitness center is funded, in part, by membership fees deducted from members' pay. 

The contractor receives and accounts for membership fees, credits collections against

the total contract price for the current year, and bills the agency monthly, reflecting the 

difference between the total contract price for the year and the fees generated from 

memberships. 

Agency Concerns

During June 2011, NRC staff informed OIG of three self-identified concerns involving 

fitness center membership fees and discussed the agency’s actions to resolve them. 

Specifically:

Concern Number 1. The HR project officer was responsible for transferring employee 

payroll deductions, and cash and checks collected by the contractor from an interest 

bearing account with the Energy Federal Credit Union (EFCU) to the contractor’s bank 

account. The project officer and alternate were the only agency employees with 

authority to access the EFCU account. This raised concerns over segregation of duties 

and possible tax consequences. 

Agency Resolution. The agency determined that the HR project officer and the 

contractor were unnecessary third parties to this process. Through a contract 

modification, the agency changed the payment process so that NRC’s payment agent, 

the Department of Interior National Business Center, processes the payroll deductions 

and deposits the membership fees directly into a bank account held by the contractor, 

instead of depositing these membership fees into the EFCU account. As a control, the 
Audit of NRC’s Internal Control Over Headquarters Fitness Center Membership Fees

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National Business Center transmits biweekly reports to the HR project officer, who 

reconciles this information with the contractor’s monthly invoices.

Concern Number 2. The fitness center contract provided NRC employees the option 

to pay membership fees through biweekly payroll deductions or by cash or check 

annually, semiannually, or quarterly. As noted above, cash and checks were collected 

by the contractor and deposited in the EFCU account for transfer to the contractor by 

the HR project officer. 

Agency Resolution. The agency determined that the handling of cash and checks by 

contractor employees was not a good business practice and there were no checks and 

balances over this process. Additionally, it was an administrative burden for both the 

contractor and the HR project officer to ensure that funds were properly controlled and 

transferred. Through a contract modification, options to pay membership fees by cash 

or check were eliminated.1 Now, payroll deduction is the only payment method allowed. 

Fitness center marketing materials and information on the agency’s internal and 

external Web site were revised to reflect this contract change.

Concern Number 3. In general, employees paid a $25 initiation fee – by cash or 

check – to join the fitness center. 

Agency Resolution. The agency determined that the contract does not provide for 

employees to pay a $25 initiation fee. The agency instructed the contractor to eliminate 

this fee. The agency’s Web site marketing materials were also revised to reflect this 

change.

OBJECTIVE

The audit objective was to evaluate the effectiveness of NRC’s internal control over 

fitness center membership fees at headquarters. 

RESULTS 

OIG determined that effective internal controls are in place over fitness center 

membership fees. However, this report conveys three observations that, if 

 

1

This contract modification did not change the membership fee amount paid by agency employees.
Audit of NRC’s Internal Control Over Headquarters Fitness Center Membership Fees

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implemented, could further enhance administrative functions concerning the fitness 

center contract and membership fees.

Observations for Agency Consideration

1. Update NRC Management Directive and Handbook (MD) 10.122, Employee 

Assistance and Wellness Services Program. MD 10.122 states, “The medical 

director is the contractor’s representative responsible for the coordination, 

performance, and oversight of all aspects of the agencywide wellness program, 

including fitness” (emphasis added). The outdated MD 10.122 provision is the 

result of language in a prior NRC contract which encompassed all NRC health 

and wellness services. 

2. Develop written desk procedures for fitness center program management. 

Currently, the HR project officer performs tasks related to the management of the 

fitness center contract such as reconciling monthly contractor invoices with 

reports produced by the National Business Center to ensure that the agency is 

billed correctly. However, HR has not developed desk procedures to document 

the project officer’s routine activities. 

3. Distribute remaining EFCU funds. HR and the fitness center contractor 

maintained a joint bank account used to (1) deposit cash and checks collected by

the contractor, (2) collect direct deposits from employee payroll deductions, and 

(3) make transfers to pay the contractor. Because of the changes in fitness 

center business processes implemented by the agency, this account, which has 

a balance in excess of $10,000, is no longer needed. HR froze the account upon 

identifying the above-listed concerns. Now that the concerns have been 

resolved, HR should distribute these funds as appropriate, and close the 

account.

AGENCY COMMENTS

OIG held an exit conference with the agency on September 26, 2011. Prior to this 

meeting, the agency provided editorial comments which OIG incorporated as 

appropriate. With respect to the funds remaining in the EFCU account, on September 

28, 2011, the agency stated that they transferred the funds to the fitness center 

contractor and closed the account. 
Audit of NRC’s Internal Control Over Headquarters Fitness Center Membership Fees

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Agency management stated their agreement with the report and observations, and 

opted not to provide formal comments.

SCOPE AND METHODOLOGY

Scope

This audit was conducted at NRC headquarters from June 2011 through August 2011. 

The audit focused primarily on reviewing agency concerns and improvement actions 

surrounding internal controls over membership fees. In addition, agency and bank 

records associated with the fitness center were analyzed for the period June 2010 

through June 2011. 

 

Methodology

OIG reviewed Federal Government guidance applicable to the audit objective, including:

Title 5 United States Code, Sections 7901, Health Service Programs, and 5946, 

Membership Fees; Expenses of Attendance at Meetings; Limitations.

Federal Acquisition Regulation.

Two Comptroller General Decisions related to fitness center billings and use of 

appropriated funds for fitness centers. 

MD 10.122, Employee Assistance and Wellness Services Program. 

Also, as it related to the audit objective, OIG reviewed: 

The agency’s Collective Bargaining Agreement with the National Treasury 

Employees Union. 

The NRC fitness center contract and amendments, fitness center marketing 

materials. 

EFCU bank records. 

The NRC internal and external Web sites related to NRC’s fitness center. 

OIG interviewed HR, Office of Administration, Office of the General Counsel, and 

contractor officials to obtain their insights into the internal control over headquarters 

fitness center membership fees and contracting practices. 

We conducted this performance audit in accordance with generally accepted 

Government auditing standards. Those standards require that the audit is planned and 
Audit of NRC’s Internal Control Over Headquarters Fitness Center Membership Fees

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performed with the objective of obtaining sufficient, appropriate evidence to provide a 

reasonable basis for any findings and conclusions based on the stated audit objective. 

OIG believes that the evidence obtained provides a reasonable basis for the report 

conclusions based on the audit objective. Internal controls related to the audit objective 

were reviewed and analyzed. Throughout the audit, auditors were aware of the 

possibility or existence of fraud, waste, or misuse in the program.

The audit work was conducted by Kathleen Stetson, Team Leader; Eric Rivera, Audit 

Manager; Michael Steinberg, Senior Auditor; and Gail Butler, Analyst.
Electronic Distribution

Edwin M. Hackett, Executive Director, Advisory Committee 

 on Reactor Safeguards

E. Roy Hawkens, Chief Administrative Judge, Atomic Safety 

 and Licensing Board Panel

Stephen G. Burns, General Counsel

Brooke D. Poole, Director, Office of Commission Appellate Adjudication

James E. Dyer, Chief Financial Officer

Margaret M. Doane, Director, Office of International Programs

Rebecca L. Schmidt, Director, Office of Congressional Affairs

Eliot B. Brenner, Director, Office of Public Affairs

Annette Vietti-Cook, Secretary of the Commission

R. William Borchardt, Executive Director for Operations

Michael F. Weber, Deputy Executive Director for Materials, Waste,

 Research, State, Tribal, and Compliance Programs, OEDO

Darren B. Ash, Deputy Executive Director 

 for Corporate Management, OEDO

Martin J. Virgilio, Deputy Executive Director for Reactor

 and Preparedness Programs, OEDO

Nader Mamish, Assistant for Operations, OEDO

Kathryn O. Greene, Director, Office of Administration

Patrick D. Howard, Director, Computer Security Office

Roy P. Zimmerman, Director, Office of Enforcement

Cynthia Carpenter, Acting Director, Office of Federal and State Materials

 and Environmental Management Programs

Cheryl L. McCrary, Director, Office of Investigations

Thomas M. Boyce, Director, Office of Information Services

Miriam L. Cohen, Director, Office of Human Resources

Michael R. Johnson, Director, Office of New Reactors

Catherine Haney, Director, Office of Nuclear Material Safety

 and Safeguards

Eric J. Leeds, Director, Office of Nuclear Reactor Regulation

Brian W. Sheron, Director, Office of Nuclear Regulatory Research

Corenthis B. Kelley, Director, Office of Small Business and Civil Rights

James T. Wiggins, Director, Office of Nuclear Security

 and Incident Response

William M. Dean, Regional Administrator, Region I

Victor M. McCree, Regional Administrator, Region II

Mark A. Satorius, Regional Administrator, Region III

Elmo E. Collins, Jr., Regional Administrator, Region IV