FY 2005 Audit and Inspection Reports

Widows Creek Fossil Plant (WCF) Coal Receipts Analysis

Inspection No. 2005-521I

September 30, 2005

We compared invoiced vendor/terminal weights to TVA delivered weights for both WCF rail and barge coal deliveries. We found (1) significant variances between vendor/terminal invoiced weights and TVA delivered weights, (2) weights were not recorded for many coal shipments, and (3) delivery weight documentation requirements or retention policy did not exist. Management agreed with our findings and plans to initiate corrective actions. OIG Investigations is reviewing selected trend variances to determine if any warrant further inquiry. (Summary Only)
 

Backup Controls for TVA's Data Centers

Inspections No. 2005-527I and -528I

September 29, 2005

We reviewed controls pertaining to program and data backup storage and retrieval for TVA's data centers and the physical controls of an offsite storage facility to determine if controls surrounding the backup storage and retrieval process were adequate to ensure ongoing system operations, and if physical and environmental controls were sufficient to protect the off-site facilities from unauthorized access and environmental hazards. We determined that both the (1) storage and retrieval process controls and (2) environmental controls need improvement. Management agreed with our findings and plans to initiate corrective action. (Summary Only)
 

Contract for Modification and Maintenance Services

Audit No. 2005-013C

September 27, 2005

We reviewed $615.5 million TVA paid a contractor from 1999 through 2004 for providing modification and supplemental maintenance services for TVA’s fossil plants. We questioned $833,655, including (1) payroll taxes and G&A costs where recovery rates for these costs had been applied to non-salary costs, (2) additional G&A costs where craft employees had been classified as nonmanual craft supervisors, and (3) temporary living allowance payments for employees who may not have been eligible to receive the payments because they did not have adequate certifications and documentary evidence of permanent residences. TVA is (1) planning to recover any overbilled costs and (2) assessing our finding regarding the contractor’s classification of craft employees as nonmanual craft supervisors. (Summary Only)
 

Physical and Environmental Controls for TVA's Data Centers

Inspection Nos. 2005-518I and -520I

August 31 and September 26, 2005

We reviewed the physical and environmental controls at two of TVA's data centers to determine the adequacy of (1) physical controls to ensure only authorized access to system resources and (2) environmental controls to appropriately protect computing assets from hazards. We determined both data centers' physical access controls and one data center's environmental controls need improvement. TVA management agreed with the findings and initiated or plans to initiate corrective actions needed to implement our recommendations. (Summary Only)
 

Federal Information Security Management Act (FISMA) Evaluation

Audit No. 2005-058T

September 15, 2005

We reviewed TVA's progress in complying with federal security requirements. We found that TVA's security program structure is adequate to meet federal requirements, and TVA is making substantial progress in correcting significant security deficiencies. (Summary Only)
 

Subcontract for Construction Services

Audit No. 2005-026C

September 12, 2005

We determined TVA was overbilled $56,023 (out of $5.3 million that had been billed) for services performed at BFN Unit 1 by a subcontractor. The overbilling occurred because the subcontractor used a craft labor classification that was not provided for by its subcontract. We also determined the subcontractor had not adjusted its workers compensation insurance costs to actual for the premium years ended July 1, 2003, and July 1, 2004, although its subcontract agreement required it. TVA is assessing our recommendations. (Summary Only)
 

Audit of PwC's Review of TVA's FY 2005 Third Quarter Financial Information

Audit No. 2005-056F

August 22, 2005

We found no instance where TVA's external auditor's reviews of TVA interim financial information for the third quarter of FY 2005 did not comply with Government Auditing Standards in all material respects, including required communications to appropriate parties. (Report)
 

Work Management Process

Inspection No. 2005-515I

August 15, 2005

We assessed the extent COO organizations were complying with the work management requirements outlined in COO SPP 7.0, COO Work Management. The work management process includes the "establishment of Program elements required to manage work in a safe, reliable, environmentally conscious, and efficient manner." In general, organizations were complying with the requirement to complete a work package. However, (1) most work package documentation was not retained, (2) inconsistencies exist in the development and use of work packages, and (3) multiple computer applications contribute to inconsistencies. The COO agreed with our findings and plans to initiate corrective actions. (Summary Only)
 

TVA’s Ethics Requirements/Practices and Industry Best Practices

Inspection No. 2005-523I

August 15, 2005

We reviewed TVA's ethics practices and identified industry best practices which TVA could implement including (1) an ethics committee to oversee the ethics initiative, (2) a communication strategy that ensures all employees have ethics information, (3) requiring all employees to complete ethics training, (4) assessing and rewarding ethical conduct, (5) assessing the extent to which employees accept organizational values and policies, and (6) communicating to all employees that ethics standards are a high priority with top management. We provided this information to the President and Chief Operating Officer for his consideration. (Report)
 

Contract for Administration of Dental Benefits

Audit No. 2005-006C-01

July 29, 2005

We audited $33.6 million of costs billed to TVA by a contractor for the administration of TVA’s dental benefit program. We questioned $381,392, including (1) unsupported and duplicate claims, (2) claims paid for ineligible individuals, (3) claim payments that exceeded plan limits, and (4) ineligible orthodontic benefits. TVA is negotiating resolution of the overbillings with the contractor. (Summary Only)
 

Subcontract for Construction Services

Audit No. 2005-019C

July 25, 2005

We determined TVA had been overbilled $103,007 (out of $10.9 million that had been billed) for services performed at BFN Unit 1 by a subcontractor. The overbilling included (1) unsupported labor hours, (2) ineligible fees that had been applied to travel and relocation costs, and (3) ineligible jury duty hours. TVA is assessing our recommendations. (Summary Only)
 

energy right ® Program Payments

Audit No. 2005-003F

July 19, 2005

We determined market value payments (MVPs) to distributors for installed water heaters and heat pumps were generally applied correctly and total invoice amounts were generally accurate, including adjustments to applicable invoices. However, (1) the energy right ® Information System (erIS) does not provide the means to document and track adjustments, (2) some MVPs were paid without complete and/or accurate erIS information, (3) no verification occurred to ensure MVPs were made to distributors as approved by CS&M district specialists, and (4) distributors' noncompliance with certain energy right ® Program process/documentation requirements increased TVA's financial risks. Management agreed with the findings and is taking corrective actions. (Report)
 

Contract for Welding Services

Audit Nos. 2005-004C-01 and -02

June 21 & July 7, 2005

We determined a contractor overbilled TVA $563,773 (out of $6.2 million that had been billed) for providing welding services for various nuclear projects. The overbilling included (1) labor costs due to the contractor’s use of incorrect labor rates, misclassifications of personnel, and unsupported labor hours; (2) ineligible or unsupported mobilization, travel, and per diem costs; (3) direct billed overhead labor; and (4) duplicate costs. TVA agreed with most of our findings and is working with the contractor to resolve the overbillings. (Summary Only)
 

Agreed-Upon Procedures for Green Pricing Accreditation Program

Audit No. 2005-040F

June 30, 2005

We completed agreed-upon procedures to assist the Center for Resource Solutions (CRS) in determining TVA’s compliance with the annual reporting requirements of CRS’ Green Pricing Accreditation Program for the year ended December 31, 2004. The required information on TVA’s renewable energy initiative, “Green Power Switch,” was provided to CRS. (Summary Only)
 

Contract for Uranium Hexafluoride and Enrichment Services

Audit No. 2005-016C

June 29, 2005

We reviewed $148.9 million billed to TVA by a contractor for providing uranium hexafluoride and enrichment services. We determined (1) TVA would need to revise the contract if it intended to pay the contractors actual market price for enrichment services and (2) the contractor could not comply with a contract requirement for determining a final price for enrichment services within 30 days after the end of TVA’s fiscal year. TVA subsequently decided a contract revision would not be needed to ensure payment of the contractor’s actual market price for enrichment services. However, TVA executed an amendment to the contract that outlines the billing process, including the timing of interim and final billings. (Summary Only)
 

Controls Over TVA’s Inventory Write-off

Audit No. 2005-015F

June 27, 2005

We determined controls related to the identification and reduction of inventory and financial reporting could be improved. Specifically, we determined (1) policy and procedure documentation were not complete, (2) business unit reviews for surplus/obsolete inventory were not effective, (3)  signatory authorization of approval by the business units for inventory write-offs was not obtained, (4) inventory purchases were made for items held as surplus, and (5) inventory reserve calculations were incorrect, however, corrections were made for quarterly reporting accuracy). (Report)
 

Controls Over Managing Site Material

Audit No. 2005-028F-01

June 15, 2005

We determined (1) current inventory cycle count controls may not ensure inventory on-hand is accurately counted and entered into PassPort; (2) in some warehouses, access to plant inventories is not restricted to Material Management Services (MMS) personnel or MMS-escorted personnel during non-standard work hours as required by policy; and (3) TVA’s Risk Control Tracking System could be updated to more accurately reflect key financial controls of the manage site materials process. TVA management agreed with our findings and is implementing planned actions. (Report)
 

Wireless Credits

Audit No. 2005-008F

June 14, 2005

We determined a wireless carrier issued credits to TVA employees due to an internal system error. The credits pertained to inactive accounts and therefore had no impact on TVA’s master account. The carrier was unable to validate (1) who the checks were issued to, (2) how many checks were issued, and (3) the total amount of the credits. (Summary Only)
 

Controls Over Depreciation Expense and Accumulated Depreciation

Audit No. 2005-023F

June 13, 2005

We determined TVA’s depreciation policy and procedures do not accurately reflect (1) control activities described in TVA’s Risk Control Tracking System and (2) current management practice. TVA management is assessing our recommendations. (Report)
 

Contract for Construction Services

Audit Nos. 2004-012C-02 & 2005-042C

April 25 & June 9, 2005

We reviewed $104.4 million in costs paid by TVA to a contractor for providing construction services for the restart of BFN Unit 1. We found the contractor overbilled TVA $1.5 million due to (1) the use of a craft labor category, incentive fee, and safety awards not provided for by the contract, (2) wrong indirect cost markups and unsupported labor costs, and (3) other miscellaneous overbillings. Additionally, we estimated TVA would save $995,000 by disallowing the use of an unauthorized labor classification. TVA subsequently decided to disallow $1,087,914 of the questioned costs and to discontinue use of the labor classification. (Summary Only)
 

Controls Over Receiving and Inspecting Inventory

Audit No. 2005-032F-01

June 1, 2005

We determined TVA’s inventory receiving and inspecting (R&I) process controls were designed to prevent or detect material misstatements in significant accounts and the related inventory disclosures on a timely basis. However, TVA’s Risk Control Tracking System could be updated to more accurately reflect key financial controls of the R&I process. TVA management agreed with our findings and has completed final action. (Report)
 

Vendors with Same Bank Accounts

Inspection No. 2005-514I

May 31, 2005

We found no evidence of fraud in connection with different vendors sharing the same bank account. Most vendors were related and there was no evidence that non-related vendors bid on contracts under different names, double billed TVA, or appeared to be shell companies. We noted, however, that some vendor records in Passport appeared to be inactive, and we suggested Procurement periodically purge inactive vendor records. (Report)
 

Travel Expense Reimbursement

Inspection No. 2005-512I

May 31, 2005

At the Chief Financial Officer organization's request, we assessed the cost effectiveness of the actual travel expense reimbursement program and the Chief Operating Officer (COO) flat rate reimbursement program. We determined that the COO flat rate method of travel expense reimbursement cost about $115,000 more than the actual expense reimbursement method during a 3-month period that we reviewed. We also identified control weaknesses, including a lack of system edits to prevent flat rate reimbursements which exceeded the allowable rate, and numerous instances where employees were reimbursed for direct billed hotel expenses under both methods of travel reimbursement. TVA management is considering appropriate corrective actions. (Report)
 

Audit of PwC's Review of TVA's FY 2005 Second Quarter Financial Information

Audit No. 2005-037F

May 27, 2005

We found no instance where TVA's external auditors' reviews of TVA interim financial information for the second quarter of FY 2005 did not comply with Government Auditing Standards in all material respects, including required communications to appropriate parties. (Report)
 

Contract for Engineering Services

Audit No. 2004-003C-02

April 25, 2005

We reviewed $109.8 million in costs paid by TVA to a contractor for providing engineering services associated with the restart of Browns Ferry Nuclear Plant (BFN) Unit 1. We questioned $2.5 million, including (1) the contractor's inclusion of the labor costs of its affiliate company in its performance base and (2) overcharges for labor and related costs and other direct costs. TVA decided to (1) allow the contractor to include the labor cost of its affiliate in its performance fee base and (2) recover any remaining costs that were not directly billable under the contract. (Summary Only)
 

TVA’s Corporate Contribution Program

Audit No. 2004-058F

April 11, 2005

We determined TVA’s contributions totaled $1.261 million and $1.646 million for FYs 2003 and 2004, respectively. TVA’s Corporate Contributions organization administered about 51 percent of the contributions in FY 2003 and 36 percent in FY 2004; other TVA organizations administered the remaining contributions. In reviewing a sample of contribution transactions, we noted (1) the Contributions Committee did not review numerous transactions as required by policy and (2) several transactions, including $160,580 in purchasing card payments that appeared to be contributions, were charged to incorrect cost classifications. Also, TVA’s Contribution Tracking System is not reconciled and may not reflect all TVA contributions. Management agreed with the findings and has taken or plans to take appropriate corrective actions. (Report)