UNITED STATES

NUCLEAR REGULATORY COMMISSION

WASHINGTON, D.C. 20555-0001

OFFICE OF THE

INSPECTOR GENERAL

September 15, 2014

MEMORANDUM TO: Mark A. Satorius

Executive Director for Operations 

Maureen E. Wylie

Chief Financial Officer

FROM: Stephen D. Dingbaum /RA/

Assistant Inspector General for Audits 

SUBJECT: AUDIT OF NRC’S SEQUESTRATION PROCESS 

(OIG-14-A-20)

The Office of the Inspector General (OIG) conducted an audit of the Nuclear Regulatory 

Commission’s (NRC) sequestration process. During this audit, agency managers

responsible for implementing sequestration conveyed an unclear and inconsistent 

understanding of the basis for identifying $52 million in sequestration reductions made 

during the fiscal year (FY) 2013 sequestration process. This occurred because NRC 

did not have agencywide guidance that established a consistent method for 

implementing sequestration reductions. Lack of agencywide guidance makes it difficult 

for managers to implement future sequestration reductions in an efficient manner. This 

report provides a recommendation to improve the agency’s sequestration process. 

Please provide information on actions taken or planned within 30 days of this report. 

Actions taken or planned are subject to OIG followup as stated in Management 

Directive 6.1.
Audit of NRC’s Sequestration Process

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BACKGROUND

Sequestration is the cancellation of budgetary resources provided by discretionary 

appropriations or direct spending law. Sequestration has been used as a means to 

control the budget of the United States since enactment of the Balanced Budget

Emergency Deficit Control Act of 1985. Following the enactment of the Balanced 

Budget Emergency Deficit Control Act, several sequestrations followed in the 1980s and 

1990s. In August 2011, the Budget Control Act of 2011 specified cuts to eventually be 

taken each year from 2013 to 2021.

1 The American Taxpayer Relief Act of 2012, which 

was enacted on January 2, 2013, specified the start of the sequestration mandate 

during FY 2013, unless Congress agreed to spending cuts to reduce the deficit to 

prevent the application of the sequestration mandate. Congress made no such 

agreement. As a result, the President signed the order to sequester approximately

$85 billion of the FY 2013 budget for the Federal Government. Of this total 

sequestration amount, NRC’s portion was eventually determined to be $52 million. 

Offices Involved in the Sequestration Mandate at NRC

To meet the required sequestration mandate, a variety of offices were involved in the 

decisions surrounding which areas to cut. In October 2012, the Office of the Executive 

Director for Operations (OEDO) and the Office of the Chief Financial Officer (OCFO)

determined the dollar amounts to be cut from the agency business lines.

2 On 

December 27, 2012, the Commission approved a proposed plan and related funding

adjustments of $86 million.3

 OEDO and OCFO then communicated the dollar amount of 

the cuts to the agency, which included deputy executive directors and business line 

managers. In turn, these managers rolled the dollar figures down to the agency staff in 

the respective program offices, which were tasked with identifying specific cuts and then 

reporting the proposed cuts back up to agency executives. 

 1 According to NRC staff, the Bipartisan Budget Act of 2013, Pub. L. No. 113-67 (2013) suspended 

sequestration in fiscal years 2014 and 2015.

2 A business line is a component part of the agency under the direction of a “responsible lead office” (e.g., 

Office of New Reactors (NRO)). Examples of a business line include high level waste, new reactors, and 

financial management. Business lines often include supporting offices (e.g., Office of Nuclear Regulatory 

Research does not lead a business line, but has a supporting role for several business lines). Business 

line managers are the lead staff for establishing internal control processes to reasonably ensure that the 

agency’s internal control complies with Federal and NRC requirements.

3 This estimated calculation, which was later reduced to $52 million, was based on the Budget Control Act 

of 2011.
Audit of NRC’s Sequestration Process

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Program offices with business line managers then met with their supporting offices to

submit proposed changes to their individual budgets to meet the agency sequestration 

goal. OCFO and OEDO coordinated the effort from the business line managers and 

supporting offices for the submission of a comprehensive sequestration contingency 

plan. On February 5, 2013, the Commission approved NRC’s sequestration plan and 

related funding adjustments of $52 million.

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OBJECTIVE

The audit objective was to evaluate NRC’s sequestration process.

FINDING

NRC made $52 million in sequestration reductions; however, agency managers

responsible for implementing sequestration conveyed an unclear and inconsistent 

understanding of the basis for identifying reductions under the FY 2013 sequestration 

process. This occurred because NRC did not have agencywide guidance that 

established a consistent method for implementing sequestration reductions. Lack of 

agencywide guidance makes it difficult for managers to implement future sequestration 

reductions in an efficient manner.

Agency Processes Should Be Understood 

NRC’s sequestration process should be understood by managers and staff participating 

in the process. To ensure that the sequestration process is understood, senior agency 

executives must communicate the process to agency managers. The Government 

Accountability Office’s (GAO) Standards for Internal Control in the Federal Government

specifically states that effective communications should occur in a broad sense with 

information flowing down, across, and up the organization. 

 4 NRC management officials indicated that the agency’s Office of Management and Budget Resource 

Management Officer notified NRC on January 29, 2013, of the agency’s actual sequestration reduction of 

$52 million, and that OEDO and OCFO, under severe time constraints, made the final reductions largely 

without involving the offices based on the reductions that the Commission previously approved by SRM 

COMSECY-12-0029, Nuclear Regulatory Commission Sequestration Planning and Funding Information.
Audit of NRC’s Sequestration Process

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Agency Managers’ Understanding of Sequestration Process Is Limited

Agency managers responsible for implementing sequestration conveyed an unclear and 

inconsistent understanding of the basis for sequestration reductions. Managers from 7 

of 13 NRC offices stated that they were unaware of any documented sequestration 

process. For example, the Office of Nuclear Reactor Regulation, the Office of 

International Programs, and NRO managers did not have a clear understanding of the 

process for identifying reductions within their respective organizations once they 

received the dollar figure from business line managers. In one case, a manager 

characterized sequestration planning as follows:

• The OEDO/OCFO process for identifying cuts is unknown.

• There is no clarity as to what the agency's process is.

• High level decisions lack clarity.

Staff from 9 of 13 NRC offices described different methods of identifying reductions to 

accommodate the dollar figures provided by OCFO and OEDO. Managers from the 

Office of Administration, Office of Nuclear Material Safety and Safeguards, and OCFO 

pointed to budget formulation (NRC FY 2013 Budget Instructions, March 2011) and 

other generic budget guidance (referred to as the office-level “1-to-N” process) that do 

not specifically identify a consistent method for implementing sequestration reductions.

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Lack of Sequestration Guidance 

NRC does not have agencywide guidance that establishes a consistent method to use 

for sequestration. During this audit, offices pointed to various management directives 

and OEDO guidance documents on prioritizing sequestration reductions. 

Management Directives (MD)

• MD 4.2, Administrative Control of Funds, which requires that staff should 

consider common prioritization when determining resource reallocation.

 5 On August 17, 2011, the Director, Office of Management and Budget, issued memorandum M-II-30 

Fiscal Year 2013 Budget Guidance to the heads of departments and agencies that required agencies to 

submit proposed 5-percent and 10-percent reductions in discretionary appropriations for FY 2013. The 

NRC’s FY 2013 budget submission is consistent with M-II-30 requirements. However, these documents 

do not specifically identify a consistent method for implementing sequestration reductions.
Audit of NRC’s Sequestration Process

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• MD 4.5, Contingency Plan for Periods of Lapsed Appropriations, which includes 

some guidelines on what to do in the event of budget reductions.

• MD 9.20 Organization and Functions, Office of the Chief Financial Officer, which 

contains information on managing NRC's planning, budgeting, and performance 

management process to meet the intent and requirements of the Government 

Performance and Results Act.

However, MD 4.2, MD 4.5, and MD 9.20 do not contain a prioritization process for 

identifying sequestration reductions.

OEDO Guidance

OEDO has office-level prioritization process guidance, but it is not integrated into MDs 

or higher level agencywide guidance. On November 19, 2012, the OEDO Assistant for 

Operations issued OEDO Procedure – 601, Strategic Add/Shed/Defer Process, 

effective December 1, 2012, to office directors and regional administrators. This

procedure establishes a consistent approach to the add/shed/defer process including 

implementation, communication, and documentation of decisions. The procedure, 

however, was not cited by business line and program office managers, who instead 

indicated that sequestration reductions were made using NRC’s budget formulation 

guidance. In addition, management did not provide any additional agencywide

guidance regarding how expenses/activities should be prioritized under sequestration. 

Guidance Would Improve Future Program Operations

The sequestration mandate that began in FY 2013 is scheduled to last approximately 9

years. Improved agencywide guidance that specifically addresses sequestration 

reductions would help the agency in making the reductions in a more efficient manner. 

The ability of the agency to prioritize different offices’ activities and projects to make the 

necessary cuts will become increasingly difficult without an agencywide process for 

prioritizing work under sequestration.
Audit of NRC’s Sequestration Process

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Recommendation

OIG recommends that the Executive Director for Operations and the Chief Financial 

Officer

1. Collaboratively establish agencywide guidance for future sequestration planning 

activities and reductions. 

AGENCY COMMENTS

During an exit conference on August 28, 2014, OIG and the agency discussed the 

content of the report and informal comments that the agency provided on August 27, 

2014. Agency staff generally agreed with the report finding and recommendation and 

provided suggestions on the draft report. As appropriate, OIG incorporated into the 

draft report the informal comments, issues discussed during the exit conference, and 

the suggestions that the agency provided subsequent to the exit conference. Based on 

a review of the content contained in the revised draft report, the agency opted not to 

provide formal comments for inclusion in this final report.

SCOPE AND METHODOLOGY

This audit focused on evaluating NRC’s sequestration process. OIG revised this 

objective to align with the current characterization of the sequestration process. We 

conducted this performance audit at NRC headquarters in Rockville, MD, and regional 

offices via telephone and email from November 2013 through July 2014. Internal 

controls related to the audit objective were reviewed and analyzed. Throughout the 

audit, auditors were aware of the possibility of fraud, waste, or abuse in the program.

To address the audit objective, OIG auditors reviewed relevant Federal documents, 

including the Budget Control Act of 2011 and GAO’s audit report, 2013 Sequestration: 

Agencies Reduced Some Services and Investments, While Taking Certain Actions to 

Mitigate Effects, GAO-14-244, dated March 2014. The audit team also reviewed Office 

of Management and Budget issued memoranda, NRC management directives, as well 

as instruction documents, such as the agency’s FY 2013 through FY 2015 budget 

instructions, and office procedures. Several related internal communication documents 

pertaining to the FY 2013 sequestration were also reviewed. The audit team requested 

contract data from NRC program offices for contracts that they identified as potentially 

affected by sequestration. Additionally, OIG auditors conducted numerous interviews 
Audit of NRC’s Sequestration Process

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with NRC staff to obtain further information and insights on the processes used when 

planning for sequestration. 

We conducted this performance audit 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 objective. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions based on our 

audit objective.

The audit work was conducted by R.K. Wild, Team Leader; Kevin Nietmann, Senior 

Technical Advisor; Vicki Foster, Audit Manager; Jacki Storch, Audit Manager; Timothy 

Wilson, Senior Management Analyst; Avinash Jaigobind, Senior Auditor; Tincy Thomas, 

Senior Auditor; Roxana Hartsock, Auditor; and Meredith Johnson, Student Analyst.